Finance For a Great Retirement!

(Photo credit: Wikipedia)Although there can be no mandatory retirement age and people nowadays are working well into their seventies, the time when one is in one’s fifties is a good time to start planning for retirement. And 65 (or in some places, 67) is, after all, the age at which people become eligible for retirement benefits such as pensions. This article will be primarily about equity release schemes and the best ones there are out there.

The precise definition of an equity release scheme is when somebody uses the value of their residence to get a lump sum of money, thus providing themselves with a steady source of income, while retaining the use and possession of it. When the beneficiary dies—or occasionally, before then—they must repay that amount; and any pre- existing mortgage must also be paid off.

There are five basic types of equity release schemes:

(1) Home income - a form of lifetime mortgage (see number 4) whereby the capital can be used to purchase annuities which the lender himself may provide.

(2) Home reversion - where the homeowner sells his house to a reversion company, in whole or in part, so that the latter owns that much thereof, but the resident still retains the right to live there and (depending on his choice) receives a lump sum and/ or a regular income.

(3) Interest only - the borrower makes interest payments for as long as he remains on the property, with the loan itself being repaid upon the borrower’s death.

(4) Lifetime mortgage - whereby the homeowner takes out a mortgage loan on the property, retaining ownership thereof for as long as he remains living there, repaying the loan and compound interest that is added to it throughout its term by selling the house and moving into a retirement home.

(5) Shared appreciation mortgage – again, the homeowner retains the right to live in the house; he takes out a capital loan and in turn, owes the lender any increase in the value of the property.

Equity release has a number of advantages. The most important, of course, is that it provides the borrower with a steady source of income for the rest of their life. But there are other benefits as well. It can reduce the amount of inheritance tax on the property. Decline in interest rates are no problem, as the mortgage can easily be refinanced with another provider at a lower price. Likewise with downturns in the housing market: Here the borrower is protected by the no negative equity guarantee, which ensures that the total amount of the amount borrowed and the interest accumulated on it cannot exceed the house’s future value when it is sold as outlined in the terms of the scheme.

It is quite easy to take part in an equity release plan. An individual’s eligibility depends largely on the mortgage provider; however, in most cases the minimum age is 55 (but see under reverse mortgage, below) and the person must be retired, since, as mentioned above, the purpose of the scheme is to allow retirement itself to provide a source of income. Those who prefer to release income, or to take out a home reversion loan (described above), generally have to be at least 65. The property must be owned by the applicant and in good condition. It should also be on either long leasehold or freehold.

Most schemes operated under the term “equity release,” including those described below, are available only in the United Kingdom. In the United States, a form of equity release called reverse mortgage is provided to those 62 and over under an HUD-administered federal program.

Some of the best equity release schemes are:

• Equity Release—variable type, no early repayment charges accrued on the loan
• Aviva Lifestyle flexible option—fixed
• Liverpool Victoria flexible lifetime mortgage—fixed

In Stafford, England, Lyndon and June Watts, age 71 and 74 have enjoyed a happy elderly life due to equity release. They used the money to make improvements to their house, which is also worth more now than when they first took out the loan, go for holiday and spend money on their grandchildren.

Author Bio - Jonny Webber lives in Manchester, where he works as a free lance writer creating content about Health, Fitness and Finance. To find out more about Equity release visit www.equityrelease123.co.uk Follow him on twitter by clicking @Jonnywriter

How to Get the Lowest Mortgage Interest Rates

Interest Rates (Photo credit: 401K)This week the average interest rate on a 30 year mortgage dipped below 4 percent. This is only the second time in history this has happened. With these kinds of interest rates your home refinance options just got a lot better

Mortgage lender Freddie Mac said the rate on the 30-year fixed loan has dropped to 3.87 percent. Six weeks ago, it dropped to a low of 3.93 percent, according to the National Bureau of Economic Research. The 15 year fixed rate mortgage fell to 3.04 percent. The National Association of Realtors reported a 3.4 percent increase in sales of existing homes in April and more homes on the market for potential homebuyers to see. The low rates also continue to support your home refinancing options.

What can be done to help you get the lowest mortgage interest rates?

Even though mortgage rates are at such a low interest rate it doesn't mean you will get these rates. It depends on your credit score among other things. You can get the best rate mortgages if you prepare.

1. Make sure you have a great credit history.

Being maxed out on your credit cards is a certain way to bring down your credit score. Paying down your debts will help in raising your score. Before applying for the new mortgage it is best to check your credit report. Occasionally errors can get into them. You have the ability to clean up the errors. You can dispute the errors and if the credit reporting agency can't prove the item, then by law they have 30 days to remove it. After you fix your credit report, be sure to wait a couple months so your score can return to a higher level.

2. Make sure to have cash in the bank.

Whenever you apply for a mortgage the lender always asks what your balances are in your checking, savings, and investing accounts. Having money in these accounts shows the lender that you are responsible; it shows you have the ability to save and hold on to your money. It tells the lender that you are a good risk and will get you a lower interest rate.

3. Be a smart consumer.

Being a smart consumer means shopping around for the best mortgage deal. Start on the Internet to locate the best mortgage companies. There you can compare many loans in a short period of time. Don't be afraid to call these companies on the phone and try to get a better deal. A lower interest rate or more favorable closing costs will save a lot of money.

Don't rush into getting a mortgage. If you do a little shopping around you could save yourself a lot of money. A lower interest rate or fewer points will save you money over the life of the loan, keeping more money in your pocket.

A Different Reason For Refinancing Your Home

Image via WikipediaWith interest rates at historical lows, refinancing is on the minds of many homeowners. Weighing the benefits against the costs is the only way to determine if it makes sense. We all are looking for that lower mortgage payment so we can use the savings for other things, it's the usually the only reason that someone refinances their home. But maybe there is another way to think about it?

When thinking about refinancing, a better way to weigh the decision is to evaluate the "net benefit". Net benefit represents the overall impact on your personal wealth from refinancing your home mortgage. With that in mind, CreditSesame.com has an infographic spotlighting a new way to think about refinancing your mortgage.

The infographic explains net benefit and an example case study of a proposed refinance. In the infographic, the proposed mortgage refinance has the homeowners making a larger payment over a shorter term. Raising your mortgage payment sounds counter productive but for the example, it actually doubled the net benefit and equity of the home for the home owners.

Should I Refinance My Mortgage? Here’s a New Way to Think About It [Credit Sesame]

How To Get the Lowest Interest Rate When You Refinance

Image via WikipediaThis week the average interest rate on a 30 year mortgage dipped below 4 percent. This is only the second time in history that has happened.

Mortgage lender Freddie Mac said the rate on the 30-year fixed loan fell to 3.99 percent. Six weeks ago, it dropped to a low of 3.93 percent, according to the National Bureau of Economic Research. The 15 year fixed rate mortgage fell to 3.30 percent. Low mortgage interest rates should of had some effect on increasing home sales but homes sales are still at a 12 year low.

What can be done to help you get the best fixed rate mortgage?

Even though mortgage rates are at such a low interest rate it doesn't mean you will get these rates. It depends on your credit score among other things. You can get the best fixed rate mortgages if you prepare.

1.Have a great Credit History.
Being maxed out on your credit cards is a sure way to lower your credit score. Paying down your debts will help in raising your score. Before applying for the new mortgage its best to check your credit report. Sometimes mistakes can get into them. You have the ability to straighten the errors out. You can dispute the errors and if the credit reporting agency can't prove the item, then by law they have 30 days to remove it. After you fix your report be sure to wait a couple months so your score can return to a higher level.

2.Be sure to have cash in the bank.
Whenever you apply for a mortgage the lender always asks what are your balances in your checking , savings, and investing accounts. Having money in these accounts shows the lender that you aren't penniless because it shows you have the ability to save and hold on to your money. It tells the lender that you are less of a risk and will get you a lower interest rate.

3.Be a good consumer.
Being a good consumer means shopping around for who will get you the best mortgage deal. Start on the Internet to locate the best mortgage companies. Here you can compare many loans in a short period of time. Don't be afraid to call them on the phone and try to get a better deal. A lower interest rate or more favorable closing costs will save a lot of money..

Don't rush into getting a mortgage. Shopping around will save you a lot of money over time. A lower interest rate or less points will save you money over the life of the loan, keeping money in your pocket.

Fraud Alert - A Few Things to Watch Out For When Refinancing your Mortgage

With the recent economic meltdown, millions of people become victims of financial instability across the globe. People have been literally forced into debts and their financial lives have got stuck in the debt mire. Mortgage refinancing can save you from this danger. However, people who are carrying outstanding debt balance, their thought process often get paralyzed and desperation overrides good judgment. As a result, mortgage refinancing scams often take advantage of their desperate situation and put them into further debts. You must have heard the question "mortgage how much can I borrow", well, it is the most crucial question in the current scenario and you should be ready with the answer of this question in order to prevent yourself from mortgage refinancing scams. As, most mortgage refinancing scams are linked with home equity if you don’t pay enough attention to the refinancing procedure of mortgage you might run the risk of loosing your home in future. Read on to know about the most common mortgage refinancing scams and stay away from them in future.

Loan Application

• Mortgage refinancing scammers usually target consumers who have low incomes or bad credit rating or who rushes into signing the mortgage deal without being aware of its consequences. The most common mortgage refinancing scam comes through the application form you send in to a mortgage company. Sometimes, you are encouraged by the refinancing company to write down higher incomes than what you actually make, in order to get the loan amount sanctioned. Such unethical practice can lead you to loose your home because you won’t able to afford the high monthly charges on a month to month basis. As you have declared a higher income amount, you might have to pay different loan amount and rates based on what you declared. Remember, if you put on paper something that you do not really have, it is you who will end up paying for it as the application form does not count. 

Balloon Payment

• Another notorious mortgage refinancing scam is associated with the balloon payment. These Loans are used when an individual is no longer able to pay a mortgage. When you face a mortgage foreclosure you no longer think prudently and a scam lender take advantage of this to make his way to profits. He pretend to be compassionate individual offering mortgage refinancing and lower monthly payments to save you from foreclosure but the actual story is quite different. All you repay each month is the interest fee only and the principal amount is in store which you remain obligated to pay at the end of the loan term. It is referred to as a balloon payment and such refinancing scam is pretty hard to spot. If you fail to pay this amount within a stipulated period of time, you end up losing your home.

Many individuals are there who have been hit by mortgage refinancing scams. Stay alert, go through the mortgage deal thoroughly before signing it and evade falling into such scam traps in future.

What Are The Different Types Of Mortgage Loans

Image via WikipediaIf your about to make a home purchase, the biggest factor in the process is finding financing. There are a large number of possible choices in the financial market today. You need to know as a consumer what they are and how they work. So you can find the best possible loan for your circumstances.

Basic Home Mortgage.

The most popular home financing option is the fixed rate mortgage. Nearly 70 percent of people chose this type of loan. Why people like this type of loan is that it is stable. Every month you make the same payment. It never changes. Also the interest rate will never change, it will always remain the same.

Adjustable Rate Mortgages.

Adjustable rate mortgages are a popular choice among home buyers. Their interest rate is tied to an index that change according to prevailing market rates. The intervals are specified in the mortgage documents and the interval of adjustment can be anywhere from one year to seven years. When the adjustment time arrives, according to the prevailing market rate, your payment will rise or fall. This doesn't happen once, it happens again when the interval comes around again.

Government Guaranteed Mortgage Loans.

The FHA loan is a fixed rate mortgage that is designed for the first time home buyer of moderate or low income. Guaranteed by the Federal Housing Administration, these loans can be easier to qualify for than a traditional FRM and allow a smaller down payment than most other home loans, generally about 3 percent. Interest rate are usually lower than standard fixed rate loans, and programs are available for the purchase of single family homes or multi family ones, as long as they are to be owner occupied.

Veterans Administration Loans(VA).

VA loans are another government guaranteed mortgage. To be eligible for a VA loan, one must have a history of active military service or be the surviving spouse of an active service member. Often, a veteran can obtain a VA loan with little or no down payment, but must demonstrate the ability to make monthly payments.

USDA Rural Development Guaranteed Housing Loan.

The USDA Rural Development Guaranteed Housing Loan is another government guaranteed home loan option. This type of home mortgage loan is provided to low and moderate income individuals who are purchasing a home in an area designated as a Rural Development eligible area. No down payment or mortgage insurance is required with this loan program, and qualification can be much easier than your average home loan, allowing consumers with less than perfect credit to obtain financing for home purchases.

Option ARMs

Also referred to as flexible payment ARMs, Option adjustable rate loans have an interest rate that adjusts every month with no adjustment caps. These loans allow borrowers to make very low mortgage payments initially, but these monthly payments will rise over time, often quite steeply.

Balloon Mortgages

Balloon mortgages are structured with a payment schedule similar to that of a thirty year fixed rate loan, although the term of the balloon loan is shorter, most often spanning five to seven years. At the end of the loan term, the outstanding balance must be paid in one lump sum, either out of pocket or by refinancing the home.

Interest Only Mortgages

Interest only mortgages are loans that allow the borrower to pay only the interest on the loan for a predetermined period of time. The principle of the loan is not paid down during this period at all, leaving the homeowner a lower monthly payment to meet over the short term. However, once this initial interest only period expires the payments increase to include repayment of the principle and are steeper than a standard loan, as the principle must be paid over a shorter time period. The longer the interest only period, the higher the payments will rise after its expiration.

Biweekly Mortgages

Biweekly mortgages are loans in which the borrower makes payments every two weeks instead of the typical monthly payment arrangement. The result of this practice is a slightly shorter repayment term. Paying biweekly results in 26 payments a year, which is equivalent to thirteen monthly payments, rather than the twelve payments made with a standard monthly mortgage payment.

Bimonthly Mortgages

Bimonthly mortgage plans do not require any extra payments, but save slightly on interest by advancing the payment by half the month. On average, these types of arrangements only shorten the loan term by approximately one month on a thirty year mortgage.

While each option may prove itself best for a segment of loan seeking consumers, none will be a perfect fit for everyone. Depending upon personal finances, the length of time one intends to reside in the home to be purchased, and many other factors, the perfect home loan option will vary widely from one consumer to another.

Want a No Money Down Home Loan Then Try USDA Rural Loans

Image by Shahram Sharif via FlickrRural Housing Direct Loans are loans that are directly funded by the Government. These loans are available for low- and very low-income households to obtain homeownership. 

Applicants may obtain 100% financing to purchase an existing dwelling, purchase a site and construct a dwelling, or purchase newly constructed dwellings located in rural areas. Mortgage payments are based on the household's adjusted income. These loans are commonly referred to as Section 502 Direct Loans.

How do I know if I am eligible?

As you may assume your income must have to be low. But that's not true. In my county a person can make as much as $68,000 per year. Other areas of the country you can make as much as $97,000. Low income, really! Very low income is defined as below 50 percent of the area median income (AMI); low income is between 50 and 80 percent of AMI; moderate income is 80 to 100 percent of AMI. 

 Families must be without adequate housing, but be able to afford the mortgage payments, including taxes and insurance, which are typically within 22 to 26 percent of an applicant's income. However, payment subsidy is available to applicants to enhance repayment ability. Applicants must be unable to obtain credit elsewhere, yet have reasonable credit histories. .

What are the terms of the loan?

Loans are for up to 33 years (38 for those with incomes below 60 percent of AMI and who cannot afford 33-year terms). The term is 30 years for manufactured homes. The promissory note interest rate is set by HCFP based on the Government’s cost of money. However, that interest rate is modified by payment assistance subsidy.

How long does it take to be approved?

Rural Development officials should make a decision within 30 days of the Rural Development office's receipt of the application.

Does the USDA have guaranteed loans?

Yes. Section 502 loans are primarily used to help low-income individuals or households purchase homes in rural areas. Funds can be used to build, repair, renovate or relocate a home, or to purchase and prepare sites, including providing water and sewage facilities.

Eligibility: Applicants for loans may have an income of up to 115% of the median income for the area. Area income limits for this program are here. Families must be without adequate housing, but be able to afford the mortgage payments, including taxes and insurance. In addition, applicants must have reasonable credit histories.

Approved lenders under the Single Family Housing Guaranteed Loan program include:

• State housing agency;
• Lenders approved by:
• HUD for submission of applications for Federal Housing Mortgage Insurance or as an issuer of Ginnie Mae mortgage backed securities;
• the U.S. Veterans Administration as a qualified mortgagee;
• Fannie Mae for participation in family mortgage loans;
• Freddie Mac for participation in family mortgage loans;
• Any FCS (Farm Credit System) institution with direct lending authority;
• Any lender participating in other USDA Rural Development and/or Farm Service Agency guaranteed loan programs.

What are the Terms?

Loans are for 30 years. The promissory note interest rate is set by the lender.

There is no required down payment. The lender must also determine repayment feasibility, using ratios of repayment (gross) income to PITI and to total family debt.

What will they guarantee loans for?

 Under the Section 502 program, housing must be modest in size, design, and cost. Houses constructed, purchased, or rehabilitated must meet the voluntary national model building code adopted by the state and HCFP thermal and site standards. New Manufactured housing must be permanently installed and meet the HUD Manufactured Housing Construction and Safety Standards and HCFP thermal and site standards. Existing manufactured housing will not be guaranteed unless it is already financed with an HCFP direct or guaranteed loan or it is Real Estate Owned (REO) formerly secured by an HCFP direct or guaranteed loan.

It's amazing these kinds of loans still exist. No money down and no PMI. They are meant to serve the low income population, but are upper limits of $97,000 condidered low income? Rural is the the key word here but when you use their eligibility map most cities are eligible, but not your major cities. But some areas are in close proximity to major cities, check the sites map function to see.

To see if you and your property location is eligible go to USDA Income and Property Eligibility Site

Pay Your Mortgage Biweekly and Skip the Extra Fees

Biweekly mortgage payment plans are back in the spotlight. If your not doing this maybe it's time to check it out.

I have noticed ads by Citibank for their "Citibank's Biweekly Advantage Program". It's a convenient mortgage budgeting plan that can help you save thousands of dollars in interest and pay off your mortgage early.

My mortgage is with Bank of America they solicited me through the mail to setup a biweekly mortgage payment plan. Naturally I was shocked that they wanted to be so nice. Just a few years ago it was hard to track down anyone that would even do it. Additionally a large fee was accessed for the privilege. The deal they offered me was that they would automatically draw the biweekly payments from my Bank of America checking account all for no charge.

If you have never heard of bi-weekly mortgage payments, they have been around for decades. They simply got mothballed when consumers were more interested in adding to their debt with home equity loans than paying off their debt faster. 

What they do is simple. They divide your monthly mortgage payment in half and then automatically debit your account for those half payments every other week. Because there are 52 weeks in a year you make 26 half payments which end up as 13 full payments by the end of the year.

Making that one extra payment annually, which feels relatively painless when done through this gradual process, means you payoff your loan faster and save thousands in interest.

Someone who has a $200,000, 30 year mortgage at 5 percent, could pay off the loan five years faster and save $33,000 in interest by paying bi-weekly. Not bad for such a little amount of effort.

What's the drawbacks? Some lenders charge for this service. This is what makes it tough to decide to do it. Citibank requires a $375 upfront charge and takes $1.50 for each transaction. That's 26 transactions per year equaling $39 total per year. If you stay with the program for 25 years you will have paid $1350.

That may sound like a small price to pay for a $33,000 savings, but there is really no reason to pay for these programs. Why not do it yourself? At the end of the year you could just make one extra payment, this will accomplish the same thing. 

Another way to do it for no fees is divide your mortgage payment by 12 and pay that much extra per month. If your mortgage payment is $1200. Divide that by 12 and you would get $100. When you make your mortgage payment every month just increase it $1300, being sure you designate the extra $100 goes to principle.

 The benefit of the informal plan is you can start and stop it at anytime if you need the money. The formal plan keeps you disciplined when you get a little lazy. 

Remember paying of your mortgage early is great, but its foolish to pay extra on your mortgage when  you have credit card debt at a higher interest rate. Take care of the credit cards first.

Related articles

• How to pay biweekly mortgage the right way... (kmckeeth.wordpress.com)
• Should I Pay Off My Mortgage Early, or Have One at All? (moneyning.com)
• How Do Extra Payments Get Applied to My Loan? - Money Mailbox (moneyning.com)
• Pension savings or mortgage payments and which cash ISA? (blogs.confused.com)

7 Reasons To Not Buy A House

If your thinking about buying a house or renting, there is no easy answer. Your decision consists of balancing several personal factors, including your finances, location and life situation. 
 
Before the housing meltdown it was easy to decide. Conventional wisdom said buy it now because it would just be more every year you wait. It's a good investment for your future, is what we have been taught. 
 
Today's, buyers are a lot more careful. They see a not so sweet future between even having a job and committing to a long term debt like a mortgage. With houses looking like just a necessity and not an investment, people are nervous. 
 
Should you buy or rent? Here are a few things to think about before you make the plunge. 
 
1. Will you be in the area long enough for the house to be worth purchasing. If not, why not just rent until you are sure of the area and neighborhood. 
 
2. If your thinking of borrowing from your retirement savings to make the down payment, your not ready. Just save for the down payment till you have enough to put down to get the mortgage. You can always borrow money for a house, but you cannot borrow money for your retirement. 
 
3. Are you in credit card debt? It's best to be debt free when buying a house. What could go wrong, probably will go wrong. Your new home could be in a state of repairs for years, do you have enough money for this contingency. 
 
4. Do you have an emergency fund of 3 to 6 months expenses. Being house poor will force you to go into debt because your not ready for the rainy day. So start one and be prepared. 
 
5. Be sure your mortgage payment is not more than 30% of your monthly income. If it is higher you will never have any cash to take care of the house payment and do anything else. 
 
6. As a home owner are you prepared to deal with all the maintenance that goes along with ownership. Even basic up keep is expensive. If your not into home maintenance maybe it's better to rent. 
 
7. Are you sure about your current and future life situations. Are you getting married or kids about to fly out of the nest. If the house meets your needs today, will it meet the needs in 5 to 10 years. 
 
The simple answer is there is no simple answer. Your individual needs can only be sorted out by you. Remember your home can be not only an investment but also a place of security, comfort and central to family life. It can be a dream. 
But can also be a nightmare. 

Get a CLUE Report if your buying a home

The purchase contract for a home usually contains a stipulation for financing and a home inspection. These stipulations allow the buyer to back out of the contract if they cannot get a mortgage or the inspection turns up something wrong. But another not well known report to show the buyer the insurance history of the house should always be requested. That report is called the homes CLUE report. 
 
The Comprehensive Loss Underwriting Exchange (CLUE) report will tell you what kinds of insurance claims have been filed by the previous owners. Why is this important to you as a buyer? The current owner may have forgotten to tell you about some past damage to the house. The CLUE report will tell you the exact date of loss, type of loss (water damage, mold, fire, etc.) and the amount of loss for all claims. Also it will tell you if it has a long history of claims which may get you denied home insurance which will impact if you can even get a mortgage. You may not get denied coverage, which is rare, but you may be put in a high risk pool or paying more than you should if the house was not messed up insurance wise. 
 
If you are going into contract it makes sense to put the CLUE report stipulation in it. This way you can make sure it's clean and if not straighten out the inaccuracies. Go to Choicetrust.com for the report. 

15 Year Mortgages Becoming More Popular

Image by Rev Dan Catt via Flickr

A trend is starting of more people who are refinancing choosing to have a 15 year mortgage. CoreLogic, a provider of financial, property and consumer information, states this is a rising trend (CoreLogic.com). 
 
The data reveals in 2007 9.4% of refinanced mortgages were on a 15 year note. In 2009 it rose to 18.5%. This year from January to June, 26% of refinanced mortgages were 15 year. Why is this happening? 
 
With the interest on a 15 year mortgage as low as 3.86% the higher payment is becoming more affordable. The public push back on rising government debt and fiscal irresponsibility of the government is making people reevaluate their own situations. People are rethinking the sense of having a longer term on their mortgage, the money they are paying for this lower payment on a 30 year note. 
 
With the economy in the drink, their investments going nowhere and the insecurity of the times a paid of house is something tangible that people can get a sense of security from. Seeing an interest rate with a "3" is very tempting. 
 
People have awaken from their sleep. They are more aware of where their money is going. A 30 year mortgage is not so appealing anymore. The mac-mansion is being put on the shelf as a disaster financially. People used to take out the biggest mortgage they could and use the rest of their money to invest. But now people see debt as drag on their budget and psyche. Being debt free and financially secure is the rising trend. 
 
The new young homeowner sometimes can't make the payments of a 15 note work in their budget. They have to go for the 30 year note. I remember, my own experience was I had to get the 30 year note and to make it worse it had a negative amortization. It was stupid, but I didn't know better at the time. 
 
If you have a 30 year mortgage and want to go to a 15 year but can't refinance for whatever reason here's a workaround. Pay the 30 year note as if it was a 15 year. Find out, through the many financial calculators on the Internet, take your mortgage balance with your interest rate and plug it in for a 15 year mortgage. The result will be the 15 year payment, take the 15 year payment subtract the 30 year payment, this is the amount you add to the principle amount every month. With this new payment your mortgage will be payed off in 15 years. 
 
If you have a crisis you can stop the extra principle payment and continue when you can. Any amount of extra principle will pay off your mortgage sooner. If you have a mortgage of $200,000 at 4.5% for 30 years even a extra $100 per month will shave 5 years off your 30 year mortgage and save you $31,700 in interest.

From Mortgage Fraud To Foreclosure Fraud

Image via WikipediaBank of America, the nations largest bank, on Friday became the latest lender to put foreclosures on hold in 23 states because of concerns that court documents it submitted were prepared incorrectly. 
 
A Bank of America executive, Renee Hertzler, said in a February deposition in Massachusetts that she signed as many as 8,000 foreclosure documents a month without reviewing them. Here's the problem with this: an executive of a major lending company, who is responsible for 8,000 foreclosures a month blindly signs legal documents without checking for accuracy. This is only one of the many banks operating in this way. Maybe the documents are accurate, time will tell. 
 
At OneWest in Austin Texas, Erica Johnson-Seck a vice-president and her team sign off on 6,000 documents a week and about 24,000 a month. OneWest is the successors to defunct IndyMac of California. 
 
What's the problem with all this? The banks really don't care if the documents are correct. They don't care because these foreclosures are a big drain on the resources of the bank. The costs of foreclosure and the money lost in the lending is eating away at the companies. They have had to hire additional staff and the light at the end of the tunnel cannot even be seen. 
 
It's not revealed but I believe the people who are really upset about this fiasco is the Judges that have to sign off on the foreclosure. They look like fools taking for granted the documents are correct. 
 
The banks in today's world have really let the industry go to pot. Banks are rated at the bottom in customer service. Just try to get a short sale to progress in a timely manner. The lending that was supposed to loosen up with the TARP bailout has not happen and if it did only in the slightest way. Banks are not lending like they should. The lending they do is in such a way as to be totally useless. 
 
Banks have become a massive, bloated, fat behemoth of in efficiency. They can't even get out of their own way. The time will come when they will have to be broken up like AT&T was. They are unresponsive to the needs of the public in the extreme. The credit system of this country in integral with the health of the economy. If these banks can't get it together Uncle Sam may have to step. Under normal circumstances I'm apposed to government regulation but not in this case. 


       Sorry about the Rant but banks misbehavior is a sore subject with me.
                                                                                                  ,Dave

Home Ownership Gets a Bum Rap.

Last week Time magazine has a front page article called "The Case Against Home Ownership". In this article the writer Barbara Kiviat takes to task the pitfalls and negatives of home ownership. Barbara Kiviat is a prolific writer currently at Time, Inc. She also wrote for "Mutual Funds Magazine" and previously for "The Arizona Republic". She earned a Masters in Journalism at Columbia University - Graduate School of Journalism and a BA at John Hopkins University. 

In a through article she takes to task the idea of home ownership has been sold to us and it is harmful to our society. All throughout the last century starting in the early 1900's home ownership was pushed on the American population as part of a way to make society more functional. That it would bring economic and societal stability. But with it also brought the dark side of home ownership. 

The writer states,"The dark side which includes foreclosures and walkaways, neighborhoods plagued by abandoned properties and plummeting home values, a nation in which families have $6 trillion less in housing wealth than they did just three years ago. Indeed easy lending stimulated by a cult of home ownership may have triggered the financial crisis and led to the biggest bailout, that of Fannie Mae and Freddie Mac. Housing remains a drag on the economy. Existing-home sales in July dropped 27% from the prior month, exacerbating fears of a double dip recession and accelerating the accompanying slide in stocks that that took the Dow Jones industrial average to a seven-week low. And all that is just the obvious tale of a housing bubble and what happened when it popped. The real story is deeper and darker still."

The writer uses words like "cult" in her description of the way all Americans dream of owning a home. It seems we have all been brainwashed by business and the government. Our love of having our own home and the pride that bestows is a result of a marketing scam. Owning property has been a staple of the American experience throughout our entire history. Our history is replete with examples of the American citizen trying to carve out his piece of this land. But to the writer of the article that dream is a con strewn on us. And we don't even know it.

The writer cites examples of how the government has been involved in this. Starting in the 1800's when land was being sold very cheap or given away so as to foster settlement of the new western states. In the 1900's government set up campaigns to foster home ownership. Even after the Great Depression President Roosevelt created the Federal Housing Authority and later Fannie Mae to get lending on home mortgages started again. We see the campaigns continuing through the Second World War. Even up till the present time when Bill Clinton and George Bush encouraged home purchasing through their administrations policy's and laws. 

I can see how the writer sees the immense help and financial assistance provided by government over the last two centuries as a negative. She seems to believe the government should not be involved in the societal development of home ownership in this country. The undue influence of the government, their legislation and work with private industry was not necessary or wanted according to her. Again I can't agree because I feel that we would have found our own way of buying homes without government help. The government made it easier when times were tough or when economy was slowing. 

Later in the article  the writer again states how we were brainwashed into thinking home ownership was a special need for us. Maybe she doesn't experience the deep human need to call ownership of a home and piece of ground an integral part of the our life experience. She also states the "lack of Mobility" the purchase of a home creates. The financial mistake of putting all of ones assets into one thing. She goes on to state how a mortgage is a millstone around our necks. 

With faint praise she does state there are a few pluses that are stated in the article. Owners of homes invest more time and money on upkeep. You can do your own repairs and also it affords you to indulge you gardening hobby. But there seem to be even more negatives of home ownership like detached homes, as opposed to apartments, use 49% more energy. Which leads to the increased use of oil. The brainwashed citizens are again manipulated to feel they have to move out of the cities because they dirty and crime ridden. But now are a very pleasant place to live. It's also unfair that home owners get tax breaks and renters do not. This is unfair.

I have really enjoyed reading this article because it is very well written. I must admit Barbara Kiviat is an excellent writer. She obviously is highly educated and skilled in her craft. Her point of view is unique to say the least and I will read more of her articles soon. Yet I find her conclusions all wrong. She is a product of the current culture idiom of blame everyone but yourself when you screw up. 

In the book there is a deep slant against home ownership. The arguments against it just don't hold water. Trying to blame the government for pushing the idea of home ownership is wrong. Most Americans given the choice to own or rent, would probably own. To blame the high cost of ownership to renting is ludicrous. Of course it costs more to own. Repairs, taxes, insurance, mortgages, etc. make it more expensive. Rent if you want to save money, but your home is not yours. It belongs to someone else. And that's the big difference. Its like the difference between marriage and dating. You have a bond between your house you own and yourself. As you do your spouse and you. 

Its sad to blame the government, the banks, lenders and all financial institutions for making those poor people sign up for those mortgages. I say it was the personal responsibility of the borrower to know if they were able to replay the money they borrowed. Ultimately, the owner is responsible for his actions and the resulting failure or success of their decision. Why not bring back personal responsibility and repercussions for our actions. 

Home ownership is part of the American Dream and human experience. Its in our DNA to crave our own hearth and home. And when you do, be sure your able to pay for it.

Is Ditching Your Mortgage An Option?

If you owe more on your mortgage than your house is worth you have an underwater mortgage. What options do you have? Do you give up paying the mortgage and leave the house to foreclosure. 
 
People look at this problem two ways. First, there are those that think it is unethical and shameful to walk away from an obligation. Secondly, those that think walking away is nothing compared to what the banks have done, making a profit on bad loans and those that gambled on mortgages. 
 
If we look at it from a strictly economic position. At what point are you so far under that there is no way you will ever be even in the foreseeable future. Not walking away would be the wrong thing to do. If your 50% underwater on a $400,000 home how is not walking away the right thing to do for you financial life. 
 
If you compare your mortgage payment to the rental payment for the same house, is the rental payment lower than the mortgage payment. If your mortgage payment is $2600 and the rental payment is $1600, what do you do? Then it would make sense to walk away because you would be saving $1000 month. Over ten years that would come to $120,000. If you did this the you would have this money and your credit report would have been cleared of the foreclosure years ago. If you did stay and paid your mortgage, you may have some equity or still may be underwater at the end of ten years. 
 
Some good news from Moody's Economy.com , 62% of major metropolitan areas will have their home values return to pre-recession levels by 2016 . But if that is inconceivable to you, some experts say it may take til 2030 or 2040 to return to those levels. 
 
Still the stigma of being foreclosed on is strong in some people. The discarding of an obligation so big is so negative to people they find it hard to chose that decision. Yet you could, after 7 years have a clean credit report by then and the stigma may have passed. You could purchase a house and start over. What ever choice is made, both options are gut wrenching. 

Pay Off House Or Invest?

Image by blmurch via Flickr

Pay off your house first or invest. I am trying to figure out what would be best. I've been doing the math on this problem and I have the figures. I have started with just adding $100 to my principle every month. If I do that it takes 5 years off my 30 year mortgage. If I add $200 it takes 9 years off. If I add $300 it takes 11 years off. That's some great results but that's still 19 years away at best. The $300 would be the the money I would have used to invest. So in 19 years I would have a paid off house and no retirement. 
 
Now here's where real life enters the situation. I have a plan to sell my house in 10 years. All the kids will be gone and I can downsize. So wouldn't it be better to use the extra $300 payment and invest it? I did the math and found that the $300 @ 8% would be over $50,000 at the ten year point. This would make sense for me because I have very little saved. If I had a decent amount in retirement then paying it off would make sense. 
 
Generally the results of paying extra on mortgage: 
 

• Less Stress
• No debt
• Money free to invest
• Security
• Never be foreclosed
• Lose tax deduction
• Cash poor
• Less risk

 
To put the money toward investing: 
 

• Always have the cash to access in emergency 
• Greater tax deduction 
• Market may crash and you would lose the investment 
• You could lose your house to foreclosure 
• More risk 

 
There are so many factors to consider. Its not just the math deciding what to do. The math works either way. The decision must go along with your goals. It also depends on where you are in life. Your income either rising or declining. Your age and how much savings you have. 

 
For me the benefits to a paid off house are to far away. My timeline of selling in ten years makes it impractical. My lack of savings makes it impractical. It makes sense for me to invest the money in a retirement account. Saving for ten years then selling my home, buying a smaller home for cash makes sense. No two situations are the same. You should run the numbers first to get the the facts then decide. 
 

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