Mortgage Financing - Taking A New Look

Brett Richards

Mortgage companies are always looking for a way to generate additional income, and with the real estate market taking a substantial decline, some lenders are now offering mortgage loans that will spread your payments out to 40 and 50 years, making them more affordable. Prior to these extended-term mortgages, the interest-only mortgages were touted as the way to go. Is this new wave of financing your home really a good deal?

Remember that interest-only mortgage loans weren't permanently interest-only. The buyer only had a certain period of interest-only payments, after which they must resume paying on the principle, which had grown during that time. Many families found themselves unable to pay the higher payments that came at the end of the interest-only period. Right now, we are seeing those interest-only loans having a much higher rate of foreclosure than the regular fixed-rate mortgages where the payment stays the same.

Now we have the birth of the 40- and 50-year mortgage. It's true you'll be spreading your payments out, but you'll be greatly increasing the amount of interest you will pay back, and you also will reduce your buildup of equity. These mortgages will makes it easier to buy a home in a high-priced area. But when we break it down, these ultra-long-term mortgages don't reduce monthly payments all that much when compared with a traditional 30-year fixed-rate loan. What these loans will do, though, is jack up how much interest you pay over time and dramatically slow down the rate at which you build equity.

Even with all the facts, the 40-year loans are becoming more common, and the 50-year mortgage is more a novelty item than anything else. Some experts have compared them to the 99-year mortgages that were briefly offered during Japan's ill-fated real-estate boom two decades ago. Forty-year mortgages, on the other hand, first appeared in the 1980s and then finally gained recognition in the U.S. last year, after Fannie Mae began buying them. (Fannie Mae and Freddie Mac buy the majority of mortgages in the U.S. and repackage them for sale to investors, so their stamp of approval is hugely important.) About five percent of mortgages in the U.S. now carry 40-year terms.


Some 40-year mortgages offer fixed rates for the entire term, typically charging about one-quarter percentage point -- more than a comparable 30-year mortgage. Some 40-year loans are ARM loans, with a rate that's fixed for a few years before becoming variable. This slightly lower payment could be enough to help you qualify for a somewhat bigger loan. Forty-year mortgages are typically sold to individuals who say they don't like the 30-year, because the mortgage payments are a little high, and they don't like interest-only because they will need to build some equity.

Consider this: If there's any chance you might hold onto one of these extended mortgages, making every payment until the term ends, rather than moving and refinancing -- then you'll really want to opt for the shorter-term loan. You'll pay a total of $398,334 in interest for a 30-year, $300,000 mortgage over the course of the loan. For a 40-year, the interest cost is nearly 50 percent higher: $591,725.

Many borrowers, though, have lost sight of the true costs of various mortgages as they pursue just the lowest-possible monthly payments or try to qualify for ever-more-expensive homes. If this describes you, you might want to:

# Consider your goals: for most people, homeownership is a way to build wealth.

# Match the mortgage term to your time horizon: You can help protect yourself from soaring interest rates by making sure your rate is fixed -- at least for as long as you plan to remain in the home.

# Settle for a less expensive home: Stretching yourself too thin to buy a house is a recipe for disaster. Even if no major systems break down, the routine costs of maintenance and repair can swamp anyone who's not prepared for them. Meanwhile, a high house payment might cause you to lose sight of other important goals, like saving for retirement, or to pile up credit-card debt as you try to stay afloat.

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Getting A Home Equity Loan Tax Deduction

Home equity loan become very popular among people because of its low interest rates and the rising of the values of properties. Home equity loans have lots of advantages over other loan type. One of these advantages is that the interest rates of home equity loans are very competitive. One of the most essential advantages is that home equity loans are tax deductible. On top of all that, the home equity loan tax deductions are also very hard to beat.

The amount of the home equity loan tax deductions apply on some certain circumstances. The interest rate of the home equity loans is a detailed deduction if you paid the interest and secured the home equity loan with your property. There are some conditions set by home equity lenders so that if you can not meet their conditions, you can still be able to deduct the interest that are set on another category.

The Internal Revenue Service has set three basic requirements that a borrower require, in order for the borrower to qualify for a home equity loan tax deductions. The first basic requirement is that the borrower will held legal responsibility of the home equity loan so that the borrower will not qualify additional home equity loan tax deductions even if the borrower is paying for the home equity loan of another person. The second requirement in order to be qualified for home equity loan tax deductions is that the home equity loan will be a secured debt for a qualified property. The property will be either being your main home or second property. It will not be leased or used for business uses. In an event that the borrower is using any part of the property of the house as a business office, then that room or that part of the house will be stated as a business expense. And the last rules in order to qualify for home equity loan tax deductions is that the borrower must file the form 1040 with all the details of the itemized deductions.

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New Refinancing Plan From Ohio For Distressed Home Owners

The Ohio Housing Finance Agency will issue $100 million in taxable municipal bonds in April as part of a refinancing program to help homeowners faced with foreclosure.

The program, offered through OHFA's 185 lending partners throughout the state, will provide 30-year fixed-rate loans for homeowners burdened by adjustable rate or interest-only mortgages or faced with circumstances like unemployment and divorce.

The bonds should provide assistance for about 1,000 loans (average loan amount is $100,000 per home) at about a 6.75 percent interest rate.

Loans are reserved for those residents with income up to 125 percent of the median gross income of their county, ranging between $73,000 and $84,000. Homeowners will be required to attend face-to-face counseling before a loan can close.

With enough demand, the program could provide up to $500 million each year through additional bonds and financing.

The program should help Ohio reduce its foreclosure rate, ranked highest of the 50 states in 2006, according to the Mortgage Bankers Association. The state also had the highest rate of subprime loans in foreclosure.

Residents can visit ohiohome.org beginning April 2 for more information on income limits and participating lenders.

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15 Facts You Should Know About Home Equity Line of Credit

• The Home Equity Line of Credit is a revolving (or open-ended) credit line that, in principle, operates in much the same way as a credit card. However, where credit cards are unsecured, the HELOC is secured (usually as a second mortgage) by your home. Defaulting on a HELOC can, therefore, result in foreclosure.

• HELOCs generally require less paperwork than standard loans and can often be closed within a week of application. Points and origination fees are rarely charged, so they usually have substantially lower closing costs, as well. The fees that are charged for a HELOC (such as recording fees; updated appraisals, if necessary; etc.) can often be deducted from the credit line, making the HELOC a true “no money down” loan.

• Although some lenders advertise HELOC loans of $500,000 or more, your actual credit line will be based upon the amount of equity that you have in your home. For example, if your home is worth $200,000 and you owe $125,000 on it, you could get a HELOC second mortgage with a credit line of up to $75,000 (assuming that the lender’s maximum allowed combined loan-to-value ratio is 100%; some may go as high as 125% of the home’s value, which can be extremely risky).

• HELOCs have an adjustable rate, and like other adjustable-rate mortgages (ARMs) their interest rate is composed of an index and a margin. The index is a financial indicator; this is the portion of the interest rate that actually adjusts. Most HELOCs are indexed to the Prime Rate. The margin, which is the lender’s cost of doing business plus a profit amount, is set at loan approval and remains the same for the life of the loan.

• You can’t compare the quoted annual percentage rate (APR) for a HELOC with the APR of a standard loan. This is because normal APRs factor in origination fees and other upfront loan costs. A HELOC’s APR does not include these fees; it refers simply to the loan’s interest rate.

• HELOC interest charges are computed on a daily- rather than monthly basis. Generally, the average daily balance of the month is multiplied by the daily interest rate (which is the current interest rate divided by 365); that total is then multiplied by the number of days in the month. Minimum monthly payments can therefore change depending on purchases made and interest rate fluctuations.

• HELOCs have a draw period (generally ten years) during which you can continually use the credit line, with only interest payments normally being due. As it’s repaid, the line can be used over and over again, as with a credit card. After the draw period ends, the outstanding balance becomes amortized to be retired during the remainder of the loan’s life (the repayment period, which is typically an additional ten or twenty years).

• HELOCs offer the advantage of flexibility. You only pay interest on the amount of the credit line that you actually use, and you can use as much or as little as you want. You can also add an additional amount for principal payment if you desire.

• You also have certain tax advantages with HELOCs. Most interest is tax-deductible, which isn’t the case with credit card interest. Also, HELOC rates are usually lower than those of credit cards.

• Most HELOCs give you the capability of accessing your line of credit by writing special checks that are provided or using a credit card that’s linked directly to the loan.

• You can advance cash whenever you need it (during the draw period, of course). This makes the HELOC useful as a source of emergency funds for those who are “savings-challenged”.

• HELOC funds can be used for any purpose you wish, from debt consolidation and home improvement to buying a new car and paying for your family’s vacation. The funds can even be used to buy other properties.

• A nominal annual fee is charged, generally between $50 and $100. This fee is applied whether you have an outstanding balance or not.

• Some HELOCs can be “converted” from an adjustable- to a fixed-rate loan. This can be especially useful when interest rates begin to rise because, unlike standard ARMs, HELOCs have no rate caps (which limit the size of any interest rate changes). HELOC maximum rates are generally set at 18%.

• Market interest rates can affect HELOC rates very quickly. Most standard ARMs have predetermined initial fixed-rate periods of one-, three-, or even ten years. With the exception of a possible guaranteed introductory rate (which usually lasts for no more than a few months) a HELOC’s interest rate can change monthly, depending on the index.

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Mortgage applications for Rose U.S. home purchases and refinancing Says The Mortgage Bankers Association

Mortgage applications for U.S. home purchases and refinancing rose last week when long-term borrowing costs dipped, an industry trade group said Wednesday.

The Mortgage Bankers Association's seasonally adjusted index of mortgage applications increased 3.2 percent to 626.1 in the week ended Feb. 23, up from this year's low of 606.6 in the prior week.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, declined 0.03 percentage point to average 6.16 percent, the lowest since it hit 6.13 in the year's first week, according to the MBA.

The MBA's seasonally adjusted purchase index, seen as a timely gauge of home sales, rose 5.2 percent to 401.3 in the latest week, it said.

The group's seasonally adjusted refinancing index advanced 1.2 percent to 1,943.5.
Home price slump continues

The week's results are adjusted for the Presidents Day holiday.

On a four-week moving average, the seasonally adjusted market index is down 0.2 percent to 625.6 and the purchase index is off 0.4 percent to 397, the MBA said.
Mixed signals

The state of the U.S. housing sector is critical for determining the health of the economy, most economists agree. Signals have been mixed.

Some economists suggest the swift slump following a record five-year surge in home sales and prices is near its end, while others say the correction has not yet been deep enough.

Sales of existing homes in January staged their biggest gain in two years, boosted by unusually warm weather, according to the National Association of Realtors on Tuesday.
Freddie Mac moves to avoid risky mortgages

The housing market is unlikely to enjoy a sustained upturn with a glut of homes on the market.

Inventories of unsold existing homes in January remained high at a 6.6 months' supply based on the current sales pace.

Builders for months have been slicing prices and offering incentives to lure buyers and pare inventory.

The national median existing home price fell nearly 5 percent in January to $210,600 from $221,600 the prior month, and was 3.1 percent less than January 2006, the NAR reported.

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