At the end of August, the Bush administration called for a more detailed disclosure of mortgage loan terms and settlement costs.  However, if one were to read the Federal Deposits Insurance Commission (FDIC) laws and regulations (because they are such a fun read and we all have that much free time on our hands), one might be surprised to find that many tools are already in place to ensure full disclosure of said details.  So, how can you avoid being yet another cautionary tale of mortgage mishap?  Here are a few helpful tips:

Educate yourself.  According to the White House Press Release, President Bush and his administration plan on enforcing a number of programs to promote consumer mortgage loan education.  The home buying and financing process is not a simple process, and since a home purchase is frequently the largest purchase most people will ever make (real estate), it is something buyers should definitely take the time to understand.

A common complaint among borrowers, particularly those who took out subprime mortgage loans, was that they did not understand the terms of their loan.  Thus, this is why some see education as an effective tool in preventing an inflated level of default mortgages.

Another common complaint among mortgage holders was that the terms of their loan had changed by closing.  Thus, these homebuyers ended up with mortgages and interest scenarios that were not ideal for them or their financial situation.  Had these borrowers been more aware of the different loan options that were available, they may have been able to avoid their current high cost loan.  There are a number of tools, including the Internet, that you can use to research rates and find available loan options.

Don’t be afraid to scrutinize.  While most of us probably sign documents that are placed in front of us in the blink of an eye, it is important to know what terms and conditions to which you are agreeing.  In addition to general knowledge concerning mortgages, being familiar with the mortgage loan vocabulary can help you better recognize bogus terms or interest rates.  The purpose of written documentation is to ensure that both sides understand the terms to which they are agreeing.  If either side neglects to read the fine print, once they sign it, they have agreed to whatever is stated in the document, regardless of whether they meant to or not.

While the government will continue to create more safeguards to protect consumers, doing your part as a responsible borrower can ensure that you don’t run into any surprises down the road.

Source: Informa Research Services

Could using your home equity as your auto loan provide you with some extra gas money?  For many homeowners, the answer is yes.  Because many people frequently overlook this huge asset in which they reside, they end up spending thousands of dollars more in interest and finance charges.  However, using a home equity loan (HEL) to finance your new car purchase is not entirely risk-free.  Thus, a clear understanding of what exactly the process entails is necessary to avoid becoming a victim of a financial hit-and-run.

The most obvious feature of any loan is the interest rate and rightly so.  A lower interest rate will, indeed, lower the amount added to the cost of financing your vehicle purchase.  Another factor to consider is that the interest paid on a HEL  may be tax-deductible.  (You should check with your tax preparer for full details.)  Moreover, the monthly payments on a HEL [insert link to home equity rate tables] can be lower than those on an auto loan because of HELs typically have longer terms than auto loans.  Instead of paying back your balance over 5 to 7 years, a HEL allows you 10 to 15 years to pay it back.

However, interest is not everything in choosing a loan to use; there are a number of other factors to consider and one such factor is the additional fees that are added to your loan.  These can come in the form of finance charges or closing costs.  In either case, your main objective should be to keep these as low as possible.  In fact, according to a 2004 report, the Consumer Federation of America found that exorbitant “finance markup charges” that were set arbitrarily added at least $1,000 to the cost of auto loans which cost consumers up to a billion dollars a year (Source: National Consumer Law Center).

Like most questions concerning money and finance, there is no single, definitive answer that works for everyone.  Deciding whether to take out an auto loan or a HEL depends on the interest rates and various promotional offers available.  When you finally decide to treat yourself to that new ride, remember to consider the aforementioned factors to help you appropriately weigh your options.  Doing so will have you sliding into those comfy bucket seats, pressing that pedal to the medal, and leaving any financing doubts or regrets in the dust before you know it.

Source: Informa Research Services

How Much Does a No-Cost Mortgage Cost?

Free press.  Fat-free.  Free gift with purchase.  It seems like anything that’s “free” is harmless and generally, a good thing.  People will jump at the opportunity for something that is sans cost.  But should you be jumping for a no-cost mortgage loan?

So, what exactly is a “no-cost mortgage”?
A no-cost mortgage loan is a mortgage in which the upfront fees are paid by the lender at closing.  These fees include many of the settlement costs, but keep in mind that there are some costs, such as prepaid taxes, or title charges, that cannot always be paid by the lender.  Typically, the only fees that are waived are those that fall into the category of “lender fees.”

How much does a no-cost mortgage cost?
A no-cost mortgage costs nothing out of pocket at closing.  However, a no-cost mortgage may result in having a slightly higher mortgage rate.  Nonetheless, the difference between the interest charged on a no-cost and regular mortgage loan tends to be very small.  You should use the resources available to you, such as the Internet, to shop and find the best rates and fees.

Who would benefit from a no-cost mortgage?
Depending on your situation and personal finances, a no-cost mortgage may or may not be the right option for you.  Some homebuyers may opt to use the cash they save to furnish their home or perhaps upgrade the conditions of their home.  It may be advantageous to use the cash you save by not paying the upfront fees to get the mortgage loan to finance these purchases because it will be affected by a lower interest rate than many other loans, such as credit cards.

No-cost mortgages are not for everyone.  It is really a matter of preference.  You need to weigh the importance of paying closing costs upfront against paying a slightly higher rate over the term of the mortgage loan.

Although there are protective measures in place, such as the Truth in Lending Act, regardless of which loan you choose, you should be sure to read the details contained in the fine print to ensure that you are truly getting (and paying) what you think you are.  Additionally, one can use the Internet to research their available loan options, both traditional and no-cost.

Source: Informa Research Services

What Documents Do You Need to Get Approved for a Mortgage?

Getting a mortgage home loan might seem like a tedious process, but if you do your part to look good on paper, you can increase your eligibility for the best mortgage rates.  Financial institutions primarily consider three main areas in determining who is eligible for a mortgage: employment history, credit history, debt to income ratio (which is the percentage of income that goes to expenses).  As proof of these, most financial institutions will ask for a selection of the following documents in considering your request for a mortgage loan.

Employment

• Last two years’ federal tax returns and/or W-2 statements
Financial institutions typically use your past tax returns as verification of your employment and earnings.

• Pay stubs
Most financial institutions will ask to see your most recent pay stubs, usually covering the past month.  Your pay stub must have your name, your social security number, your employer’s address, and your year-to-date earnings.  These help them to gauge whether you will be able to handle your monthly mortgage payments.

• Employment history
While your pay stubs provide your financial earnings, your employment history gives the financial institution an idea of the nature of your employment.  Generally, a record of steady employment is going to work in your favor.

Credit History

• Credit report, including current creditors and account information
A credit report, including a list of your current creditors and the corresponding account information is useful to a financial institution because it allows them to see how you have dealt with your past loans.  This list should include the details (i.e. minimum monthly payment and balances) of all student loans, auto loans, credit cards, and child support payments.  By establishing a solid credit history, you can avoid having to pay higher interest rates that frequently accompany subprime mortgages.

Expenses and Payments

• Bank statements
In order to verify your banking assets, financial institutions will most likely want to see up to three months of your most recent bank statements.

• Complete record of assets
Additional assets that should be reported upon applying for a mortgage loan should include mutual funds, retirement accounts, real estate titles, and stock certificates.  These not only promotes your qualifications as a worthy risk for the financial institution, but they can also help you secure a lower interest rate.

• Canceled rent checks
If you are currently renting, canceled checks that were used to pay rent can be proof that you are punctual with your payments.  Some financial institutions may ask for the name and address of your landlord instead of the canceled checks.

• Information about desired property or property type
Providing the financial institution with a description of either the property you want to finance or at least a description of the property helps the financial institution decide if any of the loan programs would be right for you.

Having these documents gathered and ready to go when you are in the process of shopping for a new home will help your mortgage application process go smoothly.

Source: Informa Research Services

Use Your Home to Get Away: Home Equity Loans with Frequent Flyer Programs

Just because you’re paying off an unexpected expense by using a home equity loan or line of credit doesn’t necessarily mean that vacation needs be out of mind.  Many financial institutions partner up with airlines to offer customers a way to earn miles while conveniently using the wealth they’ve built through the equity in their homes to pay off emergency medical expenses or fund a remodeling project.

The rewards offered by these companies range from 1,000 to 5,000 miles upon taking out a home equity loan or line of credit.  While these won’t automatically get you flying first class to your destination of choice on your dream vacation, they will get you at least part way there.

However, before enrolling in a mileage program and applying for a home equity loan or line of credit, check out the lending organizations.  A few thousand miles are nice, but if there is a better deal somewhere else (or even better, somewhere else that offers miles as well), you will regret having not done your research first.

Even if you don’t plan on traveling or if you never end up redeeming them for a ticket or upgrade, you can donate your unused miles earned on your home equity loan or line of credit to the charities with which the airlines have partnerships.  Some of the charities that have partnerships with airlines include the Make-A-Wish Foundation, the American Red Cross, and a number of research organizations and children’s hospitals.  These miles might not be tax-deductible, but they are for a good cause.  Besides, it’s not often that you can contribute to a good cause for free.  As long as the miles earned from your home equity loan are used, whether it is by you or by someone else, these programs seem to be a win-win-win situation.

So put your seat backs and tray tables in the upright and locked positions and get ready to take off with your home equity loan!

Source: Informa Research Services

Which Team is Your Mortgage Broker Playing For?

As the popular sports saying goes, “The best offense is a good defense.”  The same can be said for using a broker to get a mortgage.

Navigating the terrain of mortgages—including terminology, conditions, and the process as a whole—can be a challenge, to say the least.  Thus, to help alleviate some of the pain often associated with mortgages, many homebuyers seek the help of mortgage brokers to assist in making the process a little less daunting.

While most mortgage brokers do their work in the best interest of the homebuyer, here are a few tips to make sure you get the most out of your home financing experience.

• Acquire basic knowledge about mortgages and how they work.  Avoid meeting with a mortgage broker or loan officer without any knowledge of your own.  While brokers will take the time to explain the fine (and not-so-fine) print, having basic knowledge under your belt will help you better understand the terms to which you are committing.

• Research available rates online.  Brokers work with a number of lenders to offer you a wide assortment of financing options and competitive prices.  There are a number of resources available online and in print that you can reference for the most current and up-to-date rates.  By becoming familiar with the rates available, you will be able to better evaluate the rates  you are offered by your broker.

• All borrowers have the right to full disclosure of all fees, terms, and penalties associated with their loan, so don’t be afraid to ask your broker questions.  These questions can range from the details of the mortgages you are considering to the nature of their fees.  Asking these questions should help establish a good working relationship with your broker.  Also, this should help clear up any confusion concerning your mortgage.  For example, ask you broker about prepayment penalties.  You may not realize that the offer of a lower rate comes with potential restrictions.

Consider seeking out an Upfront Mortgage Broker® (UMB).  According to the Upfront Mortgage Brokers Association (UMBA) website, “UMBs disclose their fees…in advance and in writing and disclose the wholesale prices passed through from lenders” (Source: upfrontmortgagebrokers.org).  This can help ensure that both you and your broker have a clear understanding of what is being agreed upon.  The UMBA also states that UMBs represent the homebuyer and the homebuyer’s best interest when shopping for potential loans.  Furthermore, instead of increasing their commission from rebates or concessions they receive from third parties, UMBs pass along these credits to their clients.

By taking heed and completing your own pre-mortgage training, you and your broker can be a winning team.

Source: Informa Research Services

Use Your Home to Send Your Child to Their Home Away from Home

We’ve all seen those stickers that proudly boast “University of Southern California Mom” or “Harvard Dad.”  What they should really say is “Pay to the Order of USC” or “Sending the Checks to Harvard University.”  If you’ve ever funded the college education of any loved one, then you know the feeling.  While you may not have much of a say as to where your money goes, you can choose where that money comes from, and one option to help fund a college education is a home equity line of credit.

With a home equity line of credit, you have a certain amount of funds available to you (depending on how much equity you have in your home), but you do not have to receive them all at once, which is the case with a home equity loan.  Instead, you can withdraw money whenever you need it and only pay interest on the amount you borrow.  Also, the interest that you pay on a home equity line of credit is usually tax-deductible.  Check with your tax advisor for more details.

If you are still a little uneasy with the thought of using your home equity to pay those hefty college bills, think of it as an investment.  Using home equity to fund home improvement projects to increase a home’s fair market value is not uncommon.  Similarly, funding your child’s education will theoretically help him or her in the job market, just as home improvements are intended to increase your property’s value in the real estate market.

Lawyer and President of Harvard University Derek Bok once said, “If you think education is expensive, try ignorance.”  To ace the financial test that funding a college education may bring about, do your research and study up on the best mortgage rates so you can be assured that you are getting the best home equity line of credit available.

Source: Informa Research Services

Informa Research Services Says “Don’t Panic!”: What a Fed Rate Cut Could Mean for You

Rest assured, the world is not coming to an end because of a possible Federal Reserve discount rate cut.  On Tuesday, the Federal Open Market Committee will meet to discuss whether or not to lower the discount rate.  But despite the seemingly ambient anticipatory anxiety currently erupting from most business and economic media outlets, the sky is not falling.  Rather, this possible decrease is just a small acorn falling off a tree.  So take a deep breath, sit back, and relax.  Here are some pointers to help you make the most out of next week’s decision.

If you feel that deposit rates may drop after the Fed’s decision, these are just a few of the options to consider in deciding where to place your money:

• Consider locking your money into a CD now to take advantage of the rates that are currently available.  If you are considering a term longer than three years, check onrline for the most competitive offers.

• Money market accounts and high-yield savings accounts are also potential deposit accounts you can use to make the most of a possible rate cut.  The rates offered can be extremely competitive with many CD accounts.  You can also find some of these products offering teaser rates that could be locked in for three to six months.

• Another option to consider is laddering your CDs.  By laddering your CDs, or locking your money into CDs of various terms, you will be given the flexibility to take advantage of the rates and promotions available when your CDs mature.  Furthermore, you can lock your money into a longer term CD that typically offers higher rates, and over time, this should even out the high and low interest rate cycles.

By staying informed of all your options as rates change, you can properly gauge what is best for your situation.  For all these options, you should always keep an eye out for the best rates.  Many financial institutions will continue to offer promotional and teaser rates even if rates fall.  Be sure to use tools on the Internet to stay up to speed with the most current rates being offered.  Even if the Fed decides to cut the discount rate, it is very likely that there will still be great rates out there, both online and at your local bank.  Be sure to take advantage of the promotional products (typically paired up with very good rates) banks will continue to offer to attract new customers.

As for loans, the loans that should be affected by the prime rate cut are the variable rates associated with credit cards and home equity lines of credit. Because the rates tied to these loans are typically calculated by adding a certain percentage to the prime rate, with the Fed cut, these interest rates could drop slightly.  Additionally, this might be a good time to open up that home equity line to help pay for unexpected expenses, such as home repairs or improvements.

In general, if the Fed decides to make any drastic changes, the effects would probably be seen over the span of a few months or years, not a few days, allowing the market time to adjust.  Remembering to keep things in perspective and not be impulsive with any financial decisions will ensure that you and your finances will be relatively safe and secure.

Source: Informa Research Services

3 Mistakes to Avoid When Applying for a Home Equity Loan

A home equity loan can be a great resource to homeowners who need some extra money to do a renovation project, pay for college tuition, or even make a large purchase. However, there are three mistakes that you as a homeowner might make that, if avoided, can make the application process run smoothly and give you a better experience:

1. AVOID being unaware of the differences between a Home Equity Loan and a Home Equity Line of Credit. It is important that you understand the differences between the two types of home equity loans so you will know which one is better for your situation. A home equity loan is paid out in one lump sum and it usually has a fixed interest rate and term. A home equity line of credit, on the other hand, can be drawn on whenever you need money, interest is paid only on the amount you borrow, and it usually has a variable interest rate. Ascertaining how you will use the funds, what type of interest rates you would prefer, and how you can afford to repay the loan will force you to research these loans very carefully and will allow you to make the best decision.

2. AVOID getting hit with unexpected fees. Most fees on home equity loans and lines of credit are unavoidable, but it is still important to know about them, so you are not surprised when you are charged with them. Common fees that are charged on a home equity loan include closing costs, points, appraisal fees, escrow fees, flood certification fees, and recording fees. Some financial institutions will also charge customers a prepayment penalty fee if they close out the account before a certain time period - typically within the first three years. Home equity lines of credit carry most of these fees as well, and they also tend to have annual fees attached to them. Being prepared for these fees will allow you to include them in your estimate of how much you can afford to borrow, so that you do not end up owing more than you had expected.

3. AVOID jumping at the offer of a high LTV ratio. The loan to value (LTV) ratio is the ratio of the amount of money you borrow through a home equity loan (or mortgage) to the value of your home. This ratio is considered high when it exceeds 80%. Sometimes, if you have outstanding credit, certain lenders who want your business will offer you a loan for an amount close to or even exceeding the amount of equity you have in your home. The interest and any fees you might be charged can take a high LTV loan above the value of your home, making the excess amount an unsecured loan, like a credit card. The interest on this amount is not tax-deductible, as the interest on home equity loans and lines of credit usually is.  (Check with your tax advisor for more details.) Only borrow what you can afford - do not take more money just because it is offered to you.

Being aware of these mistakes and knowing how to avoid them will certainly get you on the road to becoming a wise home equity loan shopper.

Source: Informa Research Services

Make a Point to Lower Your Interest

On a test, students want all the points they can get, and even adults will brighten up at the promise of some of those proverbial “brownie points.”  But in the mortgage world it is quite the opposite - people usually aren’t so thrilled about points. Mortgage points, also called discount points, are an up-front fee paid in cash to the lender at the time of closing.  Points can also be rolled into the loan, but this will partially defeat the purpose of paying points in the first place because of the resulting increase in the mortgage rate. However, paying points also means that you are paying extra money upfront to lower your interest rate. Therefore, the question is this: Will it save you more money in the long run to pay a lower interest rate or to pay no points?

What’s the Point?
Points are paid to lower the interest rate—the more points you pay, the lower the interest rate you get, and correspondingly, the less interest you pay overall. One point is equal to 1% of the loan amount, and depending on the individual’s loan scenario, each point lowers the interest rate by approximately .125% to .25%. Borrowers benefit from points because paying points typically results in having lower monthly payments.

Let’s Get to the Point
So, when is it better to pay points in order to get a lower interest rate? The general rule is that if you plan on staying in the same home or mortgage for five or more years, then paying points will work to your advantage.  However, if you plan on moving or refinancing your loan within five years, then your money may be better spent as an increased down payment or used for other purposes (Source: velocityloan.com).

Before you make a decision, analyze your situation and your plans for the future. Knowing what your future plans are will allow you to get the mortgage loan that best fits your needs.

Source: Informa Research Services