Everything You Need to Know About Collateral Loans

Paper cut of model house with coins on wooden table.

You’re probably familiar with several types of collateral loans without being aware that’s what they’re called. If you’ve ever paid for a home over time or financed an automobile, you’ve probably used a collateral loan. In a typical mortgage, the home itself acts as security for the loan; if you don’t make your house payments, the lender may take it from you. A car or truck loan – especially on a new vehicle – is quite similar; if you miss enough payments, the dealer, bank, or credit union can take (or take back) the automobile in question.

Collateral Loans: What Are They and How They Work

At their most basic, collateral loans are any loans backed up by collateral – the stuff of value which lenders can take ownership of if the borrower is unwilling or unable to fully repay the loan in a timely manner.

Dollars Closeup ConceptIf that sounds somehow harsh or unfair, keep in mind that without collateral loans, most of us would never be able to afford those sorts of big ticket items. Our home buying options, for example, would be to (a) save up until we had enough to pay cash, or (b) live with our parents until they passed on and left us their house. Personally, I don’t find either of those particularly promising. Thanks to the modern mortgage structure, however, almost anyone can finance their home over a 15 or 30-year period. Lenders still care about your credit history and such, but they have the home itself as collateral as well, which allows the sorts of ridiculously low interest rates we’re currently experiencing in home loans.

Let’s Talk Terms (The Terminology of Collateral Loans)

Before we push ahead with different situations in which collateral loans might be a good option, it might be helpful to clarify a few of the terms I’m going to use or which you’re likely to encounter if you’re researching collateral loans for your own use.

Collateral / Collateralization

As you’ve no doubt picked up on by now, “collateral” refers to the home, car, or another item of value you offer as security for a loan. When you use your property or assets this way, they become “collateralized.” The term “collateralization” can be used in reference to the process itself or in reference to the loan or the items offered up as security. You will thus hear that the loan has been “collateralized” or remember that you can’t sell your truck because it’s “collateralized” for a small personal loan on which you’re still paying. You may also come across a reference to the “collateral value” of your property, referring to the amount it’s worth as collateral. This may be different than what you paid for it or how much it’s worth to you personally.

Secured Loans / Security

If your loan is backed up by collateral, it’s a “secured loan.” The term references the lower risk taken by the lender when an item of value is being offered as “security.” If you don’t make your payments, they take ownership of your collateral and sell it to recoup their losses. That’s not really what lenders want to do; they’re not looking to make a living selling used boats or whatever. What this does, however, is enable lenders to offer loans they might not otherwise, based on your credit score or credit history, and to extend better terms than they would even if they did approve the loan minus your collateral.

Unsecured Loans

If your loan is NOT backed up by collateral, it’s an “unsecured loan.” These rely entirely on your creditworthiness as indicated by your credit history and current credit score. Lenders may, to a lesser extent, factor in your current reliable income and job situation. Failure to make your payments on time, or to make them at all, will hurt your credit (making it even harder to borrow money on decent terms in the future) and may lead to collections or legal action, but it WON’T directly result in losing your home or car because those things haven’t been offered up as collateral. Because this means greater risk to the lender, expect lower loan limits and higher interest rates on most unsecured loans.

Together with Fiona, we connect you with reputable lenders in a matter of seconds. Sounds impossible? But it’s true! We find unique offers based on the information you put in this form below, and if you get approved for a loan, you may have the funds in your account by tomorrow. If you are looking for an unsecured loan, start here:


Assets

Your “assets” are anything you own that has financial value and are thus might be used as collateral. Some assets, like your home or car (assuming you have enough “equity” in them – that you’ve paid enough on THEIR loans that you “own” part of their value) are fairly typical as collateral.

They’re easily converted into cash if necessary and have a fairly predictable value. Savings accounts or investments are also “assets.” Their value to lenders depends on how “liquid” they are (how easily they can be transferred and converted into cash) and the likelihood they’ll hold their value over the life of your “secured” loan. Atypical assets – your semi-rare comic book collection, those sacred mummy heads you inherited and are currently on loan to the local museum, that one-of-a-kind triple-neck 8-string guitar designed, built, and signed by Rick Nielsen of Cheap Trick – may be more difficult to use as collateral since their value is slightly more subjective and they’d be more difficult to convert to cash.

Equity

This is the “stored value” you own in various forms. If you’re halfway through paying off your car, and its current value is $12,000, you have around $6,000 worth equity in it. The same holds true for your home. If its market value is currently $195,000 and you owe $115,000, you have equity of about $80,000 to work with (although most lenders won’t advance more than 80% of the value of whatever you’re collateralizing). Savings accounts or investments are a bit easier to compute. If you have $7,341 dollars in savings, that’s equity worth $7,341.

NOTE: We’re using “assets” and “equity” more or less interchangeably here, but technically they’re not the same. In the most formal financial sense, “assets” tend to be things of value – tangible items – that have financial value. “Equity,” when having a very serious business-type discussion, refers to the cash value of everything you could convert to cash easily, minus existing liabilities. In other words, Equity = Assets – Debts/Obligations. This distinction is useful in some contexts, but for our purposes it’s like arguing about whether the U.S. is a “democracy” or a “republic.” It depends on who’s using the terms and what they’re using them for.

Liquidity

You’re no doubt aware that liquids easily change form to adapt to circumstances. Pour your drink into a tall, thin glass, and your drink fills up the tall, thin shape. Spill it on your keyboard, and it quickly fills in every crevice and finds its way into the inner workings of your computer. “Liquid Assets” are those easily converted into cash. “Liquidity” refers to how easy (or not) this conversion is. Used cars in good shape have great liquidity; rare books in ancient languages may be just as valuable, technically, but are harder to immediately turn into cash.

Interest

Interest is the primary cost of a loan. Figured as a percentage of the total borrowed. Interest rates tend to be higher if you have a limited credit history or a low credit score. Because the lender is assuming a greater risk by loaning you money and hoping you’ll repay. Greater risk means greater reward, at least in modern American capitalism. Interest rates are typically lower if you have a good credit score because the risk is less. The same is true if you’re able to offer up collateral of greater value than the loan amount. The same rate of interest can be computed in numerous ways (which we won’t go into here). So it’s important to pay attention to the details when rate shopping for your best loan options.

Default / Recourse

“Default” is a fancy word for “stopped paying” and “recourse” is a fancy word for what the lender has a right to do if you stop paying. If you still owe money on a loan and you stop paying for any reason, you’ll eventually be declared “in default.” Whether this is triggered at 30 days, 60 days, or longer, and what penalties are triggered once you’ve “defaulted” varies from loan to loan. This is the point, however, at which lenders can report you to a collection agency, take legal action, or seize control of whatever assets you collateralized to secure the loan.

So, to summarize, the reason you may be asked to offer part of your assets as collateral is so that the lender has recourse if you default. You agree because you wanted to secure a lower interest rate than you could get with an unsecured loan. And you know you have sufficient equity for adequate collateralization. (See how much fancier that sounds than “I had to sign a paper saying the bank will take my truck if I don’t make my loan payments”?)

Advantages of Collateral Loans

There are a wide variety of collateral loans, each with its own features and potential pitfalls.
If you’re thinking about finding a credible, trustworthy lender, Loanry can help you.

In general, however, there are a number of positives to collateralizing your assets in order to get the best terms on a secured loan. (I thought we might get more comfortable with all the fancy terms if we used them more.) What I’m saying is, there are reasons you might want to explore collateral loans for whatever your current needs might be.

Available for Poor Credit

If you have limited or poor credit, offering collateral might make the difference between getting a loan and being denied. Lenders have to make a reasonable profit – that’s how business works. In their case, that means two primary things have to happen with some regularity. First, they have to loan out money at interest (with interest being their profit), and second, they have to get repaid with a minimum of extra effort. If it costs them twice what they’re making in interest to track you down and force you to pay, the lender loses money in addition to your credit being damaged. That’s no fun for anyone. With collateral, there’s a better chance you’ll pay, and better protection for the lender if you don’t.

Lower Interest Rate

Offering collateral can secure you a better interest rate. This works for the same reasons we just discussed a loan approval. Lower risk means lenders can offer better terms – especially a lower interest rate. They don’t have to make a LOT on each loan if they’re relatively sure of repayment. Plus, lenders want you to be happy and say nice things about them. And come back to them for your future financial needs as well. Reputable lenders aren’t looking to “defeat” you; they want you both to come out OK on the other end because that’s what’s best for business.

Your Collateral Allows You to Take a Higher Amount

You may be able to borrow a larger amount if you have sufficient collateral. Let’s say you’re planning some major home renovation and remodeling. You’ve run the numbers, and it’s the best thing for your family now and the value of your home in the coming years. But the estimates you’ve gathered for getting the work done are higher than you’d hoped, and your credit is OK, but not great. Being able to use your home’s equity as collateral gives lenders the security they need to extend you the full amount. The risk is less for them but greater for you… if for some reason you’re unable to make your payments in the future, you could lose your nicely remodeled and renovated home.

Collateral Loans Provide “liquidity”

If your wealth is largely tied up on assets with low liquidity, it might make more sense to borrow against them than to convert them in order to finance whatever you need to do. This is more often the case with businesses than with personal collateral loans.

Collateral Loans are a Great Way to Build Credit

One of the realities of modern American life is that almost all of us need access to financing multiple times over the years. At some point, you’re going to want to buy a home, finance a car or truck, pay for a wedding, take a vacation, pay off medical bills, or start a small business. Each time you do, potential lenders will check your credit. The higher it is, the more flexibility you’ll have and the better the terms you’re likely to be offered. The lower it is, the more difficult it is to do, well… pretty much everything.

Collateral loans are also a good way to finance debt consolidation. If you’re ready to get serious about your household budget and take more effective control of your personal finances, collateral loans can act as a foundation for making that happen.

You are not your credit score. It’s not a reflection on you as a person. It is seriously inconvenient, however, and expensive over time. A few small collateral loans allow you to obtain credit. But just as importantly, as you pay them back, you’re building your credit history and raising your credit score. So that’s pretty awesome.

Potential Pitfalls of Collateral Loans

Well, there’s the biggie – if for any reason you’re unable to repay the loan in full, you can lose whatever you’ve put up as collateral. Even if the lender takes your collateral and sells it to recoup their investment, late or unpaid loans will still damage your credit substantially. As with ANY loan in ANY form for ANY reason, make sure you have a budget. And a good reason to borrow and a clear pathway to repayment before you even begin rate shopping.

There are a few minor inconveniences as well. Obviously you have to have an asset or assets of value in order to offer them up as security. There’s more paperwork than with an unsecured loan. Because lenders will require a formal valuation of the assets you’re offering as collateral. That means it may take a bit longer to get your loan as well.

Final Thoughts

We’re never going to tell you what the best choice for you or your family is when it’s time to borrow or refinance. What we will do is try to give you all of the information necessary for you to make an informed decision.

It probably won’t surprise you to know that we’re big fans of online lending around here. We don’t loan money ourselves, but we maintain a curated database of reputable online lenders who specialize in creative solutions and surprisingly competitive terms. And many of them, as it turns out, aren’t as quick to request collateral as traditional financial institutions. I’m not saying it never happens – just that you’d be surprised at the options you might have.

If you’re looking to borrow or refinance, consider all of your options before making your final decision. Collateral loans are ONE of those options, but they’re probably not the ONLY one.

Let us know if we can help.

How to Find A No Income Verification Mortgage Loan?

You have reached that time in life where you feel ready to settle down and live the homeowner’s life. So you want a house. And you want to decorate it. You keep seeing those Wayfair commercials and thinking, “Hey, I have just the place for that.” Then, you realize you do not. Actually, you live in a tiny apartment. Or a mobile home. Or an RV. Maybe, you still live with your mom and dad. Bummer. Uh oh.

How to Find a No Income Verification Mortgage Loan

You just got a notion to search for mortgage requirements. You found out how hard it can be to qualify. What is that income check thing?

When you apply for a standard mortgage, you learn that the lending institution will not only check your credit, it will check your income. You must have verifiable income at an appropriate level for them to approve you.

That means you must provide your pay stubs, your employer’s name, phone number and address, your W-2s, your tax returns plus copies of your bank statements. The lending institution may contact them via mail, email or phone to verify your income. This applies to both a mortgage for the initial purchase and a refinancing loan.

So, what does one do if you happen to be self-employed? What if you own your own business?
You can apply for a no income verification mortgage although this cuts into your interest rate shopping. That does not mean you can have no income. It is handy though in several valid situations.

Who Can Use a No Income Verification Mortgage?

While many individuals may find this handy, a few common scenarios exist. You might want to read on if any of these situations apply to you.
• You invest in real estate and carry over passive losses. These eradicate your earnings on paper although you have proven cash flow.
• You work on commission and your income varies vastly from month to month.
• You own your own business and pay yourself, but without a formal paycheck or you are a sole proprietor.

No Income Verification Mortgage Qualifications

Very simply, you qualify for a no income verification mortgage. It requires you to still provide documentation of your income, but a different set of documents than a standard mortgage. You need to have an IRS 1099 or be retired, but with a steady income.

Some organizations, like Mortgage Depot, offer a no income check program. To qualify, you must deposit a 25 percent down payment for the total cost of the purchase transaction and obtain 65 percent Loan to Value (LTV) financing for refinancing. Other requirements exist, but that is the monetary minimum. The Depot’s program is available in 46 states. While you must provide a significant outlay to qualify, you will not have to provide the following:
• tax returns,
• W2’s,
• pay stubs.

Through the program, you can qualify for loan amounts of up to $3 million on investment properties of one to four residential units or condos. In NY, you can use the loans for a primary residence. Other property options include multifamily and mixed-use properties of five units or more, as well as automotive service, office, retail, self-storage and warehouse space. There is no limit to how many properties you can own.

The Self-Employed Borrowers Program

You may not qualify for the no income verification mortgage, but you may qualify for its separate Self-employed Borrowers’ program. This is a different program. If you are self-employed and did not meet the occupancy requirements of the Mortgage Depot No Income Verification Mortgage program, you might qualify for the Self-employed Borrowers’ program. This uses bank statements to verify an individual’s business or personal deposits to calculate income and lets your occupancy include your primary residence.

This probably sounds odd since the lender still is verifying that you have income. These alternatives simply let you use a different form of income to prove you can pay back the loan. No institutions of finance will approve a loan without you proving that you can pay it back. These methods though do allow you to have the bank or credit union consider alternate income which can include the following:
• Social Security benefits,
• Pension funds,
• child support payments,
• funds from retirement account distributions,
• unemployment benefits,
• disability payments,
• employment offers for a future position that includes the salary and start date,
• housing/rental income,
• capital gains from investments,
• income from a spouse or partner,
• trust income,
• savings or cash,
• VA benefits,
• a government annuity.

Potential Lender Requirements

Your lending institution may require a few various items before agreeing to extend a loan to you if you do not have a typical income source. These items range from setting up automated payments to a co-signer.

Automatic payments: You would need to set up automated payments so your monthly amount due was deducted on the same date each month from your bank account. This ensures you consistently pay in full and on time.

Security: You might need to provide collateral such as a paid in full vehicle or another property. It is usually easier for a person to obtain a secured loan than any other type.

Cosigner. A cosigner is a third-party individual who applies for the loan with you. If you purchased a new car when you were a teenager, you probably already took out a loan once that used a cosigner. If you fail to pay your loan payments on time, the bank will contact your cosigner for the funds.

Your Credit Is Very Important When Getting a No Income Check Mortgage

Your credit history and credit score still matter. Besides your raw score, any bank will consider your debt repayment consistency and your credit utilization. So, what if you do have less than perfect credit? That is when you have to take a few months – at least six – to improve your score first. Improving your credit is one of the most important mortgage tips to follow.

While you have many ways to check your credit, going to Creditry lets you check your credit, then monitor it, too. You can learn to better manage your credit by using its blog. You can learn important things like:
• how to organize your payment due dates,
• how to request to move a due date,
• calculating your credit-to-debt ratio,
• the impact of opening or closing a credit line on your credit score.

You need to learn those things so you can better manage your credit and build a strong financial history. You also need to check your credit so you know your FICO score. If it is above 679, you need not worry. Credit scores range from 350 to 850 (or 900, depending on the credit bureau). A 680 places you in the good range. If you have a score that places you in the good, very good or exceptional range, you should have an easy time obtaining a loan although you have retirement, variable or unearned income as the source or sources for your monthly payments.

Let’s say your FICO score ranges between 350 and 679. You will probably have a tough time getting a loan. You will get subprime interest rates if you can get approved. For any score below about 550, you will probably need to obtain a secured loan.

Remember that six months thing I mentioned earlier? Well, it takes that long to turn around your credit. If you have a lower credit score you can raise it quickly by making timely payments. It only takes six months to boost it. It only takes one month to mess it up. Even one delinquent payment messes up your credit but once you make six monthly payments in a row, your score improves. Everything stays on your credit report for seven years.

You can also very quickly boost your credit score by altering your credit utilization. When you try to obtain a no income verification mortgage, you will find your credit score means even more. This is the toughest type of mortgage to get. If you can quickly pay off some of your existing debt, you can up your score quickly. Your credit utilization score refers to the total amount of credit you have available versus how much you are using. This comprises 30 percent of your credit score. If you pay down your balances but keep the accounts open, then you can quickly increase your score.

You can check your credit score for free by visiting the federal government provided free credit report website. Every twelve months you can obtain a copy of your credit report from each of the major credit bureaus. That means you will have three copies to compare and contrast. You need all three because every bureau gets different information. Not every creditor reports to the same bureau. Some only use one, while some use all three or just two.

Check and double-check all of the information on the report. The info may not all match but all of it should be correct. If you find inaccurate information, you need to immediately report it to the credit bureau so they can change it or remove it.

If you are disputing a debt, you must request validation of the debt. Other information, like an incorrect address or telephone number, you only need to report as inaccurate and give them the correct information. This step increases in importance as your credit score goes lower. It is already hard to get a loan, but a no income verification or self-employment income based is the toughest to land.

No Income Verification Mortgages Rarer Now

Today it is even harder to qualify for because of the rarity of these loans. This type of mortgage became wildly popular in the early 2000s. While they did help the tiny percentage of individuals with high incomes that could be tough to document, lenders started misusing them for their gain. They began extending the loans to subprime borrowers around the time the housing bubble developed. That made for twice the problem for the financial industry.

It got worse. As lenders continued to extend loans to subprime borrowers, without reliable income, the problem grew. Then those who outright did not qualify began to apply. They knew they did meet the qualifications and they lied on their loan applications to get approved. No income verification mortgages began to get the name “liar loans.” The name liar loans became most applicable in expensive markets where mortgage approvals were extremely rare for all but prime borrowers. The subprime borrowers could not afford the homes for which they applied for mortgages and they defaulted on the loans.

About 2005, the finance industry revamped its low- and no-income verification loans, deciding to try to save themselves by offering more loans. They loosened the requirements which at least meant people no longer had to lie on the applications, but the subprime lenders dropped the qualifications too low in exchange for a higher interest rate. During the period from 2000 to 2007, no income verification mortgage loans more than quadrupled. In those seven years, the loans rose from two percent of home loans to nine percent.
Here’s the deal. Banks and those employed by them have incentives to make loans. Those incentives tipped the scales to them offering too many to people who should not have them. The main reasons are:

1. Loan officers earn a commission on every loan. It does not matter if the homebuyer defaults on the loan or not. The loan officer still gets paid.
2. Mortgage lenders planned to re-package the loans and sell them to investors as mortgage-backed securities.
3. The bank itself makes money on the loan origination fees, so the volume of loans makes them money automatically. Bad or good loan, as long as it went through the system, the bank got paid.

All of the mistakes accumulated and in 2008, the boom went bust, and the banking/financial crisis occurred. According to The Financial Crisis Inquiry Report, by the time the crisis came to a head, investors held more than $2 trillion of the repackaged mortgage-backed securities. They also had invested in about $700 billion of collateralized debt obligations which included mortgage-backed securities.
Delinquencies and defaults occurred the most in what real estate calls sand states – the states of Arizona, California, Florida, and Nevada. Real estate’s expense in these desirable locations caused serious delinquencies – those where payments are late by more than 90 days. That accounted for 13.6 percent of sand state mortgages. Compare that to 8.7 percent nationally.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 created a rule set that lenders must meet to end the bad decision-making. It included an “Ability-to-Repay” rule that requires the mortgage lending institutions to confirm each borrower can repay the loan before offering it.

The history lesson comes so you understand just how tough it will be to qualify for one of these mortgages, especially if you live in a sand state. The only loans to which the Dodd-Frank did not apply were those for loan modifications timeshares, reverse mortgages, and temporary bridge loans.

No Income Verification Mortgages Today

A select number of financial lending institutions still offer no income verification mortgages but now the government mandates the qualifications for obtaining one of these loans. The required credit scores range significantly higher and these types of loans come at great expense to the consumer. You will need a score of “very good” or “excellent” to qualify now. This type of mortgage still comes with a higher interest rate than a typical mortgage. The updated law does not apply to business and commercial mortgage purchases.

How Loanry Can Help

You probably picked up on it by now that it is not easy to qualify. And you must be the best of the best of the best as the line from “Men in Black” goes. You can only qualify as yourself and only by being completely honest and genuinely meeting all of the required criteria. So, you probably will not qualify.

That does not mean you have to give up on your dream of owning a home. You can obtain a different type of loan. Use Loanry to search for financial institutions that offer personal loans or business loans. You could qualify for an alternative type of loan. Put in your information below for potential offers:


Final Thoughts

You could purchase a home as a business investment to qualify for a no income verification mortgage. You also could apply for a generic type of personal loan. Loanry provides various educational tools to determine which loan type works best for you. You can complete a small form to get started and it will suggest for you the best loan solution(s). You may get an email of suggestions or you may get automatically forwarded to a lender that offers loans to individuals with your credit history.

Fixed Versus Variable Rate Mortgage Loans Explained

Buying a home: what an exciting time! It might be simpler if mortgages were one size fits all. It would be nice if you knew you would get approved, that you would get the best interest and repayment terms because there was only one type. Like, you know ahead of time that you will go in and apply, get approved for a 15 year mortgage at 3% interest, and so on. You know what you are getting into, you know the common words that are thrown around with mortgages, you know exactly what your contracts mean and all so there is absolutely no confusion.

Yes, I know, it would be wonderful. Unfortunately, it just is not real. There are so many different terms and factors and rates and everything when it comes to mortgages, and interest rates is a major thing that changes depending on so many factors. That, my friends, is going to be our discussion for today. Among other important mortgage information, we are going to have a talk about fixed versus variable rate mortgages. Why? The one you choose can have a major impact on every other part of your mortgage. Choosing the best one for your bank account and lifestyle is beyond important.

Fixed Versus Variable Rate Mortgage: The Basics

Of course, in order to talk about these different types of mortages, we need to make sure you know the basics. In the next couple of sections, I’ll define fixed and variable rate mortgages, compare them and talk about pros and cons of each. So here we go.

Fixed Rate Mortgage

A fixed rate mortgage means that the interest rate will stay the same throughout the entire mortgage term. This means that if your rate is for example 5%, it will stay like that forever. You will see the change in the payment every month, but not because the interest rate changed. It is because the principle amount owed decreases over time. Let’s see an example of a so called amortization. means that each mortgage payment you make puts some towards the interest and some towards the principle. In the beginning, your monthly payments pay a high amount of interest with little going on the principle. However, as the principle decreases, so does the interest, meaning that with every payment pays more to the principle than the last payment.


Month1:

Payment= $536.82

To Interest $416.67

To Principle= $120.15

Month 2:

Payment= $536.82

To Interest= $416.17

To Principle= $120.66

Month 3:

Payment= $536.82

To Interest= $415.66

To Principle= $121.16

Month 6: (Skipping Ahead)

Payment= $536.82

To Interest=$414.14

To Principle= $122.68

Month 9 (Skipping Ahead)

Payment= $536.82

To Interest= $412.60

To Principle= $124.22

Month 12: (Skipping Ahead)

Payment= $536.82

To Interest= $411.04

To Principle= $125.78


As you can see, your payment stays the same, but how it is split changes. The amount will continue to shift until your very last payment. It is important to note that the interest rate remains at 5% the entire term.

Variable Rate Mortgage

In most cases, if you try to look up what a variable rate mortgage is, your head will start to swim. The explanations can get crazy, which is crazy in itself. It is not really that bad. Like a fixed rate mortgage, a variable rate mortgage has set payments. To keep everything simple, we are going to use the same payment information as in the amortization example above, making the monthly payment $536.82.

The difference is that the interest varies according to market fluctuations. You are still paying the same $536.82 every month, but the amount of that which is put towards the principle depends on the market. Where the fixed rate mortgage meant the interest was determined according to the fixed 5% interest rate and the amount of principal you owe, it can get a little crazier with the variable rate.

Let’s put it like this: With a variable rate mortgage, if the market interest rate is only 2%, then more of your monthly payment is going to your principal. If the market interest rate goes to 6%, less of your monthly payment goes to your principal.

How Come The Interest Rates Can Change?

If you are wondering how do banks set the rate at which they give loans, here it is. The interest rates depend on the Federal funds rate. The Federal Reserve determines the periods where they either tighten or ease the Federal funds rate. So naturally, when you are looking to buy a home and get a mortgage, timing is everything. If you are looking for a fixed rate mortgage, it is crucial that you get the mortgage during the period where the Federal funds rate is low. Because once you set the rate, it stays like that forever. However, if you are looking to take out a variable rate mortgage, it will change according to what we just mentioned.

Variable Rate Mortgages and Adjustable Rate Mortgages are Not the Same

As if fixed versus variable rate mortgages are not confusing enough, there is another term to throw into the mix. Let’s go ahead and get it out of the way: Variable rate mortgages and adjustable rate mortgages are two separate things. An adjustable rate mortgage is a type of variable rate mortgage, but the terms are not mean to be interchangeable. Adjustable rate mortgages mean that the borrowers payment fluctuates according to the market interest rate.

A variable interest rate mortgage- unless specified otherwise- keeps the payment the same. Sometimes, though, depending on the contract, the payment with a variable rate mortgage only keeps the payment the same for a certain number of years, so be sure you know what you are signing up for.

Fixed Versus Variable Rate: Pros and Cons

So what are the clear cut differences between a fixed versus variable rate mortgage? Now that we have gone over all of this information, let’s see if we can tie it all together with a nice little bow.

When it comes to choosing between fixed versus variable rate mortgage, there is one thing to know: you have to consider the pros and cons according to your life and make up your own mind.

Variable Rate is Historically More Beneficial

Up to this point, variable rate mortgages have charged less interest over the life of the loan. This tends to make new borrowers decide to go with variable rates, but it is important to note that history does not decide the future. Just because it has charged less in the past does not necessarily mean that it will charge less in the future.

Another pro is that this type of mortgage is much more flexible. You can decide to pay more every month, or even pay the mortgage off earlier, but you don’t have to worry about the penalties as with other types of mortgage.

Fixed Rate Mortgages are More Predictable

With a fixed rate mortgage, you know how much interest and how much principle you will be paying every month. In fact, your lender might have even printed you off a schedule. You know when your last payment will be and you can literally count down until that moment. And you can even much more easily make a plan to pay your mortgage off early. You can determine how much faster you can pay it off if you pay just an extra $5 per month.

This is not so easy with variable rate mortgages. Sure, you can take a look at current market rates each month and decide what to do, but you cannot make a progressive plan ahead of time. With all of the fluctuation in the market, the best you could probably do is a month to month plan, but that might not even be foolproof considering that daily mortgage rates change.

Consider the Cons As Well

We talked about the pros, but there are also cons. With a variable rate mortgage, you never know what could happen. Yes, the rate just might go down, but there is a chance that it goes up as well. This is a very important thing you should be aware of. You can benefit greatly from a variable rate, but you might also have less luck during your 20/30-year term.

On the other hand, a fixed rate mortgage rate does not change, but if the rates drop, you have no way of benefiting from that. Your rate is fixed, and it stays the same no matter what happens. It is also pretty difficult to increase the amount you pay every month without any penalties. So if you think you will somehow get a larger amount of money in the future, you would want to leave the option of repaying your mortgage earlier open (or at least paying more each month).

The fact of the matter is that if you wish to make any type of plan for the future, it is best to choose a fixed versus variable rate mortgage. If you are okay going with the flow, a variable rate may be the better choice.

Choosing Between Fixed and Variable Rate Mortgage

As with most financially related stuff, there is not a single answer to this question. It largely depends on several factors. You should ask yourself whether you appreciate stability and predictability more than potentially paying less in interest over time if it drops. But you should also ask yourself whether you will be able to handle increasing of rates if you choose a variable rate.

Some other things to consider are whether you will want to pay off the mortgage earlier if you get the chance, or maybe increase your payments. These two things are more difficult to do with a fixed rate mortgage. You can also think about whether you love the terms of a fixed mortgage and if you will be able to stick to them, then this may be the right option for you. Finally, if you are considering to switch mortgage one day, you should definitely look into a variable rate one, since it not possible or very expensive when you have a fixed rate mortgage.

The Mortgage Process Including Fixed vs Variable Rate

Have you ever applied for a mortgage? If you have not, you may be surprised to know the entire process of applying, getting approved, and closing the deal can take months. The average, when everything goes at least somewhat according to plan, is three to five months. I say this not to burst any excitement bubbles, but for three reasons:

  • To set proper expectations.
  • To make sure you know that you have time to step back and really make sure you are making good choices with your mortgage loan shopping.
  • Also to let you know to take your time and do your part as well as possible to prevent adding extra time to this timeline.

Now that you know what fixed and variable rate mortgages are, their similarities and differences, let’s describe the mortgage process so you know what to expect.

Step 1: Get Ready for a Mortgage

Really….if you are buying a home with a mortgage, you need to prepare for it. This should start with a look at your credit report. What type of rates will your credit get you? Of course, you will not know this until for certain until you get offers, but you can get an idea. The best rates usually go to those with a credit score of at least 750.

Sometimes, you can find good terms for lower scores, but it takes some real rate shopping to find them, so take a good look around and do not settle for the first mortgage lender you locate. In fact, getting preapprovals from a few lenders is a really good move to compare.

This is the moment where you should decide whether you want a fixed, or a variable rate mortgage.  Take a dive into your financial situation and decide what seems best for you and your family. If your kids will be moving out in ten years and you and your spouse plan on downsizing at that time, a variable rate mortgage that you can pay off earlier may be a good fit for you.

After you have an answer solidified on that, consider your down payment. How much can you put down to help lower your mortgage? Really think about this. If you must, find a way to increase your down payment. Remember- the less you borrow, the less you pay interest on, which should always be a goal. Whether the interest is fixed or variable, it is always best to borrow as little as you can.

Now, you can start looking into mortgage lenders a little deeper and put in official applications. You will get either a rejection or preapproval. The good thing, though, is that if you are rejected, you can ask what you can do to get approved. Often, lenders can give you some pretty good and clear suggestions since they have actually taken a look at your credit. Hopefully, though, you will be approved and get to move to the next step.

Step 2: Find Your Home

Sorry, the work is not over- it has just begun. You now have to find a home that meets your needs and wants within your loan amount and price range. This is done more easily with a real estate agent, but do remember that there may be extra fees included with hiring a real estate agent. Most often, they will be included in all of your home buying negotiations/closing costs, so nothing should be coming out of pocket. When you find the right home, you make an offer.

Step 3: Get the Mortgage

If the seller accepts your offer, it is time to get to the nitty-gritty. It is time to finalize the mortgage and all the details it involves- including but not limited to choosing between a fixed versus variable rate mortgage- get the home inspected and appraised (the costs of which are usually included in the closing costs), negotiating, and anything else that may need to be done.

In this step, Loanry maybe can help you to make all process a little bit easier. All you need to do is to enter your information and see whether you could be paired up with lenders which may make you an offer within next couple of minutes. You can start here:


Step 4: Wait

You are pretty much done, but you have to wait on the lender to finish its process, which means the underwriting process. They will verify everything, ask you for any additional documents, and so on. When they have finalized their approval, you finish signatures and make your down payment and close the deal. Whew! It took a lot of work, but you are now in your new home. All you need to do now is enjoy it and make your mortgage payments, which is why choosing the right mortgage and interest rate is so important. You do not want the wrong choice to cause you to lose the home you worked so hard for.

Conclusion

I hope that this guide has helped you get a good understanding of common mortgage terms and what it means to choose between fixed versus variable rate. When you do get your hands on your dream home, I want you to be able to hang onto it. Look through this guide as often as you need to feel confident in your decisions and, of course, do not forget to consult your financial advisor if you need to discuss your situation specifically. Be sure you take your time with all of your rate shopping and decisions. This is a commitment, so do not rush until you feel confident about your decision.

 

How to Find A Prime Interest Rate Loan?

We all have busy lives and we spend much of them trying to keep up. We are trying to keep up with the chores at home, trying to keep up with all the crazy schedules, and trying to keep up with the bills. Sometimes, we all have moments where any one or all of those things become challenging. Life just happens, and rarely does it happen the way you plan it. You may find yourself in a place where you just cannot keep up with the bills, or there is unexpected expense.

No matter the reason, you might need a personal loan. If you are already feeling behind, needing a loan could potentially be stressful for you. It is helpful when you find out as much as you can about loans, the process and even interest rates. It may even be possible to get a prime interest rate loan, but what does that even mean? Continue reading to find out.

What Is A Personal Loan?

I am going to start with some basic information here. This can be a confusing topic, so I want to make sure that everyone understands the terms and the process. When you understand, that makes it easier for you to make an informed decision. It may not change the outcome, but at least you will know why. A personal loan is when a lender agree to let you borrow money. You then agree to pay it back in regular payment. That is the most simple definition of a personal loan. Let me explain more of the details, because they are important.

A lender can truly be anyone letting you borrow money. It can be a bank, a credit union, an online lender, or simply a friend or member of the family. The lender agrees to allow you to borrow a set amount of money and adds interest to it as a fee for giving you the money. The interest rate depends on your credit score. It is possible to obtain a prime interest rate loan. I will talk more about that a little later. You agree to pay back the money by making regular payments, usually monthly, but they can be any agreed upon interval. You and the lender agree to all the terms, including how long you have to repay the money and both of you sign a loan agreement.

The lender may have some requirements. For example, if it is a bank, the bank may require you to have a bank account with them. Most lenders require you to pay them electronically so they can take the money directly from your bank account at each interval. Lenders vary on what they consider to be default. When you default on a loan, you do not pay the loan. Some lenders feel even one missed payment is considered default and they begin to take action. Other lenders, give you a six month grace period. It is important that you find out all of those details as well as their fee structure before you sign the loan agreement.

What Is Interest Rate?

Here is where it can get somewhat confusing, but I will try to keep it simple. When you borrow money from a lender, you ask for a certain amount. Let us say that amount if $5,000. That $5,000 is the principal of the loan. The lender adds the interest rate to that. It is a percentage, such as 7 percent, of the principal amount. This is how a lender makes money from letting you borrow money. When you repay the loan, you are paying on both the principal and the interest. If you do not pay enough each month to pay the interest, then your debt will not go down.

I mentioned early (and I will mention it again) the interest a lender charges you is based on your credit score. The more of a risk that the lender thinks you are means the higher your interest rate will be. Each lender sets their own interest rate, so rate shopping works to your advantage. There are many lenders available to you, so you do not have to take the first offer you find.

So, there are a few different types of interest rates. There is a fixed rate loan, a variable rate loan, and a prime interest rate loan. A fixed interest rate loan means that your interest rate remains the same the entire time you have the loan. Your early payments are mostly paying the interest of the loan. As you pay more of the loan, you start attacking the principal. If you make any extra payments, that amount goes to the principal. This helps you pay off the loan faster.

A variable interest rate loan is well, variable, and it changes. It changes based on the prime rate. The interest rate changes which changes your payment amount. Often these loans have a locked in rate for a set period of time. After that periods ends, your interest rate can change based upon the prime rate and your payment amount changes. Often these types of loans get people into trouble because the interest rate can increase so much that the payment amount is no longer affordable. These loans are attractive because the interest rate starts lower than a fixed rate loan. Beware, they also rise quickly.

What Is The Prime Interest Rate?

So, what is all this business about the prime rate and what does it mean for you? It means more than you realize. This is why it is important for you to have a basic understanding of the prime interest rate and a prime interest rate loan. I believe there is some confusion around the prime interest rate. Many think it is set by the Federal Government. While there is a slight bit of truth to that, it is not completely accurate.

It breaks down like this…the Federal fund rate is set by the Federal Government. This is considered a benchmark interest rate and it is controlled by the Federal Government. The central bank changes the federal rate and the big name banks follow the direction of the federal rate by setting the prime rate. They are usually in line with each other, but sometimes the prime rate is .25 percent higher than the federal fund rate.

Why does the federal fund rate change? The powers that be at the Federal Reserve keep their eyes on the economy and inflation. Believe it or not, they try to control our spending by changing the federal fund rate. The more money people spend means the economy grows, but so can inflation. The central bank wants to control inflation, so they increase the federal fund rate to try to prevent people from buying items. If the economy is not doing so well, the officials reduce the federal fund rate to encourage more people to spend money. Bet you did not realize how much control the government can have over spending, did you?

Can I Get A Prime Interest Rate?

Yes, it is possible to get a prime interest rate loan, however, it can be difficult. Typically, banks reserve loans with a prime interest rate for their customers with next to perfect credit scores. Remember, this is how a bank makes money off of your loan, by charging you interest. Also, banks determine how much risk that are taking by allowing you to borrow money. If they feel you are a higher risk then they will give you a higher interest rate. This way they can make more money up front in the event you do not pay back the entire loan.

While the Federal Government sets the federal rate to encourage spending, or not, banks set interest rates to protect themselves against your potential risk. When a bank is determining how much interest to attach to your loan, the use their prime interest rate as the base rate. The percentage of the interest rate goes up depending on your credit score.

Consider this, if you have excellent credit, you might be able to get a prime rate loan, which depending on the rates could be anywhere between 5 percent to 8 percent. If you have fair credit, your interest rate could go up to 17 percent to 19 percent. If you have bad credit, your interest rate could climb as high as 28 to 30 percent. It does not take much before that interest rate increases.

How Is Interest Determined?

The interest rate for a loan usually has a few determining factors. Your credit score is only one factor. It is a large factor but there still are some other items to consider. The lender matters. Some lenders are more willing to loan money to those who are not in the best credit score shape. Online lenders and credit unions tend to fall into this category. If you have a long standing relationship with a specific bank, they may be more willing to loan you money because they know you. While you may not be able to get a prime interest rate loan, it is still helpful to do personal loan shopping so that you can find the best loan terms for you.

Another factor that makes a difference in the interest rate you receive are the amount of money you want to borrow. The more money you want to borrow makes you more of a risky proposition for the bank. It is more money they are giving you that you have to repay. The length of time that you are going to take to repay the money also makes a difference in your interest rate. If you take longer to repay, the interest rate may be higher. Your payment may still be lower even with a higher interest rate, so that is something you need to determine.

What Does My Credit Score Have To Do With It?

I have mentioned a few times in this article that your credit score drives the interest rate you receive. It also drives many other things, as well. And it can impact your ability to get a car or a home. It can impact your ability to get insurance, and in some cases, a job. Your interest rate follows you in just about everything you do, It is important that you take care of it. Life can be challenging and it is easy to get over your head in bills. It is important to pay attention to the signs and get in control of it before you lose control. This often means making compromises and decreasing spending. The good news is it only has to be for a short term while you work on improving your financial picture.

Since your credit score is important and you need to take care of it, you should know what it is. You are entitled to one free copy of your credit report per year. You should pull it and review it. Your credit report contains your credit score and a ton of other information. It has your credit history and all of your missed or late payments. Sometimes the information it contains is wrong. When that happens, you want to correct it as soon as possible. You can improve your credit score by making sure the information is correct on your credit report.

While this improvement may not get you a prime interest rate loan, it can certainly get you a better interest rate. Any improvements you can make to your credit score are helpful to you in your everyday life. It takes consistent work to maintain a good credit score, but only one or two late payments cause that number to drop.

Are There Other Kinds Of Loans?

In addition to understanding the details of interest rates, so you can know what a prime interest rate loan, there are various types of personal loans. There are secured and unsecured loans. Depending on which one you choose, it impacts your interest rate. Most personal loans are unsecured loans. This means that there is nothing to back them and the lender takes on a complete risk by lending you money. All they have is your contractural promise to repay the loan. These loans have a higher interest rate because of their risk. Few lenders are willing to give you an unsecured loan at prime if your credit is less than perfect.

Then there are secured loans. This type of loan is less risky for the lender because it has collateral behind it. The most common of these is a mortgage where you and the bank own the home until you pay it off completely. An auto loan is also a secured loan because the vehicle you are purchasing is considered collateral. The lender has a deeper sense of security when it comes to secured loans and often give lower interest rates. There is one important fact to keep in mind with a secured loan. If you default on the loan, the bank will take your collateral. They will take your house or your car.

Should I Get A Personal Loan?

You are the only person that can answer this question. I can help you by telling you the factors that determine is a loan is a smart move for you. I cannot be the one to tell you if you should get a loan. If you cannot afford a loan, you should not obtain one. It does not matter if you are able to get a prime interest rate loan, or not. The key is can you afford to make monthly payments?

A loan is not free money. You have to repay it every month. It is incredibly important to understand how the monthly payment is going to impact you. Often times, we only think about the immediate need, which is the money. We fail to look at the bigger picture, which is I have to pay back this money. There are loan calculators online that you can use to determine if you can afford the loan payment.

These calculators allow you to enter the amount you want to borrow, the interest rate and the term of the loan to give you an estimated monthly payment amount. You can play around by changing any of those factors to see how it impacts your repayment amount. This can guide you when looking for a loan that meets your needs. Not only can you ensure you are borrowing the amount you need, but also verifying that you can repay it.

Where Can I Find A Personal Loan?

There are a number of places where you can find personal loans. Although you may not be able to get a prime interest rate loan from all lenders. Typically, if you are interested in getting a prime rate loan, you need to go to a traditional lender. You should go into an actual bank and talk directly to the lender, if that is the type of loan you want. Or, let Loanry try to help you make sure you’re on the right path.

If you know that your credit is not the best and is going to impact your interest rate, you might want to look into other lenders. You can obtain personal loans online fairly quickly and easily. There was a time when online loans where for those with less than perfect credit, that really is not the case anymore. Online loans have made the process much more attractive to people. You can apply for a loan from the privacy of your own home. It only take minutes and you can upload all documents in the same place. You receive an answer in less than 24 hours and if approved, your money is your bank account in less than 24 hours from approval.

What Else Should I Know About Personal Loans?

One last thing that I would like to note is payday or fast cash loans. These are not a prime interest rate loan at all. These types of loans have high interest rates and high fees. These types of loans must be used carefully. They are not usually the loan of choice, but there are instances where they are helpful. It is all in how you use these types of loans. These loans are for low amounts and must be repaid quickly. If you know that you are able to repay the loan in the short turnaround time, then they may be useful to you.

However, if you are not going to be able to pay back this loan timely, do not take on one of these loans. You will get yourself in a worse position if you obtain one of these types of loans but cannot pay it back. And you will be hit with high fees and penalties. You should think carefully before you opt to take out a payday or fast cash loan.

Budgets Scare Me

If we are being honest, budgets scare most people. If you are the type of person who sees a budget as some form of control over you, then it might be challenging. However, if you change your perception about a budget, it should be easier for you to manage. A budget is a way for you to understand the money you have. If helps you gain a clear picture of your expenses, income, and how they relate to one another. The easiest way for you to gain control of your budget is to use a website to help you put it together.

These sites give you forms where you fill in the necessary figures to list out all of your expenses. You can see how much you are spending and where. You also can see how much you are spending compared to what you earn. I know that is the scary part for most of us, but it is also helpful. If you do not see where you are spending money, you can never get in control of it. Once you get your budget set, you can focus on reducing your debt which may make it easier for you to obtain a prime interest rate loan.

I Do Not Save Enough Money

Once you see your spending in black and white, it becomes clear fairly quickly how much money you spend. I am willing to bet it will surprise you. When you just spend money without any controls in place, your spending can be rampant. Once you see it, you quickly want to get it in check. It may also become clear to you that you do not save enough money.

If you are interested in gaining control of your credit score so you can be eligible for a prime interest rate loan, this is where you start. You must reduce your spending and take that money and apply it to your debt. This helps you decrease your debt, decrease your debt to income ratio and increase your chances of getting a prime interest rate loan.

The first step is to remove anything you spend money on that you do not use. Gym membership anyone? How many of us have them and do not use them? I hate to admit that I am one of those people. I know I need to cancel it, I just have not yet. Do not be like me…cancel that membership. Once you do that, take a look at all subscription service that you have. Do you really need them? If so, do you need them as often as you are receiving them? Can you take control and manually have items sent instead of it being automatic? All of these things can help you control your spending. Remember every dollar you save, you can use towards paying down your debt.

Those are easy changes to make and once you make those, it is time to look at the more difficult changes. The next place to look when trying to cut spending is when you spend money on eating out. This includes all types of eating out, not just dinner. When you look at the money you are spending out, be sure to look at coffee shops, snacks and the like. You should try to reduce your spending on eating out by half. Once you see the savings, you may be more willing to cut spending.

Conclusion

I have given a lot of information all centered on a prime interest rate loan. The truth of it is that a prime interest rate loan is difficult to obtain, even for those with the best credit. Your goal should be to decrease your spending, decrease your debt so that you can focus on improving your credit score. When you have improved your credit score, in the event you want or need a personal loan, you can get the best interest rate possible, even if it is not a prime interest loan.

Smart Shopping: How to Save on a Major Purchase

If you are like me, big purchases are stressful for you. It does not matter if I have the money saved for the purchase, I still find it stressful. Spending a large sum of money is not easy for me. I would imagine that it is not easy for most people. You either see your bank account balance drop, or you see your credit card balance increase dramatically. I do not like either of those options. However, I realize big purchases have to happen. We need to buy items such as cars, houses, appliances, just to name a few. Before you start to think the worst, you should know that it is possible to save on a major purchase.

But, if you are interested in getting a personal loan for any sort of purchase, you can use Loanry! Our partner Fiona can send you offers in minutes based on the information you provide us with in the form below. Don’t waste your time on doing all the research yourself when you can use our free services. It costs you nothing!

You can continue reading to find out how to save money on some important life events. You may even be surprised at some of the ways you can save money.

What Is Considered a Major Purchase?

We all make purchases throughout our lives. Some of us love to shop and do it often. Others of us hate it and do as little shopping as possible. There is online shopping, which has made shopping much more convenient. There are also the people who coupon shop. Some use a coupon here and there while others have made it into an art form. Personally, I do not understand how to coupon but I have not take the time to learn. I know people who save a ton of money couponing, but it seems to me, they are buying a ton of items they do not need. However, it does not negate the fact that there is a huge savings and it is possible to save on a major purchase.

This may still leave you asking, “what is a major purchase?” A major purchase is considered something that is a big ticket item, such as a house, car, appliances, furnishing for the home, and electronics. Some even consider sports equipments and trips to be large purchases. According to Forbes magazine, almost 45 percent of people who answered their survey have a difficult time completing a sale for a big purchase item.

Weddings Can Suck The Money Out Of You

I do not want you to think that I am against weddings. I am not, at all. However, I do think there is a ton of money wasted on weddings for the wrong reasons. Getting married is a big deal and an emotional time. Many play on those emotions and entice people to spend large sums of money on items that are not really that important. That being said, I would like to talk about ways to save on a major purchase, like a wedding. One easy way for saving money when it comes to a wedding, is to plan ahead.

When you plan ahead and begin to save the money you need, it helps guide your decisions. You should create a list of the items you must have at your wedding. These items are non-negotiable. Then you can determine how much they cost and begin to save for them. You can create another list of items you would like to have. Same thing here, you find out how much they cost and determine which ones mean more to you and save for those.

When you create these lists, it gives you a good idea of what you really want at your wedding. This makes it easier when you feel the emotional pull to purchase something. You can look at your lists and determine if it is on either one of them. Perhaps it is something you did not consider and you are willing to remove an item from your must have list and replace it with something different. Budgeting is incredibly important when it comes to a wedding. If you can, try to save money for at least a year to pay for the wedding. This puts you in a better position as you begin to start your life as a married couple. And you don’t have to think about how to get out of debt later.

Some More Ways To Save On That Special Day

There are some other ways you can save on a major purchase, such as your wedding. There may be some things you did not consider when it comes to wedding day savings. Before you have your heart set on one particular item or way to do something, consider these tips. Believe it or not, there are ways to save money on just about every aspect of your wedding.

Date – If you do not have a specific date in mind, be flexible. If you plan your wedding for an off time that is not typically considered wedding season, you can spend less money. Typically, June is prime time wedding season, so choosing a different month can save you a ton of money. Also, choose a Friday night or Sunday afternoon to get married and you can save up to 50 percent of the cost. Saturday is the day most people choose to get married and they pay for it.

Dress – Wedding dresses are expensive and you only wear them one time. You can get a second hand dress and save a lot of money. You may be surprised at how well people take care of their wedding dresses. Do not think just because it has been worn, that it is second rate. At least take the time to look at some resale dress shops to see what is available to you.

Food – The food and drinks at a wedding are incredibly expensive. You can make the bar a cash bar so that your guests have to pay for whatever they drink. Many people do not like to do that, so there are other ways to decrease the cost of alcohol. Some venues allow you to provide your own alcohol, so you buy it and bring it and they will serve it. This cuts the cost tremendously. You can also choose to have only beer and wine. These are cheaper options than liquor.

You can also forego a wedding cake and have various desserts instead. A wedding cake can cost close to a thousand dollars and most of them do not taste great anyway. You can have several other types of desserts that your guests may like better.

Moving Without Breaking The Bank

Moving is a stressful time before you even think about the cost of it. It can be incredibly expensive for you to move. If you have to move, or you have determined that moving is the best thing for you right now, then you should arm yourself with some tips to help you save on a major purchase associated with moving. One of the best ways to save money on a move is to do everything yourself. If you can enlist your friends to help with the promise of pizza and beer, you really can see a lot of savings.

There are many different moving services that you can use, but they all come at a cost. There are some items associated with a move that you cannot change the cost. For example, you might need a deposit and first months rent for a new place. You may buy a house and need the closing costs. These costs typically cannot be changed and you have to accept them.

There are other ways to save money on a move. You can do all of your own packing. You can get some friends you trust and ask them to help. Make sure that you label all of your boxes with the room name and the box contents. This is helpful when you are unpacking. You can rent a U haul and literally haul your stuff yourself. You and your friends can load up all your items into the truck and drive them to the new location. Once there, you and your friends can move the items from the truck. This is really only an option if you are moving locally. If you are moving someone that requires a plane trip, you may have to have your items shipped and that causes a huge expense.

No matter where you are moving, you should take this opportunity to down size. Now is the time to get rid of all those items that you no longer use or need. I am sure you have items that are sitting in a corner of your house collecting dust. If so, it is time to get rid of them. If you have items that you have not used in the past year, donate or trash them.

Will A Moving Company Save Me Money?

What if you really need a moving company? What do you do then? If you have decided that for various reasons, you need to use the services of a moving company, there are ways to save on a major purchase. The first thing you should do is compare moving companies. While you might want to pay attention to the final number the company gives you, do not be so quick to do that. Make sure you understand how the determined the total. You should also verify if that total is an estimate, or an actual figure. Some companies will quote you an hourly rate and you are subject to paying for how long they take to pack and unpack your items. While the figure may seem like it is a lower cost initially, it may cost you more money in the long run.

Make sure whichever company you use, they perform background checks on their employees and insure all of their moves. First, remove all the clutter from your home and make sure that the items you are packing are items you really want. The worst thing for you to do is pack and pay to move items that you are going to throw away in your new home. Make sure that you really want all the items you are taking with you.

Travel On A Budget

We all want to take time away from the stress of everyday life. Many of us cannot travel because it is too expensive. While traveling can be an investment, there are ways to save on a major purchase such as traveling. The most important way to travel without blowing your budget out of the water is to plan. You should determine where you want to travel and when. When you have an idea of the location, you can begin to look for deals. Perhaps, you do not have a specific place in mind, then you can look for deals online.

I would caution you when looking online, many of these deals must be purchased and used quickly. There is not often a lot of time before the deal expires. You should be prepared to spend the money and travel soon. And you should also read all the fine print and make sure that you know all the details associated with the deal.

Consider traveling during off peak times. Depending on the location, off peak may be different times for different locations. For example, August is usually considered off peak for a hot location. You can save a significant amount of money just by changing your travel plans by a few weeks.

Can I Really Travel Without Spending A Fortune?

Yes, it really is possible to save on a major purchase, such as traveling. You may, however, have to be willing to make some compromises. So, you can choose to stay at a hotel that is one less star and may cost less money per night. You should do a lot of research about the area in which you want to travel. The more information you know about a location, then the more money you can save. While you are there, eat at local places instead of fancy restaurants. Many times, these places have better food and cost way less money. Find out where the locals eat and go there. You will probably get a better meal. Walk to all the places that you can instead of spending money on a car, taxi, or Uber. This can be a significant savings for you.

When you are deciding on the excursions in which you want to participate, find as many free ones as you can. You can do many things for free, you just have to look for them. Instead of paying for a tour, take in the sights on your own. Often times you can get a book or an audio version of a tour for free or a nominal cost and move through the tour at your own pace. Do not spend a lot of money on souvenirs. Many of these items are priced higher than normal and you forget about them or throw them away after a year.

Medical Bills

Medical bills are often something that many of us have to pay. The cost of medical care is increasing and insurance (if you have it) never pays enough. Medical bills add up quickly and before you know it, you have a bill that is thousands of dollars. While this may seem overwhelming and daunting, take a breath and know that there are ways to save on a major purchase, such as medical bills. Yes, I am putting medical bills in the major purchase category because they are. Typically, the medical treatment is something you need to have and you have no choice but to pay the bill.

One of the key points to remember when it comes to medical bills is that most medical providers understand. They understand that health care is expensive and insurance does not cover much. They know the cost of prescriptions is outrageous and they are usually willing to work with you.

Tops Ways To Decrease Medical Bills

I know you probably do not like that I am referring to medical procedures and health care as a major purchase, but it truly is. So, I am going to continue to refer to it as such. There are some ways to save on a major purchase like medical bills.

The first thing to remember is to be honest with the provider. Call them and talk to them about what you can and cannot afford to pay. Many times they will work with you on a payment plan. They may even be willing to take a partial payment. Some providers are willing to cut as much as half of the bill if you can pay that amount right away. They know it is better to take a partial payment up front instead of getting small payments for months, or years.

Another point to consider is talking to the medical provider prior to the treatment. If you are honest with the doctor or provider, they may be able to modify the treatment so that it fits into your budget. The provider may be able to find a study or trial in which you can participate that allows you to receive free treatment. Medical providers deals with insurance companies all the time and often the insurance company wants a request worded in a specific way to approve the treatment or care plan. If your provider is aware of your situation from the start then he or she may be able to work with your insurance company to ensure approval.

Can A Personal Loan Help Me?

If you need money quickly for a large purchase, you might immediately think of a personal loan, or personal cash loans. Does it make sense to get a personal loan to save on a major purchase? One way a personal loan may benefit you is it gets you money fast when you need to make a large purchase. If you need car repairs, or even a new car, or if a major appliance needs to be replaced, a personal loan is a great way to get money. If you have good credit, you may be able to obtain a personal loan with a low interest rate.

Paying the interest rate may be better than not having a car that you need, or having medical treatment that you need. When you obtain a personal loan, it may reduce the stress you feel about needing the money. Trying to find the money for a large purchase may cause a difficult situation to be even more stressful. When you know that you will have the money you need due to a personal loan, it can help decrease your stress. This may make the interest you pay worth it to you.

One thing to keep in mind is pay attention to the interest rate tied to your loan increases your monthly payment. You may want to do some rate shopping to find the best rate for your loan. The ultimate goal should always be to keep yourself out of debt. In some cases, a personal loan may be in your best interest.

Get Yourself On A Budget

This is one of my favorite topics. I know it probably is not one of your favorites, though. Yes, a budget is important. Yes, a budget is necessary. And finally, yes, you need a budget. If you do not currently have a budget, you should create one. If you feel like it is some form of forced control that prevents you from doing and buying the items you want, stop now. Stop thinking that way. Change the way you think about a budget and understand all the benefits. A budget helps put you in control of your money and your spending.

There are many apps and websites available to help you create a budget. These websites make it simple by providing you a form to list your expenses on one side and income on the other side. Once you see in writing how much you are spending and what you have left each month, that gives you an idea of what you can save on a major purchase. This list shows you where you are spending money each month. I bet you are spending money that you do not even realize. You probably spend more money in ways that you do not even think about each month. For example, how much money are you spending on coffee shops or convenience stores? Those are places that suck up a lot of money quickly and you probably do not even consider it spending money.

Save More, Spend Less

The best way to save on a major purchase is to save the money you need. Once you created a budget as defined above, it gives you a clear picture of who you spend your money. Once you know that, you can determine where you can make spending cuts. First, you should determine your goals. What do you want to do with your budget? Do you want to become debt free? And do you want to save on a major purchase? Do you want to secure savings for your retirement? It is helpful if you have a goal in mind to help you reach that goal. When you set a reasonable goal for yourself that is true to what you really want, it helps you reach those goals.

You should cut out unnecessary spending on items such as that gym membership that you do not use. If you have not been to the gym in months, cancel it now. You are wasting this money. You should also look at other subscriptions that you may have. Make sure that you really want and need those subscriptions services. If you do not, cancel them right now. If you do, change the rate as which you are receiving the items, or change it so that you request the items when you need them. This way you control when the items come and how much you are paying.

Conclusion

I have provided a lot of information on how to save on a major purchase. We all have to make major purchases at some point in our lives. Even if we have the money to pay for them, it is still nice to be able to save on a major purchase. As with any purchase, It is important that you ensure that you need the item and not make an impulsive purchase. Once you are sure of the purchase you want to make, you can begin to save for it. There are many ways you can save money on these items. You can also do research and find the item at the best price. Many large purchases are events, such as a wedding or a new home.

A Review of First-Time Homebuyer Grants and Programs

Buying a house can be one of the most stressful and exciting times of your life. There are many things to consider when you want to buy a house. You want to make sure you are getting the best mortgage for you. A mortgage is a loan you obtain specifically to purchase a home. You use the house you want to purchase as collateral for the loan. When you use that house as collateral, it provides a safety net for the lender. This way if you are not able to pay the mortgage, the bank can take ownership of the house. There are many home buyer grants and programs of which you should be aware when you want to buy a house. Continue reading to find out more mortgage tips and information on the programs that are available.

What Is A Conventional Loan?

There are many different types of mortgages along with various homebuyer grants and programs available when you are ready to purchase your first home. A conventional loan is the most common type of mortgage. It has a fixed rate so it is safe for all homebuyers. Your monthly payment remains the same each month so you will not have to worry about it changing from month to month. A conventional loan usually comes in terms such as 15 year, 20 year, 30 year, and even 40 year loans. The most common ones are 15 or 30 years. A lender wants you to have 20 percent of the cost of the house to put down on the house.

That means if you want to purchase a house that costs $300,00, the lender wants your down payment to be $60,000. If you cannot put down this amount, the lender requires you to have private mortgage insurance (PMI). Lenders prefer that you have a high credit score to qualify for these types of loans. If you have a high credit score, lenders may approve you for a loan with only 3 percent down. They also request a fair amount of documentation to prove your income, employment, and assets.

What Is An Adjustable Rate Mortgage?

Another type of mortgage for your consideration is an adjustable rate mortgage (ARM). The most important thing to understand about this type of loan is that the interest rate changes, hence the word adjustable in the name. One of the most common ARMs is a 5/1 mortgage. That means that the interest rate remains the same for five years, but then changes for the rest of the term of the loan. The interest rate will change based on the current economy. This type of loan is appealing because it keeps your monthly mortgage low for those five years because your interest rate is low. However, your mortgage can increase to a really high rate, much higher than you may be able to afford. When you cannot afford to pay your mortgage, the lender may foreclose on your home.

Some who decide to get an ARM attempt to sell their house, or refinance their loan for a different mortgage type in an effort to avoid payments they cannot afford. However, the value of your house can decrease to a point where you are not able to refinance. An ARM is risky type of mortgage, so you should be prepared for that. You may want to consider all homebuyer grants and programs that are available to you before you consider an ARM.

What Are FHA Loans?

One of the homebuyer grants and programs that is available to you are those offered through the Federal Housing Administration (FHA). These loans are perfect for those with less than perfect credit and a low down payment. FHA loans are backed by the federal government and have mortgage insurance built in to the loan. This is a great option for those who may not qualify for any other type of loan. You do not have to be a first time home buyer to qualify for this type of loan. This type of loan may still require you to pay mortgage insurance if you do not have 20 percent as a down payment. You always have to pay the mortgage insurance with this type of loan even after you have a certain amount of equity in the house.

There are several different types of FHA loans. The FHA 203(k) loan lets you buy a home and renovate it all with one mortgage. If you currently own a home, you can use the FHA 203(k) loan to refinance and use it to renovate your home. The FHA Energy Mortgage helps you buy a home that is energy efficient. You can use this loan to buy an old home and renovate it to make it energy efficient.

The FHA Section 245(a) loan is for you if your income is going to increase. This loan has your payments starting at a low amount per month but your payments go up as time goes by. There are different variations of the 245(a) loan that has varying payment amounts that increase at different rates. To qualify for an FHA loan, you must visit a lender that is approved by FHA. The FHA is not giving you the loan. A lender still gives you the loan, but the FHA guarantees it.

Are There Other Government Funded Loans?

Many different government funded homebuyer grants and programs exist. There are too many to list in this article, but if you go to govloans.gov you can read about all of the different types of loans backed by the federal government. There is a mortgage loan type for just about every person in every scenario. So there should be one for you. There are a handful that I would like to highlight in this article, but do yourself a favor and learn how to shop for a mortgage. Your first step is checking out the gov loans site.

There are Veteran Affairs (VA) loans which are backed by the Department of Veteran Affairs. Most of these types of loans do not require you to have any money to put down on the house you want to buy. These loans are specifically for veterans of all the US armed forces, and sometimes spouses, to buy a home. These loans are usually the most flexible and provide the best terms for mortgages for veterans of the military.

Another type of federal loan is a loan that is funded by the US Department of Agriculture (USDA). These types of loans are intended to help those in rural areas with low incomes qualify for a loan. There are limits to these types of loans and they are based on the size of the family. The amount of the mortgage is also limited by the conditions of the local market. These loans can be used for manufactured, modular, or regular homes, but they cannot be more than 2,000 square feet.

Do I Need A Mortgage Broker?

You do not need to have a mortgage broker to get a mortgage. You do not need a mortgage broker to buy a house. A mortgage broker is helpful to you when searching for the best mortgage, but there are fees. You can do the work yourself, or you can pay someone else to do it. A mortgage broker does not work for a bank. They are independent workers. And they get paid by the fees that they charge you. They must have a license to operate.

A mortgage broker usually has various loans from different lenders to offer you a wide variety of options. It is that person’s job to find the best mortgage available to you and for you. This is what you are paying them to do. A mortgage broker can work with lenders to secure a loan for you. For example, if you only have 8 percent to put down for a house, the broker can find lenders that accept those terms. A broker can do all the negotiating for you. This may be especially helpful if you do not have the best credit. A broker may be able to find some of the best home buyer grants and programs for you so that you do not have to do any of that work.

Are There Fees Associated With A Mortgage Broker?

Yes, there are fees for you if you select a mortgage broker. This person is doing a job for you and expects to be paid. You may not need to consider a broker if you are going to use homebuyer grants and programs. If you are considering a broker, you should be aware of the fees that you may have to pay. The broker may use lender based compensation fees which means that the lender pays the fees of the broker and then adds those fees on to your mortgage. If the mortgage broker chooses borrower based compensation, that means you pay the broker fees at closing. Every broker charges a different fee amount and they may call them by different names.

Here are some of the common fee names and types that you hear:

  • Loan origination fees – sometimes the broker adds his fees to the origination fees that the lender charges. If this is the case, you should ask for a breakdown of the origination fees so you can see what the broker charged. The loan origination fees are a percentage of the mortgage.
  • Yield spread premium – this is what the lender pays to the broker for getting you, the borrower, to obtain a mortgage with higher interest. If this is the case, be sure you have a competitive interest rate.
  • Upfront fees – these fees occur when you obtain a jumbo loan. This is usually a flat rate for making the loan happen. If there is not some type of fee from the broker make sure that the broker is not getting a yield spread premium.
  • Administrative fees – this is when the broker adds their administrative fees in with the standard fee from the lender. If you see this type of fee, you should ask for the broker to waive it.

Mortgage Broker Fees Explained: Home Loans 101

What Steps Should I Follow To Get A Mortgage?

When looking for the perfect house, you should also look for the right mortgage by doing some rate shopping. After you do some shopping around to see what loans are available, you should also see what homebuyer grants and programs are available also.

After that, you want to take some other steps, such as:

  • Check your credit and get it in better shape, if needed. More about your credit a little later in this article.
  • Get prequalified. This shows any potential sellers that you are serious about buying a house. This also lets you know how much money you are able to get in a mortgage. This can guide the price range for your potential houses.
  • Select a mortgage from all the options that you found. You need to select the right mortgage for you. You also need to make sure that you are going to be able to afford the mortgage.
  • Find the right lender for you. Not only is the mortgage important, but so is a lender that is willing to work with your credit and down payment.
  • Get all of your documents together. A lender is going to ask for documents, you know that, so start collecting them. You should gather your employers for the last two years, pay stubs, two years worth of tax returns, two years worth of W2s, any proof of pension. And you also need to provide proof of dividend earnings, bank statements, and any other debts that you have.
  • You should check out a mortgage calculator and determine just how large of a mortgage you can afford to pay.
  • Apply.

Here are some mortgage options for you, just put in your information, and you may get suggestions about a potential lender for you:

Does My Credit Matter?

I hate to tell you, but your credit always matters. If you are trying to borrow money from a lender, it absolutely matters. You may be able to find homebuyer grants and programs with enough federal backing that your credit score does not matter. Those are few and far between. For most mortgages, your credit matters. A lender looks at your FICO score and the credit score. The difference with a mortgage is the lender pulls a credit report from each of the three credit bureaus. Typically all three scores are a little different. The lender uses the middle range score. If your credit scores are 600, 620, and 650, the lender uses 620.

You should know your credit score when you want to get a mortgage. A good rule of thumb is to look at your credit score about 4 or 5 months before you apply so you have a good idea of your credit score. You should also begin looking at the mortgage rates. A 740 or above is a great credit score. Anything between 680 to 739 is average. A score between 620 to 679 is fair. Anything between 580 to 619 is poor and a score below 579 is bad.

What If I Have Bad Credit?

If you are not going to use homebuyer grants and programs where your credit score does not matter, you should work to improve your credit. You should go to Creditry to get a copy of your credit report and learn how to work towards improving it. When you pull your credit report, take a look at it and see if there are any errors on it. If there are errors, fix them. This is the easiest way to improve your credit score. If there are no errors, or you have corrected them all, now you need to work towards increasing your credit score. It takes consistent work, but it is possible to improve your credit score.

You should work to decrease your debt to income ratio. This is the amount of debt that you carry and how it relates to your income. If you can reduce the amount of debt you have, you can improve your credit score. A top reason why someone has a declining credit score is late payments. If you have a history or late payments, you want to work on improving that and make all of your payments on time and in the full amount that is due. You should also consider increasing your down payment amount. The higher amount you can put down on the house, the lower your interest rate may be.

You should make on last effort to see if there are any homebuyer grants and programs for which you qualify. Some of these programs negate the need for a down payment, no matter your credit score.

Why Does A Down Payment Make A Difference?

The down payment is the amount of money you put upfront to buy a house. This is the amount of the purchase price that you pay out of your own pocket. You do not borrow this money from a lender. This is money that comes out of your savings and you can pay it electronically, by check, or credit card. This money is not factored into the loan amount that you ask to borrow. The higher your down payment amount, the less money you need to borrow which means the less money you owe. This also means the lower your monthly mortgage payments is going to be. There is often much debate over the right amount for a down payment. Many people believe you should put as much down as possible, while others think that a smaller down payment makes more sense.

Obviously, the higher your down payment, the lower the amount you must borrow. You may qualify for lower interest rates if you put down a larger amount of money. When you put down a larger amount of money, you are reducing the amount of risk a lender has because you own more of the house. When the lender has a lower risk, you see that reflected in a lower interest rate. Unless you have homebuyer grants and programs that does not require you to have a down payment, the lender wants you to put at least 20 percent down. If you do not put that much down, they feel you are a bigger risk and they want you to have PMI. Paying PMI increases your mortgage payment.

What Is Interest?

Interest is what the lender charges you for allowing you to borrow money. The amount of interest you pay is directly related to your credit score and the amount of your down payment. If you have a bad credit score of less than 579, it adds about 2 percent on to the lowest interest rate. And if you have poor credit, you see an interest rate that is about 1 percent higher than the lowest rate. If you have average credit, you should not see much increase in the interest rate. If you have excellent credit, the lender offers you the best interest rate they can.

I am sure you would like to know what all the means in numbers, so let me give you some examples.

If you have credit in the great range, you may have an interest rate of 4.24 percent, which gives you a mortgage payment of $1,228.

When your credit drops into the lowest fair area, so around 620, your interest rate changes to 5.829 percent giving you a mortgage payment of $1,472.

Just because your credit went from average to fair, you see an increase in your mortgage payment of $244 per month. That is an increase of $2,928 over the course of a year and $43,920 over the course of a 15 year mortgage. If you get a 30 year mortgage, that is an increase of $87,840. That means you pay over $87,000 more for your house over the life of the mortgage because your credit score was fair.

If you know that you have fair or below credit, you should do some research and look into homebuyer grants and programs to see if you qualify for any of them. They could help decrease the amount of money you pay over the lifetime of your mortgage.

Statistic: Mortgage interest rates from 4th quarter 2018 to 1st quarter 2019 in the United States, by mortgage type | Statista

Other Mortgage Terminology

Some other terminology that may be of interest to you is:

APR – this means annual percentage rate. This is the total cost you pay for the lender to allow you to borrow money. This includes the interest rate and any upfront costs that you have to pay.

Appraisal – this is something that you must have. Most lenders require it. It is also good information for you to know. This is an estimate of the current value of your house. Someone who is a professional appraiser signs off on the document.

Points – this is optional for you as the borrower. You can pay to decrease your interest rate. This is something you pay upfront at closing and it can lower your monthly mortgage. One point decreases your interest rate by .25 percent. That means it can decrease your interest rate from 5 percent to 4.75 percent.

To purchase a point, it cost you 1 percent of your loan amount, or $1,000 for every $100,000. If you are borrowing $300,000 for a mortgage, then 1 point costs you $3,000. You have to determine if paying $3,000 up front is worth it to save however much .25 percent interest would cost you over the life of the mortgage.

Even if paying $3,000 up front only saves you $30 per month on your mortgage, that equals $360 per year and $10,800 over the span of a 30 year mortgage. You have to weigh your options to see which one makes the most sense for you.

Do not forget to look into homebuyer grants and programs to see if you qualify for them. They can save you a lot of money in the long run.

Conclusion

I have give you a lot of information and I know it all can seem overwhelming. Give it some time and let it all sink in. These are just the basics that you should understand before considering a mortgage. You should not even attempt to get a mortgage through a lender until you have done research about homebuyer grants and programs to see if there are any for which you qualify. It takes a little bit of time and research to look up homebuyer grants and programs, but if you can qualify for one of those programs, it saves you a ton of money and headache in the long run.

Refinance Your Mortgage At Historically Low Rates

Refinancing is a process of obtaining a new mortgage to substitute your current mortgage. The new funds you obtain are used to pay off the remaining payment of your current mortgage, and then you will be accountable to repay the new loan. Like with the current mortgage, the new loan will need application charges, title searches, and an assessment.

How will you know it’s time to refinance your mortgage? Is refinancing your mortgage a smart idea? If it’s the best decision, how will you refinance, and what are the requirements for refinancing a house? First, make sure you know your financial objectives. The moment you determine what you intend to achieve, then you will start thinking about refinancing alternatives.

Common Types of Refinancing Mortgages

There are three main types of refinancing mortgages in the market. They include rate-and-term, cash-out, and cash-in.

Rate-and-term

The most popular form of refinancing is the rate-and-term. It implies that the rate or term of your loan or even both are dissimilar from the existing mortgage. The terms of the mortgage might chance for a period of a 30-year fixed rate to a 15-year fixed rate. Or you might be required to refinance from a 30-year loan at a 5% rate of interest to a 15-year loan at a 4 % rate of interest. That will lead to significant savings in the long run.

Cash-out

This refinance alternative allows homeowners to refinance for a mortgage of a larger amount than the original loan. The homeowner takes the reminder. Therefore, if you begin with a loan worth $100000 on your existing loan and you refinance the mortgage of $120000, you will get a cash-out if $20000. Typically, banks consider this as a riskier option, but when utilized well, it is an effective plan for homeowners who intend to repay high-interest loans or improve their home equity.

Cash-in

Cash-refinance is the opposite of cash-out refinance. Instead of receiving money in return, the homeowner gives money to repay the loan balance. This assists homeowners to get lower rates on their mortgages that are accessible for lower loans or get rid of mortgage insurance premiums. This allows you to save a lot of money.

Note that the form of refinancing you select will depend on your personal financial condition and your objectives.

Since you know what refinancing is, you need to define if refinancing your home is a good option for you.

When To Refinance Your Mortgage

Once you’ve signed your home loan, it might feel like you made a wrong move, but as a homeowner, that is a myth. The move to refinance your home loan offers you the chance to save on the interest, cash out the home equity or reduce your mortgage term. If refinancing reduces the interest you are supposed to pay on the home loan; then this option is for you. Not certain that refinancing your loan is the smartest financial decision? Here are some signs that help you know refinancing is the best decision.

When You Can Get Low Interest Rates

The rate of interest for mortgage tend to fluctuate every day. Numerous aspects influence the rate of interest, such as inflation, the economy, market, Federal Reserve, and monetary policies in the US. If you realize that the interest rates are lower than what you pay, it’s time to refinance your home.

Substituting your home loan for a mortgage that has an affordable rate of interest with the same terms is known as rate-and-term funding. Is the difference in rate sufficient to opt for refinancing? Typically, if you find a mortgage that is 1 or 2% less than your current rate, its better you refinance the mortgage. However, no rule of thumb applies to every person and condition. Even though a 1% interest rate might lead to a huge amount of savings for a homeowner with a multi-million dollar home loan, the same might be different for a homeowner with a mortgage worth $100000.

You might opt for refinancing when the percentage rate of interest is less than 1%. While professionals recommend for at least a 1% decrease, that rule of thumb was used in the 50s when mortgages were small, and homeowners continued to stay in their houses until they die. Nowadays, with big loans, a negligible percentage decrease will still lead to huge savings.

Take your time to look at the updated rate of interest while comparing it to the original rate. Bear in mind that your credit rating will determine your individual rate of interest. That means that a lower interest rate is not always a must.

If You Want To Improve Credit

If you have been striving to rebuild your credit, refinance your mortgage as this will help you. Typically, a higher credit rating means you will have a lower rate of interest. Bear in mind that personal lenders define the worth of your credit rating. So, people with a credit score that is above 700 get the lowest rate of interest. However, you can still get a better deal if when your credit score falls in 600-700.

With the help of a saving calculator, you can compute your APR, cumulative interest, and monthly reimbursement. The calculation is completed based on your credit rating, a form of a loan, the principal amount of loan, and where you stay. 30-year financing for an amount of $100000 at the credit rating of 620-639 will offer you APR of 5.0006 %. That will add up to the monthly reimbursement of $537 and a cumulative interest amount of $93,388.

What will happen if you raise your credit rating to 760-850? The APR will reduce to 3.417%, the monthly payment will reduce to $444, and the cumulative interest paid will be $59.993. That is a difference of $33395.

One of the essential aspects that mortgage lenders look at is credit history. Even a single point increase in your credit score will decrease your loan fees. Luckily, there are numerous ways to increase your credit rating to make sure you get a better interest rate on your loan.

How to Improve Your Credit Score

Get a Rapid Rescore

A rescore will remove all mistakes that are affecting your credit rating. That will boost your credit score from a couple of points, even 100 points within a few days. Mortgage creditors can utilize this approach to assist homeowners to boost their credit rating.

Ask for Credit Reports

Before you start mortgage loan shopping, make sure you know your credit score by requesting a free credit report from the three leading bureaus. They include TransUnion, Experian, and Equifax. Report all errors you might find immediately. If you want to improve your score over many months, you can ask for the free credit report after four months from any of the leading bureaus. Thus will allow you to know how your credit score is progressing.

Pay Your Bills on Time

Both the present and past payment habits are considered to be a dependable pointer of your upcoming payment habits to creditors. Making your payment late or missing any payment is a fast way to damage your credit score. Therefore make sure your payment is consistent, and they are made on time. Utilize automated payment to make sure you do not forget paying any bills.

Enhance Your Debt-to-Revenue Ratio

You will improve your credit rating by paying off your loan and keeping your credit card balances at a minimum. The overall recommendation is to maintain your credit usage at 30%. That means that your credit line usage should not exceed 30%.

Leave Unused Credit Cards Open

By keeping the unused credit cards that don’t cost you any yearly charges open, you will have a chance to maintain your credit mix and credit score. You will also keep your usage ratio low.

Have you improved your credit score? Do you believe that you are eligible for a low rate of interest on your home loan? Then you can refinance your mortgage. If you think refinancing might be a lucrative option for you, make sure you do the calculations well. That is because the mortgage rates tend to oscillate and might reduce even further.

How to Improve Your Credit Score Without Crying

When You Have Experienced an Increased Revenue

An upsurge in revenue might be perfect if you want to refinance your mortgage to a short term. Shifting from a 30-year home loan to a 15-year loan term will save you a lot of cash in interest.

For example, a 30-year fixed mortgage of $100000 at a stellar credit rating of 760-850. The loan will give you a monthly reimbursement of $444, $59,993, and a 2.845% APR. If you decrease the mortgage term to 15 years, the APR will change to 2.845%, and the interest will reduce to $22, 967. That is a huge difference of $37,026 that is a huge increase in your savings.

When You Have Issues with Your ARM Adjusting

Adjustable-rate mortgages tend to differ over the lifetime of a loan. The rates are based on the market situations and also the form of loan to get. Most ARMs amend once every 12 months, while others will adjust after up to 7 years. Mostly, you will pay less interest with ARMs and attract lower monthly disbursements early in the mortgage term.

If your current mortgage has a fixed rate, and you expect the rate of interest to fall further, you may opt to switch to an adjustable-rate loan. If you intend to relocate within a couple of years, switching to an ARM might make sense for your condition. That is because you will not be in your house for many years to wait for the rate to increase.

On the other hand, the most upsetting thing about the adjustable-rate mortgage is when adjusting the loan, the rate of interest and payment might increase. Switching to the fixed mortgage rate might be a viable option if you believe you won’t be able to afford to make the payments once you adjust the loans. You can also refinance your mortgage.

When The Value of Your House Goes Up

From 2011, the value of houses in the US has increased from $250000 to $394000. Hitherto, the majority of homeowners ignore refinancing their mortgages once the value of these homes rises. Once you notice that the value of your home has increased, refinance your mortgage since it will be beneficial. If you want to repay other higher interest loans fast or finance massive purchases, these options will be appealing.

Cash-out refinancing is a funding alternative that lets you get a new and bigger loan so you can get the remainder. For instance, perhaps it was initially valued at $250000. You offer 20% on the upfront. Your home loan of $200000 is now $140000, after a couple of years of reimbursement, but the value of a house has gone up from $250000 to $300000. You might decide to refinance your mortgage for over the difference of $40000. If you decide to refinance the home for $165000, you will use a $25000 difference to repay a high-interest loan, remodel your house, or finance other purchases.

Also, if you are in a good financial condition whereby you are sure you can repay the extra $25000 of mortgage loan with ease, this might be a good move. If you plan to utilize the funds to repay other higher interest loans, make sure you define if you will be required to pay additional interest for that loan than for the mortgage. If you ultimately pay extra interest other higher interest loans, then the cash-out mortgage refinances might be a good option for you. In case you are required to pay additional mortgage interest, you might need to remain with the old mortgage.

Make sure you check your home value to get an accurate approximation before you opt to refinance your mortgage. Undervaluing or overvaluing your property might make you overpay and save less.

In case you experience any of the mentioned signs. It might be the right time to refinance your mortgage.

Questions to Ask Yourself Before You Decide to Refinance Your Mortgage

Every person would like to save money, particularly when it comes to a mortgage. Perhaps, you want to reduce your bills by refinancing your mortgage. Or you want to refinance your mortgage since you are worried that the rate of interest will increase ad it’s your only chance to get a good deal.

Mortgage rates are generally low, and you might have numerous loan alternatives. However, you will need a lot of time to find out if refinancing is your ideal option now. The period you intend to stay in the house, your financial goals, and your credit score will play a vital role when deciding whether to refinance your mortgage.


Here are some of the questions you need to ask yourself before you decide to refinance your mortgage.

Are Mortgage Rates Going to Increase Any Time Soon?

Once the Federal Reserve increases interest rates for short term loans by 0.25 percent, the majority of homeowners fear an increase in mortgage rates. However, rates for a mortgage are not affected by an increase in short term rates.

Alternatively, never expect a fast increase that will prevent you from refinancing your mortgage. You will still have time to repay the high-interest loans and improve your credit profile, and increase your chances to qualify for a high refinance mortgage.

Provided the mortgage rates are still low; people will continue refinancing their homes. The majority of homeowners who bought at a market peak, only to experience the prices go down, have now regained sufficient equity in their properties to benefit from refinancing their mortgages. Many homeowners are taking advantage of the lower rate of interest with cash-out refinancing to finance their home remodeling projects.

You will get a competitive rate of interest provided you have a good credit score, and you provide evidence of steady revenue.

How Much Can I Save On the Payments Made Every Month?

To compute your possible savings, you must add all your expenses for refinancing, like evaluation, a credit check, initial charges, and closing expenses. Make sure you find out if you have a penalty for repaying your original mortgage early. Once you know what rate of interest could qualify you for a fresh mortgage, you can compute your monthly payment to find out the amount you can save every month.

Additionally, you will need to consider if you have no less than 20 percent equity in your property. That is the difference between your debt and the market value. Check the value of your home in your estate to know how much your property may appraise now. Never depend on the online property value estimates as they are always of the real value. However, online websites will give recent selling prices of the same properties in your area. Also, a local realtor will share ideas if what your property is worth.

The amount of equity is essential since creditors will need mortgage insurance if your equity is below 20 percent. This safeguards the lender’s financial interest in case you fail to repay the loan. Mortgage insurance is extremely expensive, and it will be included in your payments every month. Therefore, make sure you include them when making calculations for possible savings.

Will the Savings be Sufficient to Make Mortgage Refinancing Worthwhile?

You will need to spend 2-3% of the mortgage in closing expenses. Therefore, you find out the number of days your savings will go towards recovering the expenses. For example, it will take you 30 months to cover $3000 in closing expenses if your payments every month reduces by $100. If you relocate during that period, you risk losing cash in a refinance.

Is it the Right Time to Get Another Loan Option?

Predict how long you want to stay in your old house and think of the details of your old mortgage. The way these aspects play off one another will have a huge role in your decision.

Let’s assume you purchased a house with an adjustable-rate mortgage for the first term of 5 years at 3 percent. You intend to stay in the house for many years. If notices that the adjustable-rate can get to normal and go high, you may benefit from refinancing your mortgage to 15 or 30-year fixed loan to have a set rate that doesn’t fluctuate.

If you think that you will be relocating in a couple of years, refinancing your mortgage to an ARM from a long term fixed mortgage will allow you to save more cash since lenders provide low rates in the mortgage.

How Does My Credit Score Look Like?

Check out if your payment history and credit rating has improved from the time you obtained the mortgage. If yes, you may be eligible for a competitive rate of interest, and this will assist you to save a lot every month.

Furthermore, experiencing some financial hardships will hinder your capability to qualify for a refinance mortgage and also the rate you will be given. If you are late on paying your credit card, purchases a new vehicle, or obtained a student loan, your credit rating will be low than it was when you obtained the first loan. Make sure you do credit repair before you refinance your mortgage.

If you are finding it hard to make payments, try to automate all of them to ensure you do not forget any. Additionally, check the difference between the outstanding credit balance and credit limit. If the report indicates outstanding balances are close to the limits, it means higher usage. Make sure you maintain the ratio at a lower level by repaying your credit card balances every month. This will determine if you are eligible for a new mortgage.

Steps of the Refinancing Process

There are numerous reasons you may need to refinance your mortgage. You want to reduce your monthly payments, reduce e rate of interest, or get some cash to repay a high-interest loan. Irrespective of your reason, you need to know what to expect from the refinancing procedure before making a decision. To refinance your mortgage, you will need to through these steps:

Ensure You Will Benefit from Refinancing

Your initial step when to refinance your mortgage is ensuring that refinancing will be helpful to you. Set your financial goals and determine if you can achieve them. Are existing rates cheap to allow you to save? If you decide to cash-out, ensure the cash you get will outweigh the additional years you spend on the loan. Every homeowner has a unique financial situation and priorities, and for that reason, you are the one to choose what is best for you.

Call the Mortgage Lender

Get a lender who will make the refinancing procedure as fast and stress-free as possible. A good lender will allow you to get reapproved within 15 minutes, with a free rate quotation and no onus quote.

Finding the right lender is very important. One of the best places to look for reputable lenders online is Loanry. This is what we do. We connect you with credible lenders and help you go through this process a bit quicker. Start here:


Fill the Loan Application

The moment you are ready to refinance your mortgage, start your application with one of the leading lenders

Sign Your Disclosure

The lender will send you the original disclosure to sign, and you might take advantage of that chance to look at the terms of the loan. This will help you make sure you achieve your goals of cashing out or reducing your rate.

Offer the Required Documentation

Once you sign, you will need to give your paperwork to the lender, including your income and property verification.

Submit the Mortgage Conditions

The lender will send your documentation to the underwriters who will check if there is anything else required.

Sign the Final Documentation

Once the mortgage is approved, you will need to sign with a lawyer.

Remember to Check Back with the Creditor

After 72 hours, whereby you are allowed to cancel the refinance mortgage without any charges, your mortgage will be financed. At this moment, your old mortgage will be repaid in full.

Start Repaying the Loan

Since you’ve completed the refinancing procedure, you can begin repaying the current mortgage that will be due in one-two months after the financing process.

Bottom Line

A good refinance must benefit the homeowner by reducing his or her monthly mortgage payment or reducing the term of their home loan. Unluckily, some complexities tend to trip up the gullible borrower, resulting in a sore deal. So, make sure you understand the process. This article shares some mortgage tips to help you make an informed decision.

Before you decide to refinance your mortgage, get your creditor, and do the calculations. This will help you to find out if the payment term is sensible to allow you to save. Take a comprehensive inventory of your financial objective and contemplate how your existing house will achieve your location and space needs.

Saving some dollars on your mortgage will help you accumulate wealth, and everyone loves doing that. If you think that it’s not the right time to refinance your mortgage, continue paying your old mortgage. Maintain your credit score such that you can be prepared when the time comes. However, doing a bit of rate shopping is important as you will have a guarantee that you will get an affordable rate.

3 Mortgage Terms to Know: Principle, Interest, Down Payment

A mortgage is a loan that you take out to buy a home. When you get a mortgage, the home you are going to be purchasing will generally be used as collateral. If you fall behind on your repayments, the lending institution will have the right to take your house. There are different mortgage terms that can help you understand the process. These terms are principle, interest and down payment.

What Are Principle, Interest and Down Payment?

Principle, interest and down payment are different parts of the mortgage that you will be responsible for paying.

What Is Principle?

The first of the mortgage terms you need to know of principle, interest and down payment is principle. The principle of your payment is what goes to the actual price of the home. Principle refers to the initial size of a loan and it also means the amount still owed on a loan. For example, if you take out a $100,000 mortgage then the principal is $100,000. If you pay off $30,000 of the principle then the $70,000 is also called the principle.

At first, when you are making monthly payments on your loan, your payments will likely go toward interest. Then the remainder applies to your principle. When you pay down the principle of a loan then you can also reduce the amount of interest you pay each month.

Besides making your mortgage payment on time, there can also be other methods in order to reduce your mortgage principle, provided that you are allowed to prepay or your mortgage permits additional payments. For example, if you make one additional payment per year then you can reduce the principle enough to pay off the mortgage sooner, five years sooner actually and can save additional money in interest.

What Is the Interest Rate?

Out of the principle, interest and down payment, one of the main concerns that many soon-to-be-homeowners have is about interest rates.

What Will Impact Mortgage Interest Rates?

There are different things that will impact mortgage interest rates. You may think that daily mortgage rates don’t matter all that much but they do. It matters what the rate is today and what it might be tomorrow or next week. However, you aren’t able to control what the market does or what could be impacting the housing market. What can you do is be educated on interest rates and focus on the things you can control, such as your credit score and down payment.

Your Credit Score

One of the biggest factors for the interest rate you get on your mortgage is your credit score. Lenders will use your credit score as an indicator of how likely you are to pay back your loan. If you have difficulty paying back a loan and your credit score reflects that then you are more likely to have trouble with paying down bigger debts like a mortgage.

Your Down Payment

If your credit score isn’t that high then one thing you can do to lower the interest rate is make a more sizable down payment. This works to show the lender you are capable of saving and it will lower the amount you are then getting from the lender.

Your Loan Term

Many mortgage loans are either 15-year or 20-year loans. Many homeowners will choose a 30-year option but shorter loan terms can be eligible for better interest rates. There are two reasons for this. The bank will recoup the investment faster with a shorter-term loan. The lender is also going to be getting a higher payment from you every month. If you are going this route to lower your interest rate then you need to make sure you can handle the higher payment.

The Interest Rate Type

There are two types of interest rates that homeowners will need to be aware of.

An adjustable-rate loan will still start off with a lower introductory interest rate. After a set period of time, the rates will adjust to being more in line with the current market interest rates. At this time, your monthly payments change accordingly.

Fixed rates can be higher than adjustable ones but they stay the same over the entire length of the loan and ensure that you have the same payment each month. You can decide whether you get a fixed or adjustable rate but if you choose the adjustable-rate option you need to be prepared that your payment can go up.

Of course, every option has its disadvantages. It’s important that you know them before you decide. Unfortunately, here it all comes down to picking between two not so great things. Either you’re going to pay extra if you choose the fixed-rate option, since there are additional years when you pay interest. Or your going to risk paying much higher interest than initially, if you choose the adjusted-rate option.

What Is the Down Payment?

The last thing you need to know about the main mortgage terms of principle, interest and down payment is what a down payment is. The down payment is the upfront payment you make when you purchase a home. The down payment is the portion of the purchase price that you pay for yourself out of pocket instead of borrowing. In most cases, the money will typically come from your personal savings and you can pay with an electronic payment, credit card, or check.

Down payments are usually not part of a loan. However, you may see zero down offers where no down payment is required. Even if you don’t have to have a down payment, there are benefits of having one. The down payment will cover a meaningful part of the total purchase price. For example, if you are buying a home for $200,000 and have saved $40,000 as the down payment then you only have to mortgage $160,000.

There are debates about how big of a down payment you should have. You can often choose how large the down payment should be but the decision isn’t always that easy. Some people believe that a larger down payment is better, while others think that it’s best to keep the down payment as small as possible.

What Are the Benefits of a Bigger Down Payment?

A larger down payment will help you borrow less. The more you pay upfront, then the smaller your loan will be. This means you will have a smaller principle but larger interest costs over the life of the loan. You could benefit from lower payments.

Lower Rates

You may qualify for lower interest rates if you put more down. Lenders will usually like to see a larger down payment since they can easily get more of the money back if you default. When you reduce your lender’s risk then you can also reduce your interest charges.

Avoid Mortgage Insurance

When you are purchasing a home, you can avoid private mortgage insurance and other fees with a larger upfront payment. On FHA loans, mortgage insurance costs will decrease with a larger down payment. You may be stuck with private insurance throughout the life of the loan unless you refinance at some later time when you have paid more on the home.

Smaller Monthly Burden

A lower monthly payment can make it easier for you. If your income changes due to a job change or loss then a lower payment can give you more wiggle room, which is always helpful. You can also save more for an emergency fund or other improvements to the home.

Future Borrowing Power

A lower payment makes it easier to qualify for additional loans in the future. Lenders will want to see that you have more than enough income to meet monthly obligations and will evaluate finances with what is called a debt-to-income ratio.

Potential Equity

Occasionally you can borrow against an asset such as your home and use the asset as collateral. If you put down more than 20% of the home you can enjoy price appreciation and may be able to pull funds out of a home equity loan.

What Are the Benefits of a Smaller Down Payment? Ð ÐµÐ·ÑƒÐ»Ñ‚ат слика за small down payment mortgage infographic

A smaller down payment appeals to a lot of people because you don’t have to come up with as much money.

Allows You to Buy Sooner

When you are trying to save 20% for a home purchase it can take a while. For some, this can take even decades and this may not work in your situation.

Emergency Reserves

If you are able to save up a significant amount then it can be scary to part with all that money. You may be wondering what you will do if something happens, such as health problems or if your car breaks down. Putting all your free cash into the house means your money is tied up in something that can be hard to sell.

Resources for Improvements

When you have a smaller down payment, you get to use the cash you keep to help with inevitable improvements and repairs.

Opportunity Cost

You may want to use the funds for other purposes, such as growing your business or retirement savings.

The decision about whether or not you choose to go with a larger or smaller down payment will depend on different factors. The best scenario is you have a solid emergency fund to deal with any surprises and you aren’t robbing this fund to make your down payment.

What about Lender Requirements for a Down Payment?

Lenders can set minimum requirements for down payments but you can always choose to go with a larger down payment. Remember that a larger down payment will reduce the risk for the lender.

Down payments can also have a psychological impact. A larger down payment shows lenders that you have more skin in the game because you have more of your own money at stake. This means you may be more likely to keep making payments. For home purchases, 20% is a significant number. When you pay at least 20%, you can avoid paying for mortgage insurance.

How Does a Mortgage Work?

Besides knowing about principle, interest and down payment, it also helps to know how a mortgage works.

Finding a Lender

When you are searching for a mortgage and rate shopping as a first-time homebuyer, you should look around and compare different lenders before you start to look at houses. It’s recommended to get a pre-approval letter and find out how much banks are willing to lend you and determine how much you will be able to afford. This way, when you find a house you have the ducks in a row to submit the offer.

Many new buyers will rely on their real estate agent for information about the mortgage process since few people will go through the home buying process more than once or twice in their lives. The realtor’s priorities are to get fast approval and not to negotiate the best interest rate. If you want to minimize your mortgage payments then it’s recommended that you shop for a mortgage and compare rates from at least three different lenders.

Loanry is the tool you need. We connect you to reputable lenders who may be willing to give you a loan. You can find out more and get offers by filling the form below:

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Look at Homes

The fun part is looking at homes. Try making a short list of must-haves, wants and dislikes so you don’t get caught up in the moment.

Your Guide to Understanding the Mortgage Process

Advantages and Disadvantages of a Mortgage

A mortgage will allow you to purchase a home without paying the full purchase price. Without a mortgage, not many people would be able to afford to buy a home. Having a mortgage in good standing on your credit score can actually improve your credit score and help you get better interest rates for other credit lines. There are also tax benefits to homeownership. You could be eligible to deduct the interest paid on your mortgage or more.

There are some risks with a mortgage. Since your home is collateral for the mortgage, you risk losing your home and the lender can take the home if you stop making payments. If the lender does take the home in a foreclosure then you also lose the money you have paid up to that point on the home. It is possible to lose everything you’ve built up if you go into foreclosure.

What to Do before Shopping for a Mortgage

Your knowledge about principle, interest and down payment can help with rate shopping for a mortgage but there are some things you will need to do before you begin.

Check Your Credit Score

Since this is one of the most important factors in getting approved for a mortgage, you need to check your credit score. The better your score, the lower the rate will likely be. Don’t forget you are entitled to a free credit report.

How Much You Can Afford

Your principle, interest, and down payment will likely take up a large chunk of your income so you need to know what you can comfortably afford. You can use an affordability calculator or finance calculator and add in your principle, interest, and down payment to see what your payments will be and make sure that you can comfortably add this to your budget.

What Are Some Common Mortgage Myths?

There are some mortgage myths you need to be aware of when shopping for a home.

You Need Perfect Credit to Get a Home

While your credit score is one key factor lenders will use when you apply for a mortgage, bad credit won’t always prevent you from getting a mortgage. A lower credit score may mean a higher principle, interest and down payment but it doesn’t mean that you can’t get a mortgage.

You Need to Have a 20% Down Payment

Conventional wisdom says you need to put 20% down when you purchase a home. A larger down payment can make it easier to get a home but there are many options for homeowners who have a smaller down payment.

If You Prequalify, You Will Get the Loan

The qualification process can give you an idea of how much lenders may give you based on your credit score, income and debt. However, this doesn’t mean that you will get the loan. Once you find a home and make an offer, the lender will request additional documentation, which can include tax returns and more. This process will then determine whether your loan will get approved. If you do have concerns that you may not get approved and want to know more before you start looking at houses, ask the loan officer whether or not you can get full credit approval.

Should You Refinance Your Mortgage?

Knowing about the principle, interest and down payment can also help you know about whether or not it’s time to refinance. Refinancing your mortgage means replacing your existing one with a new one. There are different reasons why you may want to refinance your mortgage, depending on your current principle, interest and down payment.

Getting a Lower Interest Rate

One of the best ways to refinance is to lower your interest rate on your existing loan. The rule of thumb is that refinancing can be a good idea if you can reduce your interest rate by 2%. However, some lenders will say that saving 1% gives enough incentive to refinance. Reducing the interest rate will not only help save you money but it can also increase the rate at which you build equity in the home and can decrease the size of the monthly payment.

Shortening the Loan Term

When you get a lower interest rate, homeowners can refinance the existing loan for not much change in the monthly payment and also have a shorter term.

Converting to a Fixed-Rate or Adjustable-Rate Mortgage

While an adjustable-rate mortgage can have a lower rate, the periodic adjustments can result in rate increases that are higher than those of a fixed-rate mortgage. When this happens, converting to a fixed-rate mortgage can offer you lower interest and also eliminate the chances that your rates increase again.

Converting to an adjustable-rate mortgage can also be a good financial strategy if interest rates are falling. If rates continue to fall then you can have smaller mortgage payments and it will eliminate your need to refinance every time rates drop further. However, if mortgage rates are rising then this may not be a good strategy. Converting to an adjustable-rate mortgage can be a good idea if you don’t plan on staying in the home for more than a few years. You won’t have to worry about future rates that are higher because you won’t live in the home long enough.

Tap Equity or Consolidate Debt

Homeowners may want to access the equity in the home to cover any major expenses, such as paying for college tuition or home remodeling. It can be easy to justify the cost of refinancing because things like remodeling can add value to the house and the interest rate on the loan can be less than getting a loan from somewhere else.

Other homeowners refinance to consolidate debt. Replacing high-interest debt with a low-interest mortgage can be a good idea. You should only refinance to consolidate debt if you know you are able to resist the temptation to spend extra while refinancing relieves you from your debt.

There are times when it doesn’t make sense to refinance your mortgage and it’s not always about principle, interest and down payment. Remember that a no-cost mortgage loan doesn’t exist. This prospect can be enticing to borrowers but you will still pay for applicable fees and closing costs. If these fees are added on to the cost of the loan then your principle increases. You may think that you can refinance for lower monthly payments in order to save for a new home. There isn’t a problem with this decision but borrowers will need to calculate how much refinancing will cost them and how much they will be able to save every month in order to make the decision worth it.

What Are Some Mortgage Tips?

There is a lot to learn about the principle, interest and down payment. However, there are also some mortgage tips to keep in mind.

The Value of Your Home on Paper May Be Secondary to the True Value of Your Home

When you have already committed to a mortgage then the goal is to pay it every month and be sure to take care of the new house. Watching for signs that the home has gone up or down in value will only impact property taxes. This is unless you plan on selling. Don’t be so hung up on the paper value as you pay off your mortgage unless you plan on turning your home into paper money. If you want to refinish the deck in the back because that’s what is best for your family then do so and don’t worry about trying to raise the resale value.

When Mortgage Interest Rates Are Low, Housing Prices Rise

Housing prices and interest rates do vary from market to market and even month to month. Since many people will base what you can afford on monthly payments, you are likely to take on more debt if the interest rate is good as long as you keep payments under control. Supply and demand say if people are paying more for housing then the housing prices go up.

Remember That You Don’t Need Perfect Credit to Apply

There may be no perfect time to get a mortgage and while you should spend some time to work on improving your credit score, this isn’t always possible. Loans for lower credit scores also exist. Lenders can take more into consideration than just the credit score.

You Won’t Know What Is Available Unless You Apply or Ask

Many mortgage loan statistics aren’t specific to you. You will still need to mortgage shop and think about what principle, interest and down payment are right for you. There are plenty of online lenders that want to earn your business and if you don’t like the level of service or the terms, those lenders likely won’t stay in business long.

Have Some Extra Cash in Reserves

Lenders will like to see a couple of months of mortgage payments in reserves since a lender doesn’t want to give a mortgage to someone who is depleting their savings and may not be able to pay the loan back. These savings can make it easier to qualify for a mortgage and the large amount in reserves could even make up for a bad credit score. The lender wants you to use these reserves to make sure you pay off the mortgage but you can also use the reserves to make home repairs or furnish your home after you receive the keys.

Don’t Forget Quotes from Multiple Lenders

If you aren’t shopping around, you are doing yourself a disservice. Even if you are sure on the lender, getting quotes from others can help you negotiate a better deal.

Conclusion

The principle, interest, and down payment are three very important mortgage terms that you will need to know when mortgage shopping. All three items affect each other. The larger the down payment, the smaller your interest rates may be and the smaller your interest rates then the less you will be paying each month. The principle, interest and down payment will also affect your choices if you want to refinance your home. Knowing how a mortgage works can help you make the best decision about shopping around and knowing when it’s the right time to apply for a mortgage.

Tips for Paying Off a Mortgage Faster

Owning a nice home is the dream. Paying on it until retirement is not. And yet, this is what many people find themselves facing. Maybe not all the way to retirement, but pretty close. Paying off a mortgage fast seems to be a part of that dream as well.

I remember running across an ad a couple of years back that piqued my interest. We own our place, now, but it definitely is not our dream home. It was more a means to an end- a source of stability. I paused and paid attention. It was a brand-new community of homes being built- beautiful inside and out with plenty of bedrooms and closet space, and an extra bathroom. I looked at the bottom of the ad and saw that the monthly price was something we could afford as long as we kept a tight rein on the rest of our finances.

Should We Do This?

I was getting really excited, until I did the math. We would be paying on the thing for almost thirty years at that price. Let’s be clear: I want a bigger home for my children. With this mortgage, they would be moved out and married with their own kids before we paid it off. I quickly threw out the ad, but it brought up some legitimate questions and concerns. How long were we willing to pay for a mortgage? Were we really going to get into a thirty-year mortgage so it would finally be paid off at the age of 65? Um, no.

If you are considering buying a home but do not want to be stuck paying for 30 years, or if you are already in a 30-year mortgage, I have some good news for you, and me for that matter. We can pay it off before then, if we choose, and save ourselves a ton of money in the process. We do not actually have to be stuck paying for that entire amount of time. Let me share what I have learned.

Understanding Your Mortgage

I am all about basic knowledge, so that is where we will begin. Mortgages can be tricky and confusing things. Before you even begin the process it’s very important that you understand your mortgage. You should know that Americans want to get their dream homes, so they are ready for debt to make that dream happen. Mortgage statistics show that this option is very popular.

If you’re thinking, “I just want a house. Oh, I sign this paper, make payments, and that’s it?” Well, yes, you can keep it that simple, but not if you want to pay it off quicker. There is a lot more information that you need to know, but don’t worry. We’ve got your back. Let’s break it down.

What Exactly is a House Mortgage?

So, what exactly is a house mortgage? In short, it is a long term loan that you use to buy a home. Like other loans, you will not only pay back the amount you owe but also interest on it.

How Do They Work?

When you decide you want to buy a home, you will speak to a bank or other lender that offers mortgage loans. They will look at your finances and your credit, and then they will tell you what they think you can afford. Getting a mortgage with good credit is always somewhat easier. Here is one of the biggest mortgage tips on this list: do not go by this number. Many people just go with what the bank says you can pay back, but the bank does not live with you.

You, and your spouse if you have one, need to look at your budget yourselves and decide what you can afford. This means you need to consider everything the bank is not considering, like fees at your children’s school, charitable donations, anything you want or need to spend money on that is not considered a bill. Banks do not think about things such as this, so you have to.

Once you have been given an amount by the bank, and you have decided what you are willing to pay each month, you begin to look for a home within those parameters. Once you find one and sign all the paperwork, you will move into your new home and pay the mortgage. Typically, the bank or lender expects you to have some money as a down payment. Your mortgage payments will be spread over a certain amount of years, the most popular of which is 30 years. If you think you don’t know enough, it’s a good idea to get to know the mortgage process as much as you can.

The Mortgage Loan Process

Mortgage Payment Structure

When you get a mortgage, there are four parts that will be included in what you owe: principle, interest, taxes, and insurance, or PITI. The principle is the actual loan amount, interest is the lender’s fee for borrowing the money, real estate and property taxes are included, and insurance is required until a certain amount of the principle is paid down.

Here’s where things are going to get good. You should receive what is known as an amortization schedule. This is a breakdown of how much of your payment is going to the principle and the interest. The first several payments, the majority of your payment will go to interest, but as you get closer to the end of the mortgage, most of it will go to the principle. In a few minutes, when you are working on paying off a mortgage early, the amortization schedule comes in very handy. We will get back to it in just a moment.

Mortgage Loan Basics Spelled Out: Lending 101

Paying Off Your Mortgage Faster

So, paying for 30 years is not your idea of a good time either? Cool, let’s get down to paying off a mortgage faster.

Look at What You Owe

Any time you want to make a plan, you need to understand where you are starting. So, your first step is to look at the total amount that you still owe. For the sake of this article, we are going to keep it simple and say I still owe $50,000 on my home. How about you? How much more do you owe? And, what is the interest rate you are currently paying? Write it down.

Compare that Interest Rate to Other Debts’ Interest Rates

Take a look at your other monthly bills, especially credit cards and other loans. What are the interest rates on those? And your monthly payment? Before you jump into overdrive to pay off your mortgage, you need to have some free-flowing money. If the interest rates on any other debt are higher than your mortgage, pay it off first- and quickly. Why? Think about it: if you are currently paying $300 a month on a credit card, you can pay that card off now, and then have that $300 extra for your monthly mortgage payments. You need to free up what money you can before starting to work on your mortgage so you have something to work with.

Pay Weekly or Every Two Weeks instead of Monthly

Let me throw some crazy math at you: There are 12 months in a year, right? If you pay monthly, that means you are making 12 monthly payments. (Yes, I know this is simplistic but I do have a point.) If you break that monthly payment in half and pay that half every two weeks, you are making 26 total payments. This adds up to paying one full extra payment a year- a pretty big deal in paying off a mortgage faster.

Put Any Bonuses or Refund Checks on It

Any extra income that you have coming in, such as Christmas bonuses, birthday cash, tax refunds, anything, put it toward the mortgage payment. Every single penny that you can pay over the interest is going to knock down your principle. The lower the principle, the lower the interest. The lower the interest, the more you can pay on the principle. Even if it is only an extra $20, put it on there.

Set a Goal for Paying Off a Mortgage Faster

Ever since watching the movie Pretty Woman as a kid, it has stuck with me, but not really for the same reasons as everyone else- though I do love the whole movie. At the end of the movie, her former roommate Kit is looking for a new roommate and speaking to a potential candidate. She’s telling the new girl that she will be returning to school, and then says, “You have to have a goal. Do you have a goal?”

Those words replay in my mind constantly. Perhaps that is why I am so goal oriented? Anyway, the point is that having a goal is necessary. Just winging it is probably not going to get you where you want to go. And I am talk about a goal that says more than, “I want to pay off my mortgage early.” Ok, so does probably every person paying a mortgage, but almost all of them have different reasons and different timelines.
You need to have the confidence to move forward in your journey, but it is hard to be confident when you do not know your destination. So, let’s set one. Answer the following questions (in writing, please):

What do you want?

Yes, to pay off your mortgage, so write that down.

When do you want it?

I am a dreamer and a very hopeful person, so my brain wants to scream out “5 years!”. That would be awesome, and if that is your goal, cool, but think it through first. Can you logically and realistically pay it off in 5 years without killing yourself from working too hard, doing without necessities, neglecting your family, and so on? If so, go for it. If not, expand your timeframe.

It’s great to be challenged but do not be ridiculous. I do this to myself quite often. I decide I want something, so  I go for it. People ask me, “Is that realistic?” or they say, “There’s no way you can do that.” Huh- watch me. I hate being told that I cannot reach my goal, so I push even harder to prove that I can. I soon realize that I am neglecting other things in my life and have to reassess the situation.

What have I learned? A.) Do not share my goals with someone who does not believe in me. I only share now with the ones that know me well enough to say, “If that’s what you want, I know you can do it.” B.) I have limitations, but rather than letting someone else tell me what they are, I tell myself. The point? Assess the situation yourself and decide if your goal is something you can do without sacrificing important things.

Get the Family Involved

Fighting a battle alone can be lonely, tough, and seemingly impossible. If you have a family, you do not have to do it alone. When I am working more than usual to pay off a bill or save for something, my children feel like they are not a priority, unless they know what is going on. I have learned that having us all on the same track is very helpful.

For instance, when we started talking about buying a house, I knew it was going to take some work. We would need to work on our credit and save some money, which would all require more money than usual. Instead of keeping it between my husband and myself, we explained to the children what was going on. We took them out looking at houses to motivate them, and I took pictures of their favorite aspects of different house. I then printed those pictures out and hung them on a poster surrounding a goal thermometer.

The poster hung in our den where everyone would see it every day. I then sat them down and had a full fledged financial class on credit and saving. We went over different ways we could save money, like cutting the electric bill down by being cutting off lights that were not in use and limiting TV time. I hung up our list of savings ideas on the poster, as well. We then set a savings goal for each month.

The results were awesome. The kids took to heart ways to save and felt that that was their contribution. They were constantly turning off lights, turning off the TV, and more. They would remind one another, “This is for our new house.” Over a couple of months, our electric bill was cut almost in half, along with other ways they helped to save. As they watched the goal thermometer fill up, they grew more and more excited and worked even harder.

That is the power of teamwork. When you have others that want the same thing you do, i.e. buying a house or paying off a mortgage, it becomes much easier. You not only work hard together but you encourage one another along the way. Even if it is just you, though, having your goal physically hanging in front of your face with a progress chart can keep pushing you.

If there are children involved, like mine, be sure to set little rewards along the way. The big reward is the home or paying it off early but that may be a few years away. Keep them motivated with milestones like, “Once we save this much, we will go to the movie theater.” Ice cream works, too, of course, but the reward needs to be something that will excite them.

Look In Your Budget

Unless you are eating zero snacks, only driving to work and back, watching only DVDs, eating from your own garden, and you have no cell phone, there is something in your budget that can be cut down or out. Creating a budget that will help you with your goal is very important. The question comes down to what you are willing to cut down or out in exchange for paying off a mortgage quicker.

This, of course, is a personal decision and relies heavily on your values, which will vary from person to person and family to family. For instance, one of the first things people tell you to cut is cable. I understand why. It is crazily expensive and there are alternatives to watching your favorite shows.

However, I will not cut my cable, at least not at this time. In my little town, especially in my particular neighborhood, the only way to get decent Internet is through cable. Internet is necessary in my home because I work online, do online classes, and use the Internet a lot when putting our homeschool lesson plans together.

Yes, there is a library down the road with free WiFi, but I am not going to go sit at the library all day every day to use the Internet as much as I need. Therefore, until another Internet solution for my neighborhood comes along, the cable stays because it has value in our family. It comes down to personal priority. I have friends who do not need cable or Internet, so they do not pay those bills, and they save those hundreds every month.

The bottom line is that you and your family will have to determine what you- not the rest of the world- need and what your priorities are. If movie night every Friday is important, that is up to you. Just take a look into your budget and determine what you are willing to give up, even for a short time, to assist in paying off a mortgage faster.

Pay Extra

I said it above and I will say it again: if paying off a mortgage early is the goal, pay every extra dime you can. Let’s talk about that amortization schedule now. Bear in mind that interest and payments are based on each individual loan, but I am going to give you an example using the $50,000 balance I mentioned above and $500 monthly payments.

The first several months I pay that $500, $50 goes to the principle and $450 to the interest. In a year, may $100 goes to the principle and $400 to the interest. A year later, maybe $200 goes to the principle and $300 to the interest. Do you see how it works? The payment you make is not split evenly, so while you think, “Yes! I have paid $5,000 on my mortgage,” the truth is that likely less than half of that actually goes to the loan itself.

All of this, though, can be used to your advantage. Using my example again, I see that only $50 is going to the principle, so I put an extra $20 on the payment every month, or more when I can. Every single bit I pay that is over the interest amount goes directly to the principle- this is what you want. When paying off a mortgage, you want to overpay everything you can. It does not have to be the same amount each month, either. It just needs to be something.

What do you do, though, if you have no bonuses, refunds, or space you are willing to make in the budget? You have two choices: make the extra money or continue paying for the full thirty years. If you want to make the money, I can help you out. Where there’s a will, there’s a way- if you have the will, I’ll show you the way. Here are some ideas:

Use Apps for Cash

Have you heard of the Shopkick app? Let me just say it is awesome. Every single time I go into the grocery store or Walmart, I earn at least a few hundred “kicks” which can then be converted to gift cards or PayPal cash.

If you shop online, do it through Ebates (I think it is called Rakuten Now). You can earn cash back on your regular purchase that will then be sent to you three times a year if you meet the minimum amount.

Inbox Dollars is another good one I use. I really could go on all day about apps that can earn you cash, but you get the idea. Even those that do not pay out cash usually pay out gift cards that can then be used for other things you need. I use mine for Christmas gifts, household items, and more because they are saving me from spending cash.

Extra Cash

By this, I literally mean extra cash that only comes once, like from yard sales. Sell some of your stuff online, ask you parents if you can clean the junk out of their shed and sell it, anything you can think of.

Get a Second or Third Job

Yes, a third if you must. Remember, this is your goal- you either find a way to meet it, or you extend the deadline. And, truthfully, it does not have to be a regular clock in thing. You might make some extra cash delivering things, like magazines. There is something called Instacart that is becoming a big thing. When you have free time, you log in and see if anyone has put in a grocery order in your area. If so, you can do the shopping and deliver those items. You do not have to do it full time- do it with an extra hour or two that you have each week.

Start a Side Hustle

Side hustles have been around for as long as I can remember. When I was young, ladies sold Tupperware and home goods. There are literally hundreds that you can do now: Avon, Mary Kay, Pampered Chef, Pure Romance, It Works, and more- many of which I have put some time into. They can be lucrative, and you can build a nice business from them, but there are a few things you need to know.

  • Not every single one is good for every area. Trying to sell swimming gear, for instance, in the snowy mountains- probably not going to work. Likewise, you might not live around people who love to cook or want to wear makeup. Basically, do your market research before choosing one.
  • There is an investment, though it really is not that bad with most of them. Most of them can be done for under $100. The key is in researching the company to make sure they are legitimate. The ones I mentioned here are. Any other ones, be sure you check out first. And
  • You will have to put in some work. It will not explode over night. However, if you can have just a couple of parties or sales each month, it will be worth it- as a side hustle. If you want to turn it into full time work, you will need to work harder at it, but people are able to do it.

You can start your own side hustle, too. What are you good at? Are you knowledgeable enough in a subject to tutor? If so, they have tutoring sites online. Do you have yard tools and the drive to get out and mow lawns or rake leaves? Go for it. Are you good at resumes? Offer to write them for $20. How about cleaning houses? Washing cars? Babysitting? Pet sitting? Find a side hustle and bust a move.

I have a couple of side hustles because I am always trying to pay off bills, pad the kids’ college funds, and- of course- buy a house. One of these is through an app called We Go Look. The “Looks” I do vary, but most of them revolve around taking photos for insurance companies who are not in town or delivering important documents. It is certainly not a full-time job, and I do not have Looks every week, but I have made as much as $70 in two hours by delivering multiple documents in one area. I only accept Looks that are worth my gas and my time. Finding small side jobs such as these can add some extra to your payments quickly.

Refinance Your Mortgage

This is a popular option for paying off a mortgage faster, if done correctly. Refinancing your mortgage is basically taking another mortgage loan for what you owe. If you find an offer with a lower interest than what you currently pay, it is probably worth it. Often the refinanced loan can shorten your mortgage repayment terms without changing your monthly payment amount, but there are a couple of things to think through.

First, you should be saving at least 1% interest with the new loan for it to really be worth the refinancing. Second, you will likely need to take out insurance again. If this is going to make your payments too high, forget it. You are trying to save money by paying off a mortgage early. Adding to the cost is counterproductive.

If you think that a mortgage refinance is the best solution for you, maybe we can help you to choose the right loan. Fill out the form below to get some offers:


If you feel like this is something you want to do, it is always best to speak to a financial advisor first that can help you look at the situation with no personal benefit, meaning that it is not one that works for your bank or lender. Speak to someone completely outside of the situation. Also, do some rate shopping beforehand. It is wise to know what exactly you are looking at before even starting the process. If rates are too high right now, wait a while and try again.

Conclusion

Paying off a mortgage early can be both challenging and rewarding, but it is definitely not impossible. The most important step is deciding that you are willing to do what needs to be done. Once you have your mind set to it, you have made the first and biggest step.

Your Guide to Understanding the Mortgage Process

A mortgage is a loan on a property. A house mortgage is for your home. This loan is paid back over time with an interest rate you and the lender both agree on. It’s different than a traditional loan because the lender has the right to take the property if payments are not made. This can be called a lien on the property. You don’t fully own the property until you make the last payment. This is where the term paying off your mortgage comes from. The whole mortgage process can be a bit complicated.

A mortgage will likely be the largest debt you will have in your life but they also are a huge benefit. This can be seen in the statistical overview of mortgages in the USA.  If you had to pay cash upfront for a home you wish to purchase, you may never get the opportunity. Mortgages can help keep interest rates moderated. Since the property serves as natural collateral for the loan, lenders are more flexible with the terms. Lenders don’t necessarily want to take the home but they are more reasonable since it gives them a safety net. It’s extremely important than you know what you’re doing throughout the entire process, so you wouldn’t make mistakes when taking out a mortgage.

Are You Ready to Buy a Home?

Buying a home is a big deal so it helps to know if you are really ready to buy a home before you begin the mortgage process. A mortgage is not something you want to take on lightly. You will need to make sure you can really afford the home you are buying. Many mortgage companies will approve you for a mortgage that you can struggle to pay every month.

Owning a home can be costly. You need a down payment, you need to pay off the mortgage every month, and you need to be prepared for added expenses. Before you start the mortgage process and consider buying a home, you will need money saved for unexpected expenses.

Since buying a home is an investment, you need to be ready to stay in the home for a while. You don’t need to spend the rest of your life in the home or that area but you should stay for at least five years so you can see growth on your investment.

It helps to know what you want in a home. Is it going to be home you settle down in and raise a family? Do you have a plan to sell a smaller house and buy a bigger one in the future? These questions are some of the ones you need to ask yourself before you start the mortgage process.

Types of Mortgages

There are different variations you can encounter as you start to search for a mortgage.

Mortgage Loan Basics Spelled Out: Lending 101

Fixed-Rate Mortgage

With a fixed-rate mortgage, monthly payments will stay the same throughout the life of the loan with some small adjustments based on changes to insurance or taxes. This is due to your interest rate staying the same throughout the life of the loan. This is a typical type of mortgage and can be referred to as a traditional mortgage. Payments can be structured so early payments go toward interest on the loan and your payments are applied to the principal of the loan over time.

Adjustable-Rate Mortgages

Many adjustable-rate mortgages will start off as a hybrid. This means you commit to a lower interest rate for a fixed amount of time and then the interest rate will adjust based on the market. This means that in a few years you could be subjected to much higher interest rates than you anticipated.

Balloon Mortgages

These types of mortgages aren’t that common. For most of the loan, you will pay very little. At the end of the time specified by the terms, the full balance becomes due. This sort of mortgage will likely only makes sense if there are unusual circumstances that involve guaranteed funds down the road.

Interest-Only Mortgages

These mortgages are similar to the balloon ones but are structured so an increase in payments is more gradual. Borrowers will only pay interest for a predetermined period of time and then start paying the principal as well. This can be an option for first-time homebuyers who are just starting out in their careers.

Government-insured Home Loans

There are also government-insured home loans. Examples of conventional loans are the ones listed above and aren’t backed by the government.

Federal Housing Administration (FHA) Mortgages

These mortgages are backed by the government to protect lenders in the case of default. This will allow lenders to offer lower down payments and better terms. You will typically have to provide proof of insurance.

USDA

There are options for rural homebuyers from the USDA who meet certain requirements. They want borrowers with limited resources but who can still demonstrate a predictable income.

VA Loans

There is mortgage assistance to veterans as well as active military members and families. These work like an FHA loan and the government guarantees payment to the lenders to secure the best possible terms. There is also an option for no down payment.

Other Government Loans

Different loan options can vary from state to state and there are different programs to help certain people. You can always ask your realtor to see what could be available.

What Is the Mortgage Process?

The mortgage process will happen behind the scenes and some parts can be out of your control. However, there is a lot you can control to make sure you are in the position to get your home and close in a timely manner.

The Mortgage Loan Process

1. Get Your Credit in Check

Anytime you decide to get a loan, better credit will get you better loan terms, lower interest rates and less worrying down the line. This is especially important when you are getting a mortgage since it is probably the biggest loan you will ever get. If you need to improve your credit, this is the time to do it.

2. Getting Prequalified

Before you start searching for the right home, you should speak with a lender or a few different lenders to get prequalified for a mortgage. This will give you an idea of how much you can qualify for. You don’t want to spend time searching to find the perfect home and then realize down the line that you aren’t able to afford the home. The process is pretty straightforward and won’t go too far into your financial background. The lender conducts a soft credit check and looks at your current income and any debt you have. The entire process if free and can be a way to test the waters before you get a preapproval. This process can be done online or over the phone.

3. Choosing the Right Mortgage

With so many options you have when you start loan shopping, it’s important to find the right mortgage for you and your situation. This is the time to stop and really think about it since you will be paying off this mortgage for years to come. Even though you can pay off your mortgage faster, this is not the moment to think about it. Instead, you should find the most suitable mortgage type with terms that you are comfortable with.

4. Finding a Lender

Home shopping may be the fun part but you also need to do mortgage loan shopping. The right lender can be important to a positive home buying experience. Shop your options before you find a home since it will be easier to pay attention to things like closing costs and interest rates.

We are aware that it is important to find a trustworthy lender. Loanry connects you with reputable companies which may give you a mortgage loan if you qualify for it. You can check whether you qualify right now, by putting in your information here:


5. Gather Necessary Documents and Apply

The mortgage process requires a lot of documents and you will need to fill out a lot of paperwork. You want a lot of documents when you apply. This includes the names of employers from the past two years, recent pay stubs, two years of tax returns, W-2 forms form the past two years, proof of pension, any dividend earnings, bank statements, and information about other debts you have, such as student loans, credit card debt, and car loans. During the time you are getting all the documents, you can also use a mortgage calculator to see how much you can afford.

Start Applying

Once you have already gone through the prequalification process and determined that homeownership is the right step for you then it’s time to start the mortgage application. The first step is preapproval and this can signify to homeowners that you are serious about purchasing.

You can apply over the phone, in person, or online. Also, you shouldn’t limit yourself during this phase. You want to apply to two or more mortgage lenders. Every mortgage company and bank has different products with different rates. Even if you think you have the best possible loan, you could find a similar product with better rates.

Comparison is important to find the right mortgage for your situation. If this is the first time applying and you are a first time homebuyer, you should speak to a loan officer to make sure you are answering the questions correctly. If you incorrectly fill out the application, it will make getting approved harder.

What You Need for the Application

Every mortgage application will likely follow the same format and can be about five pages long. If you complete it in one sitting, it should take about an hour.

You will need to know the type of mortgage you are applying for. Determining the type of mortgage you need will also help you choose the right lender. You will need the property information if you have already selected a home.

You will need to provide borrower information, which includes your Social Security Number and information for any co-borrowers. This will also include monthly income and assets and liabilities. You may need to provide a lot more information depending on the lender. Once you have provided the information, there is then an acknowledgment and agreement where you sign on the dotted line to give the lender permission to verify information submitted with your application.

Preapproval

Once your application is approved then you get a preapproval letter. This is the lender’s way of saying that they will agree to lend you the amount of money specified. This letter will help narrow down your home search so you can make sure you can afford the property. It can also make your bid more attractive to the seller.

6. Underwriting the Loan

This process is the lender’s way of determining your ability to pay back the loan. This is the longest part of the process and can take a week to a month. It’s not always simple to give you a thumbs up or down for the mortgage process. It also determines the loan amount and the interest rate. Prior to the process, you will be required to submit many of the same documents that you used for preapproval and there may be more information needed. For instance, if a family member is giving you money for the down payment as a gift then the lender will need a gift letter to prove the money is a gift and not a loan you need to also pay back.

7. In the Meantime – Search for a Home

This is the fun part. You don’t want to find something wrong with every house but you shouldn’t jump at every opportunity. It helps to have a list of your must-haves, dislikes and wants so you don’t get caught up in the moment. Even if you modify your list along the way, it can help you stay focused and remember your home priorities.

When you are searching for a home, remember that you don’t have to use the full amount when it comes to your preapproval. It’s common for lenders to offer you the maximum amount that works on paper but this isn’t practical once real life kicks in and you have to make real payments each month. Just because you can spend that much doesn’t mean you should. Remember, you may want some extra money to make upgrades to the house once you move in. You also want to keep some savings for an emergency fund and if you need to make any home repairs.

Make an Offer

When you have found a home that is desirable and in your budget then you start to negotiate a purchase offer with the seller. For a first time buyer, it’s wise to negotiate with an experienced and trusted real estate agent during the process. A local real estate agent can have a good understanding of the land and can help you identify the right price for the home, as well as provide valuable negotiating experience. Once your offer is accepted then the seller produces a purchase contract that is signed. This contract is the green light to the lender to begin finalizing the loan.

7. Closing

Once you have gone through the underwriting process then it’s closing time and you get to finish the mortgage process. You will meet with different people, including a title company representative, the home seller, a closing agent, and the lender. A closing agent will make sure there are some things done before you can close on the home. He or she makes sure all the legal documents are signed and any escrow conditions are resolved.

There will be closing costs associated with the process. You will be required to make a wire transfer or provide a certified check to the lender for costs associated with underwriting and processing the mortgage. These costs can vary depending on the type of mortgage you have and the lender but will usually be 2% to 5% of the amount of the mortgage. These costs will include an application fee, attorney fee, home appraisal fee, inspector fees, credit check fees, and origination fees.

If you have difficulties following the process because of all the mortgage terms and definitions you may not know, it’s very important to find out what they all mean and understand every part of the process.

Do You Need to Be Preapproved for a Mortgage?

You may be using the terms prequalified and preapproved interchangeably but they are slightly different. Prequalification can be the first basic step in looking for a mortgage. It is intended to be informative and not a binding contract. It can show you how much money you could be approved to borrow. However, a preapproval letter will indicate to the seller that you are more serious about buying the home. It signals that any offer you make should be taken seriously.

When you get preapproval you are considered a qualified buyer. This also locks in your interest rate for 30 days and can help you determine how much your mortgage payments can be depending on the house you are interested in buying. If you have bad credit then it can be harder to get a preapproval. The only downside for preapproval is there will be a hard inquiry on your credit report. It really is in your best interest though to get this preapproval before you begin the process of looking for a home.

Do You Need a Down Payment for the Mortgage Process?

Lenders see a down payment as an investment in the home. Your down payment will significantly impact the amount of money you need to borrow. The higher the down payment then the less money you need to borrow. It can also determine if you will need private mortgage insurance (PMI). If you are using a down payment of less than 20% then the lender will require insurance. A lender doesn’t like to loan more than 80% of the value of the home. The insurance helps protect them. If you have a higher down payment, you may also be able to get a lower interest rate.

Where Should You Shop for a Mortgage?

There isn’t any harm in trying to begin the mortgage process at a local credit union or bank. However, today there are many options online. You can use plenty of online tools to help you look at different rates and different qualification options. This way you are sure to find a mortgage that suits your needs and one that you will be able to afford.

Tips for Paying Off a Mortgage Quicker

If you want to pay off your mortgage faster, you need to check with your lender to understand any limitations or rules about it. You may assume that the lender will be happy to have you pay more but that isn’t always the case.

Figure Out Where Extra Money Can Come From

You will likely need some extra money to pay off your mortgage faster so figure out where this is going to come from. Are you going to cut back on entertainment? Are you going to take your lunch to work instead of eating out? If you aren’t able to save enough to start making a dent in a home payment then try paying off your other debts at an accelerated rate. Once those are paid off, you can apply that money to what you are paying on your mortgage.

Pay Biweekly

If you pay exactly half the amount due each month then this will shave interest over time and pay an additional half month each calendar year.

Pay Extra on Current Monthly Payments

You can request the extra amount you pay to be applied to principal. Even a few hundred dollars on the principal can save a lot in interest.

Put Bonuses or Tax Refunds toward the Mortgage

Instead of using your tax refund or another unexpected source of money like a bonus for other things, put it toward your mortgage.

Consider Less than 30 Years

If you can manage a 20-year mortgage instead of a 30-year one then you should do it. It’s even better if you can manage to shave off 15 years. The easiest way to pay off a mortgage debt is to not have as much debt. Ask your lender about options for 15- or 20-year mortgages and see if those monthly payments are affordable.

When Should You Refinance Your Mortgage?

More people are starting to refinance their homes in order to help with financial problems. Refinancing a mortgage is repaying off an existing mortgage and replacing it with a new one. This is done in cases where the loan is too expensive or too risky. The details of a new mortgage will be based on a mutual agreement by both the borrower and the lender and can be customized for meeting the needs of a borrower.

Secure a Lower Interest Rate

This is one of the more common reasons why someone would choose to refinance the mortgage. If you replace a high-interest mortgage with a low-interest one then you can save a lot of money. This decision will be influenced by daily mortgage rates.

Shorten or Increase the Loan Term

With a new loan term, there can be an impact on both the monthly payments and interest. A short loan term can reduce the interest but increase the monthly payments. A longer term has the opposite effect.

Lower Monthly Payment

If you are facing a cash flow issue then you may want to consider refinancing so you can lower your monthly payments. This can help you still repay the loan without straining your monthly budget and avoid the possibility of defaulting and the lender selling your home.

Consolidate Debt or Tap into Equity

This can be a cause of never-ending debt but it can still be a reason why you may want to refinance. You can access the equity in your home to cover some expenses, such as college education or home remodeling. Some borrowers want to refinance the mortgage to consolidate debt to make it easier to pay off.

Switch Mortgage Type

Since there are different types of mortgages, if your financial situation changes, you can refinance your mortgage in order to take advantage of new opportunities.

There are also some bad reasons for you to refinance your mortgage. If it’s to take advantage of no-cost finance, know that this generally doesn’t exist. If these costs are wrapped up in the loan then the size of the principal increases. Some people also want to have lower monthly payments to save money for a new home. Before doing this, borrowers should calculate how much a refinance will cost and how much it saves them each month in order to determine if it is worth the effort.

How to Increase Your Chances of Being Approved for Refinancing or a Mortgage

If you have submitted an application for refinancing, it can be frustrating to have it be rejected. When it’s time to refinance you want to do everything you can to make sure that it is approved.

Improve Credit

Borrowers should check their credit score and then take the time to see whether there are any errors or inconsistencies. These inconsistencies or errors should be reported to a credit reporting agency. It’s also important to pay bills and other outstanding debts on time to improve a credit score. Having a good credit score will help you save on interest so it’s a good idea to improve your credit score as much as you can before applying.

Increase Your Income

Increasing your income is one of the ways you can make sure that you can afford the mortgage you want. Borrowers who have been at their jobs for a while can ask for a raise. Some other options include starting freelance work or getting a part-time job in order to supplement income.

Use a Cosigner

A cosigner can boost your creditworthiness, which means it increases your chances of being approved. It’s important the cosigner has good credit and a sufficient income. You still need to consider whether you can make all the payments on time so you don’t mess up your credit and the credit of your cosigner.

Can You Get a Mortgage with Bad Credit?

The mortgage process can be complicated enough but it does get more complicated with bad credit. Your credit score will directly impact the interest rate you will get. When you are getting a mortgage with a bad credit score it is referred to as a subprime mortgage loan. These loans refer to a loan extended to a borrower that is a higher risk. A prime borrower is low risk because he or she has a high credit score, low debt, and a good income.

There are two different situations that apply where you could be considered a subprime borrower. This is either with no established credit or poor credit.

No Credit

A person who hasn’t borrowed before has no credit. Borrowing money is one of the only ways to build credit. The fix is to establish credit with a major or store credit card or a small loan. Once you make payments on time, you start to build credit.

Poor Credit

Someone who has poor credit may have experienced problems with repaying debt or have too many loans out that affect their debt-to-loan ratio. There is a lot that goes into determining your credit score. Each credit reporting agency uses a different algorithm. Some of the data points include causes of non-payment, kinds of credit accounts you have, length of credit history, how many inquiries have been made on the report, and any bad credit behavior.

Subprime Mortgage Loans For Bad Credit Borrowers

Subprime rates and prime rates refer to the interest on the mortgage. Getting a loan at a prime rate will mean that you can have a better interest rate. A subprime rate has a higher interest rate.

If you are married, this doesn’t mean you have to take out a mortgage together. You may think that you have to put both names on the loan application but you don’t. This can be good news for couples that have different scores. You can get a lower interest rate if the borrower who has the higher credit score applies for the loan. Instead of applying as joint borrowers, you can save yourself some money. This will mean that they will only consider the income of the applicant but you know that you have two incomes that can pay for the monthly costs. When two people apply then the loan officer will have to base the interest rate on the lower score, which can mean higher interest rates. You may be better off saving some of the money and only have one borrower apply.

What Do You Need to Know about Interest Rates?

One of the most important parts of the mortgage process is the interest rate. This is why it’s so important to go rate shopping. Every mortgage will have an interest rate attached to it. Your credit score has a big impact on the interest rate when it comes to mortgages. You won’t ever be able to find a mortgage that has an interest rate of zero. Interest is what the lender will charge you for borrowing money from them. The amount of loan money you borrow is called the principal amount. Interest is then added to that.

If you know what an interest rate is, then you need to know how it impacts you. Using a loan calculator, you can see that if your score is above 760 then you can save almost $200 every month for a traditional mortgage of $200,000. That can add up to a lot in a 30-year loan.

Conclusion

The mortgage process can be a little overwhelming when you first start out. However, it’s important to take it one step at a time. Start by deciding if homeownership is right for you and then take it from there. Prequalification and preapproval can be important first steps in the mortgage process and it helps to know what kind of mortgage you want. Having a down payment is an important part and you are likely to get better interest rates when you put more down.

The mortgage process can also involve refinancing and this can be necessary when you want a lower interest rate or different payment terms. It is possible to get a mortgage with poor credit but your interest rate can be much higher. Interest rates can have a big impact on how much you are paying over the life of the loan so finding the lowest interest rate will be the most beneficial.