A prepayment penalty is the jack-in-the-box of the mortgaging world. Most times it is equally annoyingly unexpected (for the borrower), but unlike the dumb toy, it may cause people to lose their money, not just make them produce a polite squeak of a laugh.

A prepayment penalty, if included into a mortgage contract, states that the borrower shall be penalized for a fast repayment of the outstanding balance, a too fast one, that is. What’s too fast? The Note of your mortgage contract contains a schedule of your repayment. Any extra payment ahead of this schedule accelerates the complete repayment of your loan. It saves you quite some money on the interest, but, weird as it may seem, does not make the lender particularly happy. The lender does not want you to get away so soon and easy, he wants you to pay as much interest on the money you’ve borrowed as possible. So, he tries to impose a penalty on you, forcing you to keep your mortgage unchanged for at least 3 or 5 years. It does not mean that extra payments are totally forbidden during this period, but they will probably be limited to the maximum of 20% of the original loan’s balance per year. Everything above that amount is penalized.  Read the rest of this article »

Today’s article explains the equity way to close the financial gap between the new and the old homes’ mortgages.

A lot of people count on the money they are going to get from selling their current home to make a proper down payment on their new home and start a new mortgage. Unfortunately, many properties get stubborn at the point and refuse to sell while their owners are gradually getting frustrated at somebody else snatching the perfect home right from in front of their nose.

The frustration can be avoided in several ways, including financial aid from friends and relatives, or retirement accounts. If those fail, a bridge loan can certainly be of help.

A bridge loan is usually provided by the lender of the new home’s mortgage, but its collateral is the old home. Most bridge loans are Read the rest of this article »

Today I suggest we talk about the so-called “no-cost” refinancing. First of all, this commonly used name for a refinancing option one can find very useful under certain circumstances is in fact rather misleading, because:

• No-cost does not mean free from any costs;
• No-cost refinancing helps you only with the Non-Recurring Closing Costs;
• No-cost refinancing still leaves you to pay at least Property Taxes, Interest, and Insurance.

Now that you’ve been warned, let’s take a closer look and find out about the circumstances under which this option can be useful.

Read the rest of this article »

 Why do people refinance? All for different reasons, of course, but the most common ones are:

• To obtain a lower interest rate,
• To build the equity of their property faster,
• To change the type of their loan,
• To take advantage of an improved credit rating,
• To get some cash out of the equity already built in the home.

How does it work?

Obtaining a lower interest rate is probably the most popular reason to refinance. One may have an adjustable rate mortgage with a rate gone too high, or a high-rate mortgage resulting from negative points, or an above-the-average rate caused by the poor credit score at the time of the loan origination, or it may have been a very sensible loan all the way until mortgage market interest rates dropped. Refinancing in such and such like situations can save you quite some money, but you have to be very thorough in estimating the benefit. The main question is whether the amount saved will be worth the amount paid. The procedure of refinancing is not cheap, so you have to make sure, that the money you pay for it will not only return to you, but also gain you some profit as savings on the interest, as compared with your current loan.

One of the decisive factors is Read the rest of this article »

Refinancing your mortgage means basically that you stop your current mortgage and take a new one in its stead on better terms. The goal is to save money by getting a better deal on the home mortgage loan. People tend to refinance when mortgage market interest rates drop below the lowest rate they can have on their current mortgage. In many cases it does make sense and profit, but there are so many components and parameters involved, that the lower rate of the new loan solely does not secure a profit. Every case is unique and has to be treated as such and calculated and estimated taking into account all the parameters relevant to the situation.

The first hint that may bring you to thinking about refinancing your mortgage at all, especially if you still have a long term to go with your current mortgage, is the drop in interest rates on the mortgage market. A lower rate means that the overall cost of your mortgage will be smaller, but will it save you enough to return the cash paid for the refinancing procedure? Read the rest of this article »