2. House poor is a relatively new term. You never really heard any terms like negative amortization mortgage, option arm loans, or adjustable rate mortgage before the refi boom. They became common place during the refi boom and were supposed to be good home loans. Unfortunately they were some of the worst loans ever. Nothing can ever beat the 30 year fixed interest rate mortgage.

3. So what is house poor? House poor is a combination of factors. The biggest factor is for people who are either first time home buyers or people looking to upgrade and move to a bigger home. When looking at all of their options they are told from their realtor and their mortgage banker to get approved for the biggest loan amount that they can. When you buy a bigger home you bring on more debt and expenses. Bigger home loan, bigger utility bills, more costs for upkeep,etc. House poor is when you make enough money to make the payments on your things like your house, cars, boats, student loans, and credit cards but cannot save any money for retirement, a trip, kids college funds, money to go out for dinner, or money to see a ball game. Everything looks good on the outside. You have a big house, nice cars, boat (maybe) but you are one missed check away from total financial disaster. If you were let go from your job tomorrow you would be screwed. Smart financial people would rather take a smaller house with a smaller mortgage payment and have money left over to play with.

4. As most of us know, realtors work on straight commission. So when you hear a realtor say “buy the bigger home” or “the one with all of the upgrades” you really need to step back. Of course they are going to say that. The difference on a $100k or $200k house is $6k more in commission for them. That is a ton of money. On the mortgage banker side, they also get paid a percentage of the loan amount. The bigger the loan amount, the bigger the commission check for them. Most of the times the mortgage banker will love to see you buy the bigger house but does not really care. What most of them do is tell you what you can be approved up to and then its up to you to work your way down from that number. The realtors for the most part are trying to find a home for you regardless of the price because they also want a sale. Do not fall for the “you’ll probably be making more money as your progress in your career” or “now you will never have to move.” Those are both ways to make you comfortable with buying a bigger house. Last time I checked homes were foreclosing all over the country and there are layoffs going on in every single industry. Might be hard trying to make payments on that larger house or even trying to sell it.

5. Going into your home search you kind of have an idea of what you can afford. Most people who are first time home buyers want to keep their first mortgage payment around what they pay for their rent payment. This is a good practice but what most home buyers forget is that all of those things like a hot water heater going out, cutting the grass, fixing the roof, and all other repairs add up. All of those things are just one call away to the apartment manager and they call a guy to come and fix it. Nothing comes out of your pocket for those expenses. When it happens in your home you have to pay for all of those out of pocket and still pay your mortgage payment. Expect to double your mortgage payment just in monthly maintenance and up keep to your house. I hope your starting to see why you do not own the home, it owns you.

6. When you buy a house that is at the maximum amount that you are approved for you have already began to handcuff yourself to this house. During the height of the refi boom, some people could get approved for mortgages with a debt to income ratio of 55% depending on their credit score. This means 55% of what is showing on your credit report is going to pay your new mortgage payment plus any car and credit card payments. This does not take into account things like car insurance, gas for your car, maintenance for your car, gas for your lawn mower, heating bills, water bills, cable bill, phone bills, etc. These are probably the largest of the bills that are not on your credit report. I bet if you added all of those up on top of your mortgage payment you will start to kick yourself because now you probably do not have anything left over for anything. You are now working for your house.

7. Here is a quick example. You and your spouse have a combined income of $125k a year. You pay $700 a month for car payments and $300 a month for pesky student loans. You do not carry any credit card debt at all and you have outstanding credit. You have saved up $30k in a savings account to be used for a down payment and have about $25k between 401k’s and retirement accounts. You currently pay $950 a month in rent. You are a first time home buyer and want to find something with a similar monthly payment. You call up your mortgage broker and tell him what your looking for. He says what you are looking for would be a home worth $125k. You can put 20% down of $25k and have $5k left over for closing costs. You decided to pay your property taxes and home owners insurance separately so you do not need to have anything for an escrow account. Your loan would be for $100k and lets say interest rates are 7% and if you were paying an escrow it would be $400 a month. Your principal and interest is $665 plus escrow of $400= $1065. This is still about a $100 more a month than what you were looking for but not bad since you get to write your taxes, insurance, and interest off on your taxes. Your debt to income ratio is calculated by adding all of your out going bills on your credit report $1065 + $700 + $300 =$2065 then dividing by your monthly income of $125k/12 months= $10,416. You get $2065/$10,416=19.8%. This is great. You will have more than enough money to save, make your payments and have enough money for repairs and upkeep.

8. But you really like that bigger, newer house the next street over. It has all of the upgrades you could ever want. You decide its the home of your dreams. Your realtor starts to smile because they know that you have sold yourself on the bigger house which means a bigger commission for them. You call your mortgage broker back up and ask them what the maximum amount you could get qualified on would be. Using the example above you could get approved for a home roughly in the $350k range. You could put your entire $30k down payment into the house and negotiate sellers concessions so they cover your closing costs. Your $30k only covers about 8% of the down payment which gives you a loan to value of 95%. You decide to only put down 5% and use the extra for closing costs. Your new monthly mortgage payment on $332,500 at 7% now includes private mortgage insurance (PMI). This will probably be another $200 or more (probably $400) a month and it is because you did not put 20% down payment. Your new payment is $2,212 + $200 (PMI) + escrow of $400 (it will probably be $700 because of the house value)= $2,812. To figure your DTI you have the $2,728 + $700 (cars) + $300 (student loans) = $3728. Your new DTI is $3728/$10416= 35%. As you can see this still sounds pretty good. I was saying how mortgage companies were approving people up to 55% DTI.

9. The thing of it is that the mortgage company has a way of making you think your approved for the loan. What they look at is your income before taxes to get you approved on a mortgage. They need all the income they can get to get you approved and this is why they do it. They need to close loans to stay in business. So those DTI numbers above really do you no good. What you need to do is take your combined family income of $125k and take out at least 15% which is probably what your income tax bracket is, i.e $18,750. Then use $125k-$18,750 = $106,250 to figure what your after tax income ratio. Now you have $106,250/12 months= $8,854. Using our first example of $2065 you get $2065/$8854=23.32% DTI. Still not bad. On the second one you get $3728/$8854=42%. Big difference. What you need to ask yourself is that if you are okay knowing that almost 40% of what you make in your family only gets you the keys to the house and your cars. This does not include operating them, just the keys. When you add up all the other costs like I did above you will see that by getting the bigger house you are probably going to have 5% of your monthly income laying around for saving and entertainment purposes.

10. Americans were very greedy during the housing boom. Homes were being sold at inflated prices. People assumed that home prices would keep going up and decided it was the time to buy bigger because they would never be able to afford the house later. The sad thing is that they could not afford the house at the time they closed on it. Underwriting guidelines were to relaxed. Everybody was getting approved on loans. Not only were they buying homes, they were taking advantage of 0% car loans and other things they did not need. I always get a kick out of the people that have a big house, nice ,cars, and lots of things they do not need and complain about HAVING to work 60-70 hours a week. I smile and wonder if they would be happier without the bigger house. They probably would but nobody will admit it. As long as we can show off to one another what we have this “house poor” phenomenon will continue.

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The Top 10 Reasons Why Your Mortgage Has Made You House Poor

2. Under the new guidelines set forth by the FHA the minimum amount down payment will go up to 3.5%. It is currently at 3%. Not so much of a big deal but it does account for more money that you will have to come up with. On a $100k mortgage that is another $500 plus your closing costs.

3. FHA loan limits will decrease which will mean fewer people will be able to get approved on a jumbo loan. The current maximum loan limit is set at $729,750. This went into affect March 6, 2008. The FHA did this so they could help out people with bad loans that were in high cost areas. Hopefully you heard about this and have tried to refinance your mortgage over the past 5 months if you fall into that category. Now the FHA is taking a percentage of what the highest and lowest price sales of homes are for a particular area and using that number to determine what the max limits will be. This goes for people looking to buy a home or refinance with a FHA loan.

4. You can still receive a tax credit up to $7500 for a first time home buyer. This is to help you with things like closing costs when purchasing the home. It is not free money though. If you take the credit you will have to pay it back over the next 15 years or when you plan on selling the home. It is a no interest loan so it makes sense to use it, jsut remember its not free.

5. My favorite one is the Down Payment Assistance programs will be eliminated. You might be asking yourself what is Down Payment Assistance? Could it be another term for getting money from your parents or the company you work for? Nope. How it works is that if you want to buy a home you have to negotiate with the sellers for them to lower the price on the home first. If agreed, you would call up a mortgage company, get approved on the FHA loan, then send your application to another company that gives you the money for the sale of the home. Weird huh? This means another company is giving you the down payment, and at closing they are getting paid back the money from the proceeds of the sale. You wonder where they make any money because at the same time they are technically giving you money and receiving it back. More than likely they are getting a percentage of the revenue or a referral fee from the mortgage company the loan originated with. If I did not know how this worked I would think it would be some kind of scam. Seems like the FHA wants to put the kibosh on it too.

6. With the Down Payment Assistance programs being terminated it means that people looking to buy homes will actually have to (if you can believe this) save up money for a down payment and their closing costs. They can still negotiate with the sellers for “sellers concessions” if they want to which is okay. I do not get why people negotiate seller concessions to begin with. Its not like they are giving you money. The home buyer is just rolling the costs into the loan with the lowering of the price of the house which means you have financed your closing costs.

7. With this going into effect in a couple months the people that need the Down Payment Assistance Programs better be hoping they can get a house. The remaining Down Payment Assistance companies out there require you to have a 620 credit score or higher. No ifs, ands, or buts about it. You will probably see a lot of these companies going out of business or having to try another way to lend money.

8. This is actually good news for the people sitting around wondering if now is the time to buy a house. This gives more reason to wait until 2010 to buy a home. When the mortgage companies stopped doing 80/20 loans, second mortgages, and home equity loans it forced a lot of companies to do one normal conventional loan like a 30 year fixed rate mortgage. Things are going to start getting back to where they were before the housing boom because of this.

9. With no more 100% financing around it means that you will have to have money to get approved on a loan. With no down payment assistance this removes all of the buyers out there that are going to use it. Right now some of the big mortgage companies like Quicken Loans, Chase, Countrywide, and Bank Of America are using these programs to close loans. The FHA loan is a large portion of these companies business and once the guidelines are tightened you will probably see more people lose their jobs because there is not enough revenue coming in. They will still be able to refinance homes but the FHA is not allowing help anymore. I say good for them.

10. This is the last straw for mortgage companies and want to be home owners to get some sort of 100% financing when buying a home. When all of the options are removed there is going to be a time period of less people buying houses. Most people in this economy can afford a monthly payment but do not have the money for any kind of a down payment. With no people buying homes it is going to lower home prices even more. Its simple supply and demand. This will probably cause mortgage rates to go up a little more because now the banks need more revenue to make up for the lower amounts of homes being bought. All in all this really is a step in the right direction for the American population because now we are being held accountable for our financial actions. If you must buy a home and need the FHA loan to do it, you better be putting offers in and hope they close by October 1, 2008 or you will have to have 3.5% down payment coming out of your pocket.

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The Top 10 Reasons You Better Buy A House With Your FHA Loan By October 2008

2. Many parents will have paid off the house or owe little on it and decide to give the house to their kids to help them get started with their lives. Instead of charging the kids full price them give them a deal. Most will just sell them the house for what the parents owe on the mortgage. The kids will call up the mortgage company and tell them that they are getting a gift of equity from their parents. The mortgage company knows the house is worth more but when you get qualified on the loan you are getting qualified at 100% LTV (loan to value) of the house. When this happens the kids will be charged PMI (private mortgage insurance) on top of their mortgage payment.

3. Let’s say that the kids are getting the home with 50% equity in the home. What they want to do is take some cash out to pay off some credit cards, a car loan, and get enough cash out to help remodel their home. They already know what the home is going to be appraised at and they decide to take enough money to go up to 80% of the value of the home.

4. They call up the new mortgage company and tell them about their plan. The new mortgage company does not care that they just closed on the loan the day before. By doing the new home loan at 80% LTV (loan to value) it will eliminate the PMI from their monthly payment. They will probably see their overall payments drop by doing this and will now have more money month to month than they did before.

5. The one thing you do not want to do is tell whatever mortgage company you are going through that you plan to do this. Mortgage companies get paid two different ways. They get paid by collecting your interest that you pay or by selling your home loan on the secondary market. When banks sell your loan to another bank for a quick profit there is an agreement between the two that if the home owner sells or refinances their home four months after the loan is funded (usually three weeks after closing) than the mortgage company that originated the home loan must pay back the proceeds to the larger bank that bought the loan. This is called the “recapture period.”

6. If you tell the bank that you plan on doing this there is a chance that they will not even want to do the home loan for you in the first place because they know they are wasting time on you since you are going to use them to get the loan and more than likely go to another place to get the next mortgage soon. They will be forced to give the money back and their commission. Be expecting a call from an angry loan officer wondering why you are doing this. They will find out because once you get in process with the next company a pay off letter is sent to whoever holds the mortgage note.

7. Most loans done nowadays do not have what is called “seasoning” issues anymore. Most large mortgage companies like Quicken Loans, Countrywide, Chase, Bank Of America, and Wells Fargo have a normal conventional loan program that does not care when you bought the home. So if you were to have closed a loan with another company and call one of these guys you will be able to get your new loan using the true value of the home instead of what it was sold to you for from your parents. Seasoning is a term used by mortgage companies to determine when you bought the home. Some loan programs in the past had underwriting guidelines that required home owners trying to get approved on a loan that they had to be in their home for at least 6 months to a year.

8. The only home loans that you might have some trouble doing right after you closed on a home are jumbo loans and home equity lines of credit. Jumbo loans are riskier than conventional loans and are not backed by Fannie Mae. This makes mortgage companies a little more uneasy about refinancing them so quickly. With home equity loans there is mostly a 6 month waiting period before you can take one out. What the mortgage companies do is use what you bought the home for during that six months. So if you bought the home for $200k and put 20% down on it you could borrow up to 20% back from a line of credit (assuming you find a mortgage company doing second mortgages up to 100% LTV). Let’s say you got a deal on that home and its really worth $250k, to get the value you want you would still have to wait 6 months before the mortgage company recognizes that value. The only downside to having to refinance your home again is that you will ahve to pay closing costs again (there is no such thing as a no closing cost mortgage). Of course the mortgage company will roll the closing costs into your loan so you do not have to come out of pocket with any cash. Be careful with FHA loans. Some of them have a early termination clause where if you sell or refinance your home within a certain time period you have to pay them a fee.  

9. For the most part you should not be calling up a mortgage company right after closing because you think you got a bad deal. All of the sub-prime mortgage companies have gone bankrupt and the companies left doing home loans do not do sub-prime loans at all anymore. Pre-payment penalties have been outlawed by the U.S Government and are illegal to do. No worry about that anymore. What you are going to find is that you are probably going to be offered a 30 year fixed interest rate mortgage from every place you call that has a best of market interest rate. 

10. Be smart when you are trying to play this refinance game. If you know you are buying a fixer upper than do not put a large down payment on the home. Instead, keep the money and put down as little as possible to fix it up so hopefully the value of the home goes back up. When your done remodeling then try to refinance it so this way you do not get caught using credit cards to pay for things and find out you cannot refinance. Right now in the real estate market you are probably not going to be able to refinance at any time in the near future. The only people that will be able to refinance the day after closing their loan or within 6 months of closing are people that inherited a home through a will or were given a gift of equity from family members. Home prices are dropping around the country by 12% a year so do not think that you can refinance your home loan. More than likely if you only have a little bit of equity now it will be gone in a year and the mortgage companies will not be able to refinance you because you owe more than what your house is worth.

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The Top 10 Reasons You Do Not Have To Wait To Refinance Your Mortgage After Buying A Home

2. Some of the other features credit counselors do is tell you what balances you need to be working on to get them paid down faster. You will usually be told to do something like pay down the balances with the highest interest rates first and then work on the other debts. Again, you should know this.

3. Credit counselors will work with you and your creditors to maybe get some kind of payment plan going because of your financial problems. Sometimes this helps and sometimes this does not. More than likely you would be better off not paying the credit counselor their fee and taking that money and paying your bill off.

4. Once you make an agreement with a credit counselor they inform you to stop paying your bills. That sounds weird huh. Stop paying my bills? Yup. What happens is you pay the credit counselor and they pay your bills for you. Sometimes they even set it up with your employer to have a percentage of your wages taken out of your paycheck before you even touch the money. This all sounds so good but what about your bills and your credit report?

5. Depending on what credit counselor you work with some pay all of your debts in full and you pay them a smaller percentage than what you were paying your credit cards, home equity line of credit, car payments, personal loans, etc. This on paper seems like a better deal. You can consolidate all of your payments into one monthly payment and probably lower your effective interest rate to a lower one. An effective interest rate is one where you count up all of the interest rates you have and take their average to determine what you are truly paying. The credit counselor will negotiate with you to have a interest rate probably half of what you are paying and put it on a 3, 5, or 10 year loan with them.

6. Other credit counselors will pay your debts for you with the one payment you send them. They pretty much become your secretary and handle everything for you. Still sounds like a burden taken off of your shoulders?

7. Wrong. Once you make an agreement with them to stop making payments it takes about a month or two for them to make payments for you and during this time period you are starting to get lates on your credit report. So everything you told them to pay for you is now getting behind. This is when the late fees kick in and all of those credit card guidelines that say if you are late on just one payment they can raise your interest rate from the fixed 9.99% to 17% kick in the next month. So now you are paying more in interest, getting late fees, and your credit report is getting jacked up.

8. Even if you go the route where the company pays all of your debts off the real player in this scenario comes to life. The second you sign up with a credit counselor it gets put on your credit report. The credit bureaus recognize this and immediately your credit score will drop. In some cases people with poor credit history there score will drop 50 to 100 points. Talk about never being able to get approved on anything for awhile.

9. Don’t even think about trying to refinance your 30 year fixed rate mortgage within the next two years. Mortgage companies will see this on your credit report and it will automatically deny you. In most cases you will have to be two years out of credit counseling before any mortgage company will even look at doing any kind of mortgage with you. In the mortgage companies eyes, credit counseling is the same thing as filing bankruptcy. It proves you can’t manage your own finances and you are not capable of paying back the mortgage.

10. Think twice about going with a credit counselor. You should be smart enough to know that all you need to do is make your payments on time. If you cannot afford whatever it is your buying in the future, then do not buy it. Credit counselors charge a fee to work with them. Save that money and pay down your bills. Prepare to have your credit report destroyed and to wait at least two years before trying to refinance your home or buy a new one if you go with a credit counselor. If you do own a home and you can’t keep up with your payments, then maybe foreclosure is your only way out.

Post from: The Top 10 Reasons

The Top 10 Reasons To Never Use A Credit Counseling Service

2. There was so much talk about adjustable rate mortgages being for only sub prime borrowers but in reality most of the people that took out an ARM had good credit. They either liked the sound of the lower interest rate, thought rates were going to come down on the 30 year fixed before it adjusted, or just listened to their mortgage broker tell them that they would refinance them in a couple years before their rate adjusts (of course they will, more revenue for them).

3. For some people with good credit they could only afford the house with the lower interest rate so they had to take it. Many did not think what was going to happen when it adjusted or assumed by that time they would be making more money and be able to afford the new payment.

4. What many did not for see is this foreclosure crisis we are in right now happening. Real estate had always been one of the safest investments anybody could make. Home prices have always gone up and why would they stop? No reason for them to stop, right?

5. It did stop and has basically turned the stock market around very quickly. All of the financial gains people made in real estate investments are now gone and many owe more than what the house is worth.

6. The people with good credit are trying to refinance their homes but cannot do it because of changes in getting qualified for a new mortgage. So now the people who thought they were gaming the system by taking a ARM are being gamed right back by simple economics.

7. Big banks, hedge funds, investment firms and other financial companies made a ton of money off of these adjustable rate mortgages. Everybody and their mother was either buying a new home, refinancing their current home, buying a rental property, or picking up a second home with an adjustable rate mortgage. There was so much new business and profits coming in because it almost made to much sense not to get an ARM.

8. Now with the foreclosure mess going on all of the adjustable rate loans originated in the past 5 years have either recently adjusted or are about too. These people can’t get any help from their banks and many people have no where to turn but to remain in their loan and ride out the remaining term.

9. The banks are realizing that maybe adjustable rate mortgages are not a good thing to be promoting anymore because of the long run its really setting up the clients for failure. Who knows how high their payment will go and how are they going to be able to refinance the home when they can’t qualify based on the new payment? They will not be able to. The banks are losing a ton of money from all of the adjustable rate loans going into default. The losses are coming from the amount of money lent + the interest lost over the life of the loan + having to maintain the property through the foreclosure process. The banks just want to collect the interest from your monthly payment and that is it.

10. What is happening now is the banks are saying to the secondary market that they do not want anymore adjustable rate loans in their portfolios because they are too risky. Risk is a major factor in deciding mortgage rates. The banks would rather now have good long term fixed investments coming in every month instead of gambling with what might happen in 3, 5, or 7 years with an ARM. As of July 31, 2008 interest rates on adjustable rate mortgages are about .5% higher than a normal 30 year fixed rate loan. The foreclosures going on around the country have pretty much contributed to the death of the adjustable rate loan. Its probably a good thing because now the banks, home owners, states, federal government, and local governments can all expect to know what is going on now. The banks will know what kind of rate of return they will receive from the loan. The home owner will know what their payment will always be. Local governments will be able to collect property taxes because less homes will be going into foreclosure. Hopefully the federal government will not have to pass another new housing bill in the future to clean up a mess that should have been able to see before this happened. All of these factors, mainly how risky adjustable rate mortgages are is why interest rates on ARM’s will stay higher from here on out than on conventional fixed rate mortgages.

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The Top 10 Reasons Adjustable Rate Mortgages Will Have Higher Rates Than Fixed Rate Mortgages

2. Under the new housing bill what would happen is a larger bank would invest money to a smaller local bank, credit union, mortgage lender, etc to do the loans and in turn they would put up some collateral to receive the money.

3. The collateral would be any asset that the bank has on their balance sheets. So if the homeowner defaults on their mortgage and is put into foreclosure the larger bank that invested the money could choose from something on the smaller banks asset sheet to make up for the lost income.

4. It really becomes a win-win situation for both financial institutions. The investors lend the money to the mortgage companies who in turn originate the loan and then sell it on the covered bond market or keep it and earn interest on it.

5. If the originating company goes bankrupt then the investors get to choose from anything that is on the bankrupt companies list of assets.

6. This covered bond market will force mortgage companies to write better 30 year fixed mortgages because if the loan they write goes in default the investor can basically get something back in return.

7. Before, the mortgage company that originated the loan was off the hook as soon as the mortgage was sold on the secondary market. When the mortgage company sells your mortgage they receive a quick profit and the investor earns the interest. The investor does not do all of the underwriting with the mortgage and accepts a bunch of loans based on basic guidelines.

8. It works out that the investor gives the originating company some money to make some money with the request of making their money back plus interest. The originating company makes a quick buck as almost like a referral fee. The loan can go back to the investor or they can even sell it themselves of the covered bond market.

9. What is nice about the new housing bill and the covered bond is that the government is not getting in the middle of it by lending tax payers money or money created out of air but creating a market for big companies to trade at. The covered bond market will be companies that like the money they can earn with with mortgages but without the risk of the secondary market as it stands now.

10. Even Treasury Secretary Paulson said this is not a cure all because this does not cover what has already happened but its a step forward to making it a more standardized financial market with stricter underwriting guidelines. The new housing bill will probably eliminate all of the shady mortgage brokers and companies that practice bad lending. No investor will want to work with them and the small mortgage companies do not want to have any of their assets taken from them. These assets include loans that are in their portfolio which have people with 720 credit scores, 50% equity in the home, $100k in the bank, and have been at their jobs for 10 years. The banks know these people will keep paying their loan and it is a cash cow for them. You are going to see a lot more people that might be trying to refinance their mortgage with a mortgage application like this due to the new housing bill.

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The Top 10 Reasons The New Housing Bill And Issuing Covered Bonds Will Help The Mortgage Mess

2. What many financial experts or gurus do not tell you is that you have the choice to pay down the mortgage if you want. The mortgage company is not telling you that you have to for a certain period of time. Typically most interest only home loans are a normal 30 year fixed interest rate mortgage where the first ten years of the loan are an interest only option period and then at year ten it turns into a 20 year principal and interest loan where you would pay down the loan. Your payment will re-adjust to what the balance is at that time but the interest rate would never change.

3. The interest only home loan is not that much different than a normal 30 year conventional loan. For the most part they are both interest only loans. As an example, let’s take the normal 30 year rate as of July 29, 2008. The zero point rate is around 7.25%. On a 30 year fixed principal and interest loan a $200k loan at 7.25% would have a payment of $1,364. A interest only loan at the same interest rate would have a interest only payment of $1,208. As you can see there is only a difference of $1,364 – $1,208 = $156. Pretty sickening huh? Only $156 of your $1300 payment is going towards the principal balance of the mortgage or only 11% of the payment if you like looking at numbers in percentages.

4. From our example above, only $156 x 12 months = $1,872 would be going towards the balance in a year while $1,208 x 12 = $14,496 is going to the bank in interest. If that does not make you mad then I do not know what will not. You can see from these numbers that the majority of your payment is going to be going to the bank and you really do not start paying the balance down on the mortgage until year 15. Mortgages are set up to be a front loaded interest loan. This means that you pay more interest in the beginning of the mortgage than at the end. The banks do this so they can get their money up front so in case you default on the mortgage and they have to foreclose on you they would of at least made some money.

5. A number of people took out interest only home loans during the refi boom because they liked the lower payments. Some took out loans that were an adjustable rate mortgage and some took out ones where the rate was fixed forever. The people who took out the fixed rate loans are sitting in a good spot right now and for the most part even if you took out an adjustable rate one you should be okay too.

6. With all of the bad publicity about interest only mortgages its hard to not say to yourself why you shouldn’t get out of your loan. Here is the answer why you shouldn’t. If you took out a interest only fixed rate loan during the years of 2004-2007 you probably have a fixed interest rate between 5.5%-7%. Mortgage rates as of July 29, 2008 on a 30 year fixed are at 7.25%. Why would you increase your rate just so you are forced to pay down the balance? You won’t. Its one of the dumbest reasons to get out of a interest only mortgage. Every body is always looking for the lowest interest rate and guess what, you already have it.

7. The misconception about the interest only loan is that you never pay down the balance. Well, that is easy to take care of. When you get your monthly mortgage payment, get your check book out, add $100 to the payment and that’s it. The mortgage company servicing your loan will credit the $100 towards the balance of your home loan. That was not so hard was it? Do this every month and you will see your balance go down accordingly. Interest only mortgages are great for self-employed people, seasonal employees, sales people who are paid commission only, and anybody else who receives income that fluctuates over the year. When times are good, write out a larger check. When times are tough, write out just what you need to make the interest only payment. This way you are not getting any mortgage lates and your credit is still perfect.

8. The interest only mortgage is the best mortgage you can have especially if you took the fixed rate version. Sure, at year 10 your payment going to go up but that does not mean that it has to. using our example above of $200k at 7.25%, if you made the $1,364 payment to the mortgage every month your payment would never change. Now if you just made the interest only payment until year 10, it would re-amortize to a 20 year fixed principal and interest payment based on a $200k balance (remember that you just paid interest to your loan the last 10 years) at 7.25% it would be $1,580 a month. Your payment would go up $1,580 – $1,280 = $300. Its a decent jump in monthly payments. Many people prepare for this ahead of time by saving the $150 they were not paying towards the loan in mutual funds or savings account earning them a decent rate of return. You could have saved $150 x 12 = $1,800 x 10 years = $18,000. If you could even earn 5% on your money over those ten years you could earn an additional $6500 just in interest coming out to $24,500.

9. With all of the security of a fixed rate mortgage and the option to pay down the balance when you want why would you ever want to refinance out of a interest only home loan? You would not want to. Let’s say that even if you could find a deal where you could get a new 30 year fixed rate principal and interest home loan with .25 less in interest rate it would still not make sense to do. You would have to pay all of the closing costs (no such thing as a no closing cost mortgage) again and your payment would be higher than what it is. Same example as above: $200k loan, 7.25% interest only payment =$1,280 a month. $200k loan, 7% fixed principal and interest payment = $1,330. By doing so you are forcing yourself to pay an additional $50 out of your pocket and probably pay another $3000 in closing costs. Does not sound like a good idea with gas prices, food prices, and inflation as a whole is going up. Wouldn’t it be better to put that $50 in your pocket instead of using a credit card? I think so. A lot of home owners get themselves into trouble without saving up a lot of money and are forced to open up a home equity line of credit to have cash on hand in case of an emergency. If they had taken out the fixed rate interest only loan they could have saved the money from not paying down the principal and used it to pay for things. Now with the home equity loan they are paying interest on that now too.

10. One of the best features about an interest only mortgage is that when you do pay more towards your home loan the payment will re-calculate the very next month towards your new payment. On a normal 30 year loan the payment will stay the same regardless if you put $10k on top of the payment on any given month. Using our $200k example, let’s say you write out a check with $20k more on top of your interest only payment. The very next month your interest only payment will be based on $180k at 7.25% would be $1,087. Dropping your payment from $1,280 – $1,087 = $193 a month. Sure, its not a lot of money that it dropped but at least you can see some sort of dent in the payment. Think twice about refinancing your interest only mortgage. The majority of times you are in a better spot already then the one you would be in if you were to refinance into a 30 year fixed loan.

Post from: The Top 10 Reasons

The Top 10 Reasons To Not Refinance Out Of Your Interest Only Mortgage

2. The rest of the world is trying to act like Americans and Americans are trying to act like them. Places like Russia, China, India, and Brazil are all buying cars of their own now and everybody is trying to get to the point where they own their own car instead of sharing the family vehicle like they use to. In the United States it is common to have every person in the house over the age of 16 to have their own car.

3. Oil companies are in business to make money. Don’t blame them for trying to do it. You are probably invested with them one way or another in your 401k, stocks, mutual funds, or pension. This is good news when they are making money. Its just that with the increase in gas prices so dramatically our wages have not kept up.

4. The only way to lower gas and oil prices is to either not use it at all or everybody stop using so much of it. This goes back to the supply and demand theory.

5. We were raised and told to change our oil every 3000 miles. We all assumed this was what was best for the car and what was recommended by the car manufacturer. Really it was the marketing of the oil companies to use more of their oil. If they could get you to think that you needed to change your oil every 3000 miles or every 4 months than you would be going to your local instant oil change place 3 times a year. This is good news for them.

6. Since this was the unwritten rule for so many years nobody really questioned it. Its funny because back in the 1950s and 1960s you didn’t change your oil you checked your oil. That’s right, you opened up the hood, pulled out the dipstick and made sure there was enough in there. If it was low you would put a quart or two in there. This was just the same as changing the oil but you didn’t drain it all out or change the oil filter. No need to drain it because cars back then would burn oil a lot more than the cars of today. I remember my dad telling me stories of driving in his 1970 Ford Mustang and taking the oil filter off once a year or longer.

7. Over the past 20 years changing your oil and the oil filter have been said this is what any good car owner would do. Not only are they telling you to change the oil but the filter too every 4 or 6 months. Now you are getting charged for the filter which is more profits for them.

8. Do you think the car of today needs to have its oil changed every 3000 miles to maintain its peak performance? Could it be the oil companies just trying to make more of a profit? I believe that we need to make a stand and stop changing our oil every 3000 miles. By doing so it will help in lowering oil and gas prices. With all of the problems going on in our economy right now we need to question some of the unwritten rules. People are having to use their home equity lines of credit just to be able to make the payments on their 30 year fixed rate mortgage so their house does not get foreclosed on. This never ending cycle needs to be broke so we all can get back on financial track.

9. Some car companies have admitted that you do not need to change your oil every 3000 miles and 5000 miles would be okay. Thank you car companies for stepping up and saying so. Unfortunately they say so in your owners manual for the car and do not say it on TV. You still see the adds from big oil companies saying to change it every 3000. Do you remember the last time you had your oil and filter changed? Did it cost you almost $50 to do so. Think about if you changed your oil every 6000 miles instead of 3000. This would save you $100 a year just on oil changes. For some smaller cars like a Ford Focus you could even stretch it out to 7500 miles. The smaller cars get less wear and tear on them then do a let’s say a Ford F-150. Even with a truck you should still go to 5000 miles. Oil changes for trucks are usually $5-$10 higher than a car because they need more oil in the engine block. I own a Ford Fusion and took it up to 6500 miles before my first oil change. I always remember to look at the sticker they put on my window and add 3000 miles to whatever that number says. They always say that I’m way over do but I tell them that my miles per gallon have not changed and the car ran fine.

10.  If all Americans started changing their oil at 5000 miles instead of 3000 miles this would help reduce the demand for oil. This is not the cure all of ideas but it will work. You would be consuming half of the oil you normally do in a year to operate your car. Your car will not perform marginally better or less with the older oil. Take that number and times it by every single person in America that changes their oil every 300 miles. There are approximately 143 million cars and trucks on the road in the United States as of July 2008. Let’s use the $100 a year in savings for the average car owner x 143 million cars = $14,300,000,000 not going to the oil companies every year just in oil changes. This is just in the United States. Think about that number around the world. Oil prices would have to come down because of supply and demand. Do you think it makes sense now to change your oil every 5000 miles?

Post from: The Top 10 Reasons

The Top 10 Reasons We Can Lower Oil Prices By Changing The Oil In Our Cars Every 5000 Miles

2. Right now a lot of people that took out adjustable rate mortgages from 2003-2005 are starting to see their interest rates finally adjust on them and are trying to deal with the increased payments. Many of these same people that took aout an adjustable rate mortgage also took a home equity line of credit when their property was increasing in value. They also took out their home equity loan right up to 100% of the value of the home more than likely to pay off credit card debt or other things they did not need. Now they have two loans combined and owe around 125% of what the home is worth.

3. Parts of the country like the mid-west, especially Detroit (1 in 66 homes in foreclosure) and parts of Ohio like Akron and Toledo are being severely hit with this foreclosure epidemic. The crazy thing is that they do not even lead the nation in this category. Stockton, CA leads it with 1 out of every 25 homes. Its probably due to the ridiculous home prices that were in that area during the refi boom because San Francisco is so expensive to live there. People thought they could make the drive from Stockton to San Francisco for their jobs but now with fuel prices around $4 a gallon its just too much to do.

4. The mid-west is suffering from major job losses in the automotive industry. It’s almost everyday that you hear one of the auto manufacturers like Ford, GM, and Chrysler laying off more workers. Its not that home prices were very high even during the refi boom because many auto workers made good money to afford the homes. Now its that just don’t have any money to pay their mortgage payment. In California and Nevada home prices were past what market levels should have been at and people are now stuck owing 25% more than what they owe on them. Inflation is pushing home owners out west to foreclose, not loss of jobs.

5. The National Realtors Association has been changing their estimates on how many homes they think are going to be sold. I don’t know why they make estimates in the first place. Why don’t they just say that “there are a ton of homes for sale and nobody wants or can afford to buy them.”

6. With all of the bad publicity about adjustable rate mortgages and sub-prime home loans you will see pretty much everybody start asking for 30 year fixed rate mortgages. I guess we all learned from out mistakes and know that gambling on what interest rates will be like in the future is not a calculated risk. Many mortgage companies told clients that rates go up and down every 3 years and that when their loan would adjust they would refinance them into a fixed loan.

7. Of course they would refinance them into a fixed loan because then that meant more fees and closing costs they could collect. Mortgage companies do not get paid on the interest rate they charge. They get paid when they originate your loan and sell it on the secondary market to a larger bank or hedge fund that collects the interest from your payment.

8. Right now this strategy from the mortgage companies is back firing on them because now you would think that there are a ton of people (there are) looking to refinance their home and get out of the adjustable rate. Problem is that they cannot refinance because the mortgage companies guidelines have changed dramatically in the past year and many home owners cannot get approved on a new home loan.

9. Many people are stuck in loans in which they owe more than what their house is worth. No mortgage lender will do loans over 100% of the value of the home and most will only do up to 95% at the maximum. The FHA loan is becoming popular again because of funding from the government (thanks but no thanks). This takes the burden off of the mortgage lenders because the FHA is insuring the loan in case of default. Interest rates on a FHA loan are usually .5% lower than a normal conventional loan but it does not matter. On a FHA loan the borrower has to pay a mortgage insurance either up front or monthly with the payment. This extra insurance should be considered an interest rate. Interest rates on a 30 year fixed as of July 25, 2008 are around 7.5% with no points on a 30 year conventional loan. A FHA loan is around 6.75% with no points. The reason the FHA does this is because they determine what they want to do (because they are the man they set prices on whatever they want) while major investment firms cannot do this. You can see why the FHA is becoming popular again.

10. We should expect foreclosures to continue well into 2010 at the same rate before things start leveling off. There is not going to be a real estate rebound or recovery. How will it? People are losing jobs left and right and there is no new technology or thing we can manufacture on the horizon. So many home owners are doing their best to avoid foreclosure but there is not that much they can do. If you are smart you will wait to buy a home until 2010 regardless of where you live. Foreclosures affect every home value for every property within a 1 mile radius.

Post from: The Top 10 Reasons

The Top 10 Reasons Foreclosures Will Keep Going Up Until 2010

2. Without the mobile home being secured to the ground it becomes a huge risk for any mortgage company. The mortgage companies do home loans that are leveraged against a “secured property.” A mobile home or manufactured home is not.

3. Since the mobile or manufactured home is not secured to the ground the investors that give the money to the mortgage companies say in their guidelines that they will not allow them to write any loans on such a property.

4. If you own a mobile or manufactured home and are looking to refinance your property you should always be upfront about the type of property it is. Many mortgage companies will collect a deposit at the time of application to cover the costs of the appraisal. As long as everything goes well then they will give you the deposit back at closing or credit it to your closing costs (no such thing as a mobile home loan with no closing costs). If you do not tell your loan officer that the house is a mobile or manufactured home the appraiser will come to your home, do the appraisal and send it back to the mortgage company. As soon as the appraisal gets back the loan will be declined. Some appraisers will call the mortgage company up and tell them that its a mobile home before they do the work. Some will not because they assumed that both parties know this. You cannot blame the appraiser because they are there to work.

5. After the appraisal gets back in and you are told that you cannot get a loan from them you will probably spend the next hour going back and forth about trying to get your deposit back because nobody told you your property was ineligible for refinancing. Depending on the company some will give it back and some will not. Best thing to do is to ask the loan officer up front if they refinance mobile or manufactured homes. Most of the time the loan officer will ask you these question because its a part of their sales process.

6. A major reason why the larger mortgage companies do not refinance mobile homes is because they are, well, mobile. Let’s say that they did refinance your manufactured home and then 6 months later you found a new piece of property in the next county that looks over a lake and has twice the amount of property. Let’s call it your dream property. You decide instead of building you are just going to hook the mobile home to the back of your Ford F-350 and trailer it down to your new property. You place the mobile home right were you want it and life is good.

7. Life is not good for the mortgage company because they did your home loan based on the lot where you use to live. Mortgage companies appraise the value of the home and the lot. Without a structure on the site the property is probably worth 60% less now. They hold a mortgage on the property you use to live on. You are technically still on the hook for the loan but you say to them “I don’t live there anymore.”

8. Since you decided to just pick the mobile home up and go the bank can only really foreclose on the lot. The mortgage note is registered with the county and state on that property. They cannot transfer the note to your new lot. This is against the law.

9. Now the mortgage company cannot sell the property for what it was initially worth because the mobile home itself was a piece of the equation. The bank would then be forced to take a huge loss on the lot and sell it for 60% less than what it was worth when you took out the home loan. As an example, the property with the mobile home was worth $50k and you took out a loan for the full $50k. Without the mobile home the lot is worth $30k. The bank would take a $50k – $30k = $20k loss on it. Not good business for them. Worst thing for you is that your credit report gets jacked up and now you have a foreclosure on your credit report. You do not care because you still have your home and the new property of your dreams.

10. The mortgage companies will not even refinance a property that has a normal single family brick home and a mobile home on it. The mortgage company will ask you to move it off of the property before they do anything. With so much risk for the major mortgage lenders you can see why its not a good practice. Mobile home owners can still find companies that do mobile home and manufactured home loans. Most of these companies are local lenders such as your local bank or credit union. They know the area better than larger mortgage lenders and are willing to take a risk. Interest rates on a 30 year fixed rate mortgage for a mobile home are typically just a little bit higher than normal conventional home loans. There are plenty of mobile home loan companies out there that will want your business just be prepared for a few more restrictions to go along with your refinance than if you had a normal single family home.

Post from: The Top 10 Reasons

The Top 10 Reasons Mortgage Companies Do Not Refinance Mobile Homes