Credit Yourself | Financial Planning | Debt Management

>Home>Mortgages

The Mortgage

Shop Carefully for Your Mortgage

What is a Mortgage

Mortgages are loans generally secured by real estate, although any property the lender is willing to accept as collateral

can be used. Because the lender has security, interest rates are substantially lower than those available with most other types of credit.

The mortgage itself, a lien, is registered with the clerk of the county where the property is located.

Why It is Hard to Get a Mortgage Right Now

For various reasons, more fully discussed in The Subprime Mess, interest rates have been kept artifically low foe some time now. However, this did not prevent some borrowers from facing mortgage payments they could not afford, in turn leading to a rise in home foreclosures, people walking away from their homes, a crash in some areas of housing prices, and close to a near collapse of the worldwide banking system.

Bailouts are already under way and politicans are promising more, so this mess might take years to resolve itself.

However, the effect is being felt just about everywhere. Very few people can buy a house without a mortgage. And a mortgage is the biggest and most complex financial transaction most people get involved with.

Not too long ago, just about anybody with a pulse would qualify for a mortgage. Sadly that is no longer the case.

It appears that only those with the best credit scores, can even qualify for a loan. This is also generally true if you are putting down a substantial amount of money, in other words, borrowing a smaller percentage of the value of the house you are buying.

But there is both a lack of liquidity in the financial world and a growing unwillingness on the part of lenders to assume more risk.

For those with less than pristine credit, it is a time to rent until the storm passes.

In order to avoid having to but expensive mortgage insurance, you generally have to put down at least 20% of the purchase price. Mortgage insurance can run into the thousands a year and may be hard to cancel once you have gotten your equity up to 20%.

There are all sorts of mortgages: first, second, home equity lines of credit, VA, FHA, jumbo, ARM,s, fixed rate, etc. You can find a plan tailored to just about any need. Each has its own pros and cons and costs. It can take a lot of study to determine which type is the best for you, before you even start getting into interest rates and other terms.

See Mortgage Terms Explained for more information.

Mortgage Benefits

Mortgage interest is generally tax deductible up to certain limits, which is why converting costly credit card debt to lower interest second mortgages is such a popular pastime. However there are limits.

Interest on up to $1 million in mortgage debt and up to $100,000 of home-equity debt may be deductible (for first and second houses only). Like everything in the IRS code, all is not that simple. If you’re a high earner with big mortgages consult your accountant. There may be limits on your interest deduction.

Cons

Of course, you must keep up with your payments or you can lose you home. You house can generally be foreclosed upon if you don’t make your payments or it can be seized for non-payment of property taxes. Banks generally collect money for the taxes (and property insurance premiums in some cases) along with your mortgage payments, so these things are taken care of and the bank has additional protection.

A mortgage is one of the most costly contracts you will ever enter into. Small differences in terms can cost thousands over the life of the loan. It pays to shop around and to carefully compare deals.

Beware of potential conflicts of interest if you are getting mortgage advice from your realtor or a mortgage broker recommended by the realtor.

Make sure your mortgage broker is putting your interests first.

The only way to know for sure is to consult multiple brokers and bank mortgage departments and, in an environment where rates are fluctuating, to do it on the same day, if possible, so you are making valid comparisons.

A mortgage is one of the ways using other peoples money can lead to a better life and maybe even some profit for you.

Recommended Site

Ethical Foreclosure Solutions
Stop foreclosure and keep your home. We provide you with the ability to stay in your home and maximize the amount of money in your financial statement. Mortgage Delinquency

| Top | Home |