Skip to main content

Chapter 6: Home Loans and Mortgages

 For most people their first mortgage will be on their first house. Home mortgages are usually written for between 15 and 30 years. They will have a variable or locked in interest rate.  Here are the different types of Home Mortgages:

  • Conventional loan – Best for borrowers with a good credit score

  • Jumbo loan – Best for borrowers with excellent credit looking to buy an expensive home

  • Government-insured loan –  for borrowers who have lower credit scores and minimal cash for a down payment.

  • Fixed-rate mortgage – Best long term loan.

  • Adjustable-rate mortgage – I would never recommend an adjustable rate loan for a long term home loan.  If interest rates go up your house payment will go up.  Many adjustable rate loans went up significantly in the 2009 housing crunch.  This caused several borrowers to lose their houses.


Why are Home Mortgages Important?


Mortgage Insurance

Mortgage insurance is a type of insurance that protects the lender in case the borrower defaults on their loan. This type of insurance is typically required for borrowers who make a down payment of less than 20% of the purchase price of the home.


There are two main types of mortgage insurance: private mortgage insurance (PMI) and government-backed mortgage insurance (GPMI). 


PMI is typically required for conventional loans, while GPMI is typically required for government-backed loans such as FHA loans and USDA loans.

PMI premiums are typically paid monthly and are calculated as a percentage of the loan amount. The amount of the PMI premium will vary depending on the lender, the loan amount, and the borrower's credit score.


Avoiding Mortgage Insurance

There are a few ways to avoid paying PMI. One way is to make a down payment of at least 20% of the purchase price of the home. Another way to avoid paying PMI is to qualify for a government-backed loan that does not require PMI, such as an FHA loan or a USDA loan.


Mortgage Insurance can end up costing you a lot.

$50 to $300 per month depending on your loan will add a lot to the cost of your house.  If you are considering buying a home and you are not able to make a down payment of at least 20%, you should talk to your lender about your options for avoiding PMI.

Paying down a Mortgage

When you pay down most mortgages you cannot easily borrow the money back.  If you pay extra on a mortgage you will still need to make your regular monthly mortgage payment.  For instance if you make three payments on your loan in June, you will still have to make your July payment on time.

What is an Escrow Account????

What is a HELOC?

A HELOC (Home equity line of credit) is a revolving line of credit, which means you can borrow money and repay it as needed. They use the equity In your house as collateral HEOCs usually offer much lower interest rates than most personal loans or credit cards but higher than a long term mortgage.  You can get a HELOC on your house only if you have significantly more equity than you owe on the property. Or you can completely pay off your mortgage with a HELOC. I have had several HELOCs over the last 25 years.  My HELOCs have been for a 15-year term with a 5-year interest rate lock. Different banks will have different terms. My Helocs are setup to require a monthly interest payment.  Some HELOCs can be setup for quarterly or annual interest payments.

The advantage of a HELOC over a regular mortgage is you can pay it down and then borrow the money back without having to take out another mortgage. 

For instance instead of an Escrow  

The main disadvantage to a HELOC that I have experienced is they usually have a one or two percent higher interest rate than a long term mortgage. The interest rate will be locked for a shorter term than most mortgages.  The HELOC interest rate I currently have was guaranteed for 5 years however some are only locked for a year or two.  

Comments

Post a Comment

Popular posts from this blog

Buildiing an 800 Plus Credit Score

A perfect FICO or Vantage 300 Credit Score is an 850.  The lowest score is a 300. An 800 plus credit score is excellent and what most people aspire to.  To earn an 800 plus credit score you must have at least three different credit sources, no missed payments in the last 7 years, Less than a 10% credit utilization, and an average credit history of at least 6 years.       800 Plus Credit Score Requirements The requirements for an 800+ score are rarely stated but here's what I have found: You must have at least three sources of credit. An example  might be  two credit cards and a car loan. Three to five credit cards may get you there. If you add in a Personal line of credit, that will help. You cannot have any missed payments in your credit history in the last 7 years. This is pretty much an absolute. Missed Payments will kill your credit score, especially when you are first starting to build your credit history. You cannot have any Coll...
Post a Comment
Read more

Keeping Your Credit Cards Safe While Traveling

  Traveling with credit cards can be convenient, but it's important to take steps to keep them safe and secure. Here are some tips for safely traveling with credit cards: Notify your bank: Before you travel, let your bank or credit card company know where and when you will be traveling, so they can monitor your account for suspicious activity.   This is especially true if you are traveling overseas.  I was in Malaysia once and neither of the two bank cards I took with me would work.  My buddy had an AMEX that worked so we did not have to clean hotel rooms to get out of Kuala Lumpur. Carry only what you need: Only carry the credit cards you need for your trip and leave the others at home. This will reduce the risk of losing them or having them stolen.   My Note:  If I am leaving town I carry cards from three different banks, Chase, Cap One, and Wells Fargo.   Close to home I always carry two cards from different banks.  Recently I tried to use...
Post a Comment
Read more

Dealing with Lenders and Customer Support

  How to talk to your Credit company First off remember this conversation will probably be noted and recorded on your account.  Next time you call the customer service agent will be able to see the notes of this conversation.  I am always friendly, and nice.  Since I am probably asking for a favor, I ask for help.   If the agent cannot help me I respectfully ask to speak to the supervisor.  If the supervisor cannot grant my request I ask them for suggestions.   Never be a jerk to your Lender This will not be reported to the credit bureau but the will be put on the internal record of your credit card or loan account.  It will state how much of a jerk you were to deal with.  Next time you call the customer service agent will see your previous call notes.  Customer Service agents often deal with angry customers, don't be one of them. Nicely ask them for information and if you want them to help you with something ask nicely for h...
Post a Comment
Read more