Borrowing Wisely Against Your Home Equity

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If done wisely, borrowing against your home equity can be a great way to obtain a low interest loan. That said, home equity loans do carry some risks, so be very careful in analyzing the exact reasons for obtaining one.

CHARLOTTE, N.C. (PRWEB) June 28, 2006 -- If done wisely, borrowing against your home equity can be a great way to obtain a low interest loan. That said, home equity loans do carry some risks, so be very careful in analyzing the exact reasons for obtaining one.

As part of its ongoing mission to empower borrowers, LendingTree offers the following tips about building equity in your home and using it wisely:

Building Equity
• Make a bigger down payment to pay off your mortgage and build equity faster.
• Pay off the interest as quickly as possible. Under an amortization schedule, interest is higher in the beginning of your loan term.
• Try to make additional principal payments if your mortgage lender allows it.
• Be aware of prepayment penalties that some mortgage lenders charge for repayment of the loan in the first few years. This can make the cost of refinancing prohibitively high.

Use Home Equity Wisely
• Make home improvements that increase the value of your home.
• Consolidate high-interest debt with a low-interest home equity loan to smartly plan your way out of debt, especially when the interest is tax deductible.
• Pay for college or other major expenses using your equity to help spread the amount rather than struggling to come up with a one-time cash payment.
• Be careful not to tap your home equity for daily expenses, impulse purchases or to pay off debt on a credit card that you continue to use.

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Borrowers Discover That Home Is Where the Mortgage Fraud Is

Borrowers Discover That Home
Is Where the Mortgage Fraud Is

By Andrea Coombes
From Marketwatch

Once a nuisance to a handful of lenders, mortgage fraud has blossomed into one of the fastest-growing white-collar crimes in the country, putting innocent homeowners on the hook for overpriced houses and pushing up interest rates for all home loans.

In some cases, scammers buy dilapidated houses, get fake appraisals to inflate the value and sell the homes for far more than they're worth, industry experts say.

Or, fraudsters will find novice real-estate investors and convince them to sell their good name and credit record. In return, scammers promise to arrange a loan on an investment property, find tenants, make mortgage payments and sell the property for huge profits once it appreciates.

'Left Holding the Bag'

Instead, the fraudsters use the borrower's name on loan documents -- and then walk away with hundreds of thousands of dollars in loan proceeds. "No tenants are found, no rental payments are collected, no mortgage payments are made, the house goes into default -- turns out it's not worth anything -- and the borrower is left holding the bag and their credit is destroyed," says Rachel Dollar, a lawyer in Santa Rosa, Calif., who represents lenders in mortgage-fraud cases.

Or, identity thieves use stolen information to purchase properties in victims' names, pocketing the loan and leaving the victim and the lender to sort out the mess.

Often the borrower is a willing accomplice. But these schemes, which the Federal Bureau of Investigation calls "fraud for profit" and which account for about 80% of mortgage-fraud cases, usually require the work of an industry insider.

"It's hard to perpetrate fraud for profit without some kind of third-party professional being involved, whether an appraiser, loan officer, real estate broker -- someone to extract the money from the lending channel," says Mark Fleming, chief economist with CoreLogic, a firm in Sacramento, Calif., that makes tools for lenders to assess fraud risk.

The other 20% of mortgage fraud is "fraud for property," in which borrowers lie about their income or assets to buy a home, but intend to pay.

Lenders lost more than $1 billion to mortgage fraud in fiscal year 2005, ended Sept. 30, up from $429 million a year earlier, and $156 million in fiscal 2000, says the FBI, which currently has 748 mortgage-fraud cases pending, up from 436 in 2003. But those dollar amounts understate the true damage, experts say, because the FBI numbers are based solely on data provided by only about one-third of all mortgage lenders nationwide.

Hidden in Hot Markets

Mortgage fraud often goes undetected in hot housing markets: Inflated appraisals become moot if home values rise to match those figures.

Lawmakers including Sen. Barack Obama (D., Ill.) recently proposed legislation to address the issue. And lenders seem eager to tackle it. The Mortgage Bankers Association is scrambling to make room for more attendees after initially selling out its first fraud conference, to be held in May.

What Happens to Victims

For borrowers who become unwitting victims, the effects can be devastating, including losing a home through foreclosure once it's revealed the house is worth far less than the mortgage loan. This usually happens when the borrower goes to refinance or sell and a true appraisal is done.

Lenders will often work with unwitting fraud victims to try to keep their credit from being ruined, Ms. Dollar says. But many borrowers simply don't want to be on the hook for more money than their homes are worth. Many just walk away, damaging their credit. Some wind up filing for bankruptcy.

The Costs Are Shared

To some degree, borrowers everywhere pay for mortgage fraud, as lenders cover losses by charging higher interest rates overall. Some says this hit is small. "It's probably less than an eighth of a [percentage] point because of the scale of fraud versus the industry as a whole," Mr. Fleming says.

Local homeowners may feel another pinch: A neighborhood where some houses have falsely inflated appraisals can lead to higher tax bills for all, as happened in one Atlanta neighborhood, says Tim Doyle, senior director of government affairs at the Mortgage Bankers Association. Later comes another problem: "They'll hit four or five properties in one small area, the properties will get foreclosed upon and get boarded up," he says. "That affects other people's property values."

How to Protect Yourself

How can you protect yourself if you're buying a house? Ask to see the appraisal to ensure accuracy. For instance, check the square footage and house description.

Others urge borrowers to pay for an independent appraisal. "It's only another $300 to $400 to have someone on your side telling you what it's worth," Ms. Dollar says.

She recommends buying a home inspection. "Make sure a new coat of paint isn't hiding things from you. A lot of first-time home buyers walk in and fall in love with the home. They don't realize what it is they're actually buying, which is the roof and the foundation."

Also, be wary of real estate "experts" who tell you it's OK to fudge the numbers, or those who promise your investment in a particular property will yield huge profits. An FBI page (www.fbi.gov/page2/ dec05/mortgagefraud121405.htm) has more information.

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Tips for Home Sellers In a Cooling Market

Tips for Home Sellers
In a Cooling Market

By Kelly K. Spors
From The Wall Street Journal

Home sellers this spring may need to work extra hard to lure potential buyers.

The inventory of unsold homes on the market rose to an eight-year high in December, according to the National Association of Realtors. "We're definitely not in the market we were in a year ago," says John Wenner, an agent with Re/Max Achievers in Scottsdale, Ariz., adding that it now takes several weeks, no longer days, for most homes in his area to sell.

Time-tested advice still rings true: Sellers should focus on giving their home "curb appeal." The yard should be well-groomed and the grass green, and the exterior of the house should look attractive and well-maintained. Likewise, the interior should be immaculate. "The first impression is very important in this kind of market because buyers have so many choices," Mr. Wenner says.

The Right Price

The next, and often most challenging, step in a cooling market is appropriately pricing a home, says J. Lennox Scott, chief executive of John L. Scott, a real-estate firm in Bellevue, Wash. Sellers no longer can assume the home will sell for slightly more than the last comparable sale in the neighborhood. It might even sell for less.

A competent real-estate agent should be able to gauge the market, but sellers also can do some research. Mr. Scott suggests looking at recent comparable sales in the neighborhood, and determining what percentage of those homes sold in the first 30 days on the market. If less than 20% sold, you're likely in a softening market. If 20% to 30% sold, you're in an equilibrium market. Over 30%, you're in an appreciating market.

Sellers in a softening market might price their homes at the same or a slightly lower price than the last comparable home in the neighborhood that sold. (Be sure to factor in size, features and other things that could affect the price.)

Time horizon also matters. If you have several months to sell, you might try setting the price a bit higher. But there's a danger to that, says Phyllis York Brookshire, chief operating officer of a brokerage in Raleigh, N.C.: "There's always some backlog of buyers right when you put the home on the market." If you price your home too high, you might miss out on those buyers.

Finding good sales data can be difficult for individual sellers not working with an agent, but it's getting easier. Zillow.com can provide some helpful comparable sales data, though it doesn't include sales in every area.

Getting Noticed

Once a home goes on the market, sellers should make sure the home is widely marketed. Buyers increasingly browse the Internet, so submitting an attractive photo spread of your home's exterior and interior can get more prospective buyers through the door.

Sellers inclined to go without a full-service real-estate agent might want to look for a discount broker that will include their home on the Multiple Listing Service -- the listing of homes used by traditional Realtors and posted on many Web sites -- for a modest fee. But beware: This is frowned upon by many traditional brokers and it may not improve traffic to your home as much as you think. If you go this route, consider offering a commission to any agent that brings in the ultimate buyer.

Extra Incentives

Some eager sellers sweeten the deal by offering incentives to buyers. These won't make or break the sale, but can give hesitant buyers a little push.

Mr. Wenner in Scottsdale says one of his recent sellers offered a $3,000 credit to cover the buyer's closing costs -- a good option since many buyers face a cash crunch when buying a home.

Some sellers also toss in a one-year home warranty, which covers major appliances and some other repairs in the buyer's first year in the home. Home warranties cost $300 to $500, according to American Home Shield, one of the major providers of such warranties.

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Mortgage Lenders Dismiss Concerns Over Risky Loans

Mortgage Lenders Dismiss
Concerns Over Risky Loans

By Michael Schroeder
From The Wall Street Journal Online

Bank trade groups and financial institutions blasted proposals by bank regulators to rein in unconventional mortgages that allow borrowers to afford more expensive housing, dismissing concerns about risk as overblown.

Complaints poured in from groups representing federally regulated banks and thrifts, including the American Bankers Association, America's Community Bankers and the Consumer Mortgage Coalition, suggesting that the new requirements are overly restrictive and if adopted would cause many lenders to stop offering the nontraditional home loans.

One of the most aggressive mortgage lenders, Countrywide Financial Corp., said in its comment letter: "We do not believe that the risks associated with these particular loan products justify the specific and prescriptive guidance."

Late last year, federal regulators proposed more disclosure and tighter requirements for borrowers to qualify for so-called "interest only" and "payment option" adjustable-rate mortgages. The loans, which have been offered in various forms for decades, allow borrowers to exchange lower payments during an initial period for higher payments later in the payment schedule -- as opposed to the level payments of a 30-year fixed-rate mortgage.

With borrowers risking a possible doubling of monthly mortgage payments as interest rates rise, regulators raised concerns about defaults of these complex loans and whether borrowers truly understand them. The guidance recommended against allowing reduced documentation in evaluating an applicant's creditworthiness.

The loans grew in popularity over the past few years as housing prices escalated in several regions of the country, but demand has cooled recently as general interest rates have risen. Many banks, in part because of regulators' crackdown, already have stopped aggressively marketing nontraditional mortgages.

Final recommendations won't go into effect until after an internal review of comments -- probably in a few months. The comment period ended yesterday. Regulators could amend the guidance to address concerns raised by the banks, but it is unclear what changes that might involve.

The proposals were issued by the Treasury Department's Comptroller of the Currency and Office of Thrift Supervision, Federal Reserve, Federal Deposit Insurance Corp. and National Credit Union Administration.

America's Community Bankers said it supports appropriate disclosure to potential borrowers about alternative mortgage terms, but the group objected to requiring lenders to determine the "suitability" of mortgage products for the individual consumer. "We do not believe it is appropriate or possible for the lender to dictate the best mortgage products for individual consumers," the ACB letter said

The Consumer Mortgage Coalition, a trade group representing national residential mortgage companies, said in its letter that requirements should apply to all lenders including state-chartered mortgage companies, not only to federally regulated institutions.

Meanwhile, a few consumer advocacy groups, including the Greenlining Institute in Berkeley, Calif., and small banks wrote letters applauding strict guidance.

"It is very dangerous to use mortgage products that allow borrowers to buy homes more expensive than they can afford. Add this to a slowdown in the economy and the job market and we could have a serious recession," said David Stone, president of the Portales National Bank in New Mexico.

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Weekly Mortgage Rates and Activity Mostly Lackadaisical

Weekly Mortgage Rates and Activity Mostly Lackadaisical
by Mortgage News Daily

Not a lot to say about the mortgage biz for the weeks ending March 23 and 24. Fixed mortgage rates were down per Fannie Mae, up according to the Mortgage Bankers Association, and adjustable rates were up according to everybody, with one exception, overall it was hardly enough to matter.

Anyway, the details. Fannie Mae's Weekly Primary Mortgage Market Survey for the week ended March 23 indicated that the average rates for mortgages closed that week were as follows: the 30-year fixed was at 6.32 percent with fees and points of 0.6 compared to an average rate of 6.34 for the week ended March 16 with 0.7 in fees and points. The 15-year fixed averaged 5.97 percent compared to 5.98 a week earlier. Fees and points declined from 0.7 to 0.6.


The two adjustable rate products tracked by the survey showed slightly greater movement in the opposite direction. Both the 5/1 ARM and the 1-year ARM increased four basis points, averaging 5.96 percent for the 5/1 and 5.41 percent for the 1-Year. Fees and points were unchanged for the 5/1 and declined from 0.8 to 0.7 for the 1-year.

According to the Mortgage Bankers Association's Weekly Mortgage Applications Survey for the week ending March 24 the 30-year fixed rate mortgage average increased to 6.36 percent from 6.31 percent while points, including the origination fee, decreased from 1.13 to 1.02. The 15-year fixed rate loan was up one basis point to 6.0 percent with points increasing from 1.09 to 1.12. MBA's survey result for the 1-year ARM was more dramatic, showing an increase of 15 basis points to 5.68 percent with points also increasing from 0.88 to 0.86. Thus, at least by MBA calculations, the yield curve flattened still further with only 53 basis points separating the 1-year ARM from the 30 year fixed. Last week the differential was 63 basis points. All MBA figures are for 80 percent loan to value originations.

Loan activity was up slightly. According to the Market Composite Index, a measure of mortgage loan application volume, there was an increase of 1.2 percent on a seasonally adjusted basis from the previous week and 1.0 percent on an unadjusted basis. Compared to the same week in 2005, however, application activity dropped 15 percent.

Refinancing activity was down from 38.1 percent of all application during the week ended March 17 to 37.3 percent. Refinancing, however, increased from a 28.3 percent share of all mortgage applications to 28.7 percent.

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What Housing Bubble? Report Shows House Prices Still Soaring

Last week was a big week for news about the housing bubble and the quarterly House Price Index (HPI) report of the Office of Federal Housing Enterprise Oversight (OFHEO) released on March 1 was a good deal more optimistic about price growth than were the Census Bureau and Department of Housing and Urban Development joint report on new home sales and the National Association of Realtors existing home sales report, both issued days earlier and both showing that sales and price increases are slowing down.

The OFHEO report deals only with housing prices not sales figures, slicing and dicing this data in many ways and providing years of historical background, making it one of the most interesting of the dozen or so housing reports released monthly or quarterly. The study considers data only from same house sales or refinancing so new construction or houses with no previous mortgage activity since 1975 when the study started are not included in the survey. Wednesday's report is for the Fourth Quarter of 2005 and boldly states that housing prices have continued to climb at near record levels.


Average home prices increased 12.95 percent from the fourth quarter of 2004 through the fourth quarter of 2005. The rate during the last quarter of that period was 2.86 percent or an annualized rate of 11.4 percent. This increase during 2005 is similar to the revised increase of 12.55 percent for the year ended with the third quarter "showing no evidence of a slowdown."

While the 2.86 percent increase was lower than the 3.65 percent and 3.14 percent recorded in the second and third quarters respectively it was higher than the first quarter of 2005 and higher than in four of the previous eight quarters.

Patrick Lawler, Chief Economist for OFHEO noted that while "deceleration continues in some areas, appreciation generally is still extremely strong. Mortgage rates climbed significantly during the second half of last year, but the effect of that increase on price appreciation so far appears to be limited."

It has been a while since we looked at an OFHEO report and the change in the hot spots was notable. While Nevada and California had led in appreciation, Arizona and Florida are now on top with their yearly figures. Arizona home prices had an appreciation rate in the fourth quarter of 6.99 percent, annualized to 34.90 percent and Florida figures were 5.38 percent and 26.83 percent. California was sixth for the year at 21.07 percent and Nevada was number 11 at 18.02 percent - slightly more than half the figure one year ago. Michigan ranked 51st with an annualized rate for 2005 of 3.76 percent. Also at the bottom were Indiana, Nebraska, and Ohio.

Eighteen states had one-year appreciation rates greater than the national average, and only two, Vermont and New Mexico were at or below the national average for the quarter - further evidence that appreciation is continuing in those top tier states,

Phoenix-Mesa-Scottsdale, Arizona the top ranking Metropolitan Statistical Area (MSA) in the country with an annualized appreciation of 39.67 percent and a 7.77 rate for the quarter. Other markets with high annual appreciation are Naples-Marco Island, Florida (38.89 and 9.49 percent) Cape Coral-Fort Myers, Florida (36.19 and 7.19 percent) and St. George, Utah (35.27 and 8.21 percent). Of the twenty top MSAs in the county 10 were in Florida, four wholly or partially in Arizona and three in California. One year ago 14 were in California, four in Florida and two in Nevada.

At the bottom of the rankings was Burlington, North Carolina which showed a -2.01 percent increase for the quarter and a -1.16 for the year. Bay City, Michigan was also in the negative column for the quarter at -1.75 but managed to eke our a positive annualized rate of 0.43 percent

Of the bottom 20 MSAs, six were in Michigan and three in Ohio.

The Mountain region was the fastest appreciating area of the country at 18.79 annualized and 4.42 for the quarter with the Pacific region following closely at 18.75 and 4.05 percent. The South Atlantic which includes the coastal states from Maryland to Florida appreciated at the fastest rate since 1975 when OFHEO started collecting data. Prices there were up by 17.81 percent over the four quarters ending December 31, 2005.

OFHEO has noted in the past as in this report that refinancing has an impact on the rate of appreciation particularly, we would assume, when homeowners are requesting cash out. If only the data for purchase money mortgages is considered, the annualized rate of appreciation for the four quarters of 2005 is 10.81 compared to the total House Price Index of 12.95 percent.

OFHEO devotes a significant portion of this report to the situation in the area devastated by Hurricane Rita, analyzing purchase mortgage activity and price trends for five metropolitan areas in Louisiana and Mississippi. Those concerned with these areas can review the entire report at www.ofheo.gov.

Consumers Buy Furniture, Even Refrigerators on the Internet

By Mylene Mangalindan
From The Wall Street Journal Online

Internet-only deals are increasingly turning the Web into a virtual bargain basement for big-ticket items from snowblowers to HDTVs.

The offers are stoking a marked change in consumer behavior. For years people have embraced the practice of buying small and easily-packaged items, such as books, online. But purchasing big, costly products after merely viewing them on a computer screen has been much slower to catch on. In recent months, however, a number of retailers have noticed a significant jump in online sales of big-ticket items, like refrigerators and treadmills.

Overall, total revenue from online sales of large items, including furniture, appliances and other equipment rose 34% during the most recent pre-Christmas holiday period (Nov. 1-Dec. 25, 2005) from a year earlier, according to research firm comScore Networks. Electronics retailer Best Buy Co. says sales on its Web site in December grew more than 40% from December 2004, with appliances such as big-screen television sets selling particularly briskly. In fact, Best Buy tallied that TV sales on its Web site grew three times as fast as TV sales in its stores in 2005 from a year earlier. Companies such as Sears Holdings Corp., sporting equipment retailer Cabela's Inc., and Wal-Mart Stores Inc. now report selling hefty items like treadmills, log cabins and mattresses on their Web sites.

Some retailers believe that the increased complexity of products such as TVs and washing machines has sent more consumers to the Internet to conduct research -- and many end up placing an order while they're online. Many manufacturers and online retailers have also put better systems into place so that online orders can be shipped to the customer directly from the manufacturer. To entice consumers further, some online retailers are offering to pay the shipping costs.

Jeff Elliott, a 46-year-old building-materials project manager in New Palestine, Ind., purchased a $2,700 42-inch plasma-screen television set late last year from Best Buy's Web site, and about a year ago he bought a $1,100 Bose audio system with speakers and subwoofers online. Mr. Elliot says he bought the large items over the Web to spare himself from "breaking my back, or taking a chance of breaking something" by having the retailer deliver his big purchases to his home. He adds that if Internet sites are willing to do the "heavy lifting" with big items, he's all for it.

All of this is a boon to consumers as some retailers, eager to promote online sales of large items, offer more Internet-only specials related to big stuff. Target Corp.'s Web site is offering free shipping on select furniture and patio furniture through Saturday. J.C. Penney Co. offers discounted beds, bedroom furniture sets, patio furniture, mattresses, tables and chairs on its Web site. Home Depot offers no shipping charges on its patio furniture bought online. Best Buy currently has two offers centered on sizable items that can be found exclusively on its Web site. In one offer, Best Buy says it will give away a free DVD recorder with any $999-or-higher TV purchase. In its other offer, Best Buy promises a free 20-inch television set with the purchase of any large appliance priced at $999 or more.

When Charley Geoly, an executive recruiter, was building a home in Menlo Park, Calif., recently, he bought 3,600 pounds of copper gutter, a 37-inch and 50-inch TV, 1,000 cabinet handles and pulls, and other items on the Internet. "What the Web gives you is much broader access" to suppliers and manufacturers, he says. "I had better selection and more easy selection."

The trend differs from buying used cars and homes through the Internet, since cars and houses can't be mailed to a consumer's home. Many of the car and home sales that take place through Web sites also aren't sales at all -- real-estate and auto sites typically refer a consumer to a car dealer or real-estate agent and take a cut for making the referral. Some sites such as eBay Inc.'s eBay Motors site are exceptions, because the entire transaction, mostly used cars, takes place on the site and delivery of the used car varies widely from in-person pickup to shipment and special delivery. For the most part, actual physical sales of homes and used cars over the Web are limited.

For retailers, the payoff from selling big stuff online can be huge. The average order on Costco Wholesale Corp.'s Web site, which sells many large items such as caskets and children's playhouses, is $450, according to Ginnie Roeglin, senior vice president of e-commerce and publishing. Some retailers and analysts say that big, brand-name items carry a higher price and are more generally more profitable than small products such as socks, though that varies by product.

Some online retailers say consumer purchases of big merchandise on the Web will help fuel their growth. Amazon.com Inc. last year built several new warehouses, which Chief Executive Jeff Bezos said were constructed in part to accommodate the larger products that he anticipates the company will sell. Amazon sells jumbo items including patio furniture, mountain bikes and home gym equipment. The company declined to comment on the number of big items it sells.

Start-ups also are capitalizing on the growing appetite for buying big items online. UShip Inc., an Austin, Texas, company founded in 2003, helps buyers and sellers transport large items. The firm created a Web marketplace in the image of Internet auctioneer eBay, where individuals post an item that needs to be moved -- such as a car -- and independent truckers and freight carriers bid on listings to deliver it. UShip charges the trucker or person providing the moving service a fee of 7.9% of the accepted bid price.

Doug Dolginow, an executive at a genomics drug company in Gaithersburg, Md., recently tested out UShip. In August, Mr. Dolginow bought a 250-pound astronomy dome from another hobbyist on an astronomy Web site, but didn't know how to transport the odd-shaped 6-by-7-foot item from Boston to Maryland. Commercial shippers wanted to charge $1,000 or more, and flying to Boston to drive the dome home by U-Haul would have cost just as much, says Mr. Dolginow. So he turned to UShip, and found a mover through that site.

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Interest-only mortgages

(This was Written By Dian Hymer)

Many home buyers are turning to mortgages with interest-only payment schedules so they can afford to buy a more expensive home. These mortgages have lower monthly payments, which makes qualifying easier. But the lower payments don’t last forever, and interest-only loans aren’t for everyone.

Mortgages with an interest-only payment feature come in many varieties. Basically, they work like this. The borrower pays interest-only payments for the first five, 10 or 15 years. The monthly payments are lower than they would be with a fully amortized loan during this initial period. However, at the end of the interest-only payment period, the borrower still owes the entire amount borrowed.

With a fully amortized loan, part of each monthly payment pays back a portion of the principal (the amount borrowed). A fully amortized payment schedule pays back the loan in full during the term of the loan, which is usually 30 years. At the end of 30 years, you owe nothing.

Interest-only is a bit of a misnomer. You ultimately have to repay the amount you borrow, so you won’t make interest-only payments indefinitely. After the initial interest-only period, the principal is amortized over the remaining loan term. With a 30-year mortgage that has a 5-year interest-only payment plan, the principal will be amortized over the remaining 25 years of the loan. A shorter amortization period requires the borrower to make a higher monthly payment in order to repay the loan more quickly. This means an increase in the monthly payment starting with year six of the loan.

For example, if you were to borrow $250,000 at 6 percent, using a 30-year fixed-rate mortgage, your monthly payment would be $1,499. On the other hand, if you borrowed $250,000 at 6 percent, using a 30-year mortgage with a 5-year interest-only payment plan, your monthly payment initially would be $1,250. This saves you $249 per month or $2,987 a year. However, when you reach year six, your monthly payments will jump to $1,611, or $361 more per month. Hopefully, your income will have jumped accordingly to support the higher payments.

Mortgages with interest-only payment options may save you money in the short-run, but they actually cost more over the 30-year term of the loan. However, most borrowers repay their mortgages well before the end of the full 30-year loan term.

A mortgage with an interest-only payment schedule makes sense for some borrowers and is potentially risky for others. Borrowers who are counting on home-price appreciation to build equity could find themselves in a financial bind if home prices should drop and, for whatever reason, they’re forced to sell.

Not all interest-only mortgages have a fixed interest rate. Some have one rate for the initial interest-only period and a higher rate—with a much larger monthly payment—for the remainder of the loan term. Others resemble adjustable-rate mortgages (ARMs). A popular variety has a fixed rate with interest-only payments for the first five years. Then it converts to a 1-year ARM. You could face serious payment shock if interest rates rose significantly during the first five years.

Borrowers with sporadic incomes can benefit from interest-only mortgages. This is particularly the case if the mortgage is one that permits the borrower to pay more than interest-only. In this case, the borrower can pay interest-only during lean times and use bonuses or income spurts to pay down the principal.
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Mortgage Information: The Right Loan for You

(This was Written By Dian Hymer)

Today's low interest rates make 30-year fixed-rate mortgages pretty attractive. But, is a 30-year fixed-rate mortgage the best way to go? What about an ARM (adjustable rate mortgage); a 5-year fixed; a 5/2/5 or even a 15-year fixed? With so many mortgage products to choose from, how do you decide which is best for you?

Assuming you have no problems qualifying for a loan, the decision will depend on your personal goals as well as your tolerance for risk. An ARM is riskier than a fixed-rate loan because the interest rate and monthly payment might go up over time. Borrowers who have a low tolerance for risk, or who are on a fixed-income, often prefer a fixed-rate mortgage with an interest rate and monthly payment that won't change.

The length of time you plan to stay in your home should weigh heavily in your decision. If you're sure that you won't be moving for seven to 10 years, a 30-year fixed-rate loan might best suit your needs. These mortgages are currently available in the 5 percent range.

But borrowers who are sure they'll be moving within the next five years will save money with a 5-year fixed-mortgage product. These are currently available in the 4 percent range. For the first five years, the interest rate is fixed. Then the mortgage converts to an ARM.

The specifics will vary from one 5-year fixed product to another. A common variety is called a 5/2/5 mortgage. The interest rate is fixed for the first five years. After that, the rate adjusts. The rate can only move up 2 percent in any one year. And over the life of the loan, the interest rate cannot rise more than 5 percent from where you started.

So, if you started at 4 1/4 percent and interest rates rose to 12 percent, the most you'd ever pay would be 9 1/4 percent. However, on the first adjustment only, the rate can adjust up the full 5 percent allowed if the index the ARM is tied to has gone up 5 percent or more since you took out the loan.

Today, it's hard to imagine that interest rates will ever hit 9 percent again. But 20 years ago, we were sure we'd never see rates drop below 10 percent. Interest rates are expected to stay low for some time. However, financial markets can change quickly, and without warning.

For this reason, it's a good idea to consider the worst-case scenario before choosing a fixed-rate ARM. Suppose you don't move at the end of five years as you thought you would. Calculate how much the loan will cost you if interest rates were to skyrocket during the fixed-rate term of the loan and you ended up paying the maximum rate allowed for several years.

Fully adjustable-rate mortgages are available in the 3 percent range. Many of these loans adjust monthly. Although riskier, these loans are popular with borrowers who need financial relief. These loans are also the easiest to qualify for. Some ARM products even allow the borrower to make a reduced payment in lean financial times.

The 15-year fixed loans are popular with borrowers who think they want to own their homes free of any debt. These loans are harder to qualify for because of the higher monthly payment.

The Closing
A 30-year loan offers more flexibility than a 15-year because you're not locked into a higher monthly payment. But, you can always pay more on a 30-year loan if you want to pay it off faster. Just make sure the loan doesn't have a prepayment penalty.

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Mortgage Information: Applying for a Mortgage

(This was Written by Craig Romero, Mortgage Analyst)

When applying for a mortgage, it’s important you get answers to the following questions. Be sure and print these questions out and take them with you when meeting with a potential mortgage lender. By taking the time to learn the answers to these questions, you can reduce or eliminate the chances of being taken advantage of. Thus, saving you thousands of dollars.

1. Will There Be an Additional Charge to Lock-In an Interest Rate and Discount Points?Since rates fluctuate daily, Most lenders offer a lock-in policy that guarantees your quoted interest rate and points will not change for a specified number of days. Allowing you time to organize your documents and shop other loans before applying with this lender. By paying a one time lock-in fee you may be able to save you thousands if the interest rate rises during the time you are locked in.

2. How Many Points Will Be I Charged?The answer to this question will vary from lender to lender. A point is calculated as one percent of the loan amount. Points charged are additional to the interest rate that is charged on the loan. A lender often makes his fees by charging points or to negotiate a lower interest rate. Be careful with this because a loan with a low interest.

3. What Will Be The Interest Rate & Annual Percentage Rate for This Mortgage?The answer to this question will allow you to compare the loan costs of this particular mortgage with other loans you may compare against. Your loan APR is figured by combining the interest rate, points and other fees divided by the loan’s term to give an annualized rate. A low interest rate and high points could end up costing you thousands more than one with a higher interest rate but low points.

4. How Long Will it Take to Process My Mortgage?Processing is the time it takes from the day you submit your application to the time your loan is approved. The time it takes to process a loan will vary for different loan types and among lenders. Normally loans should be funded within 7 to 10 working days, unless there is a problem with your application.

5. Will I Be Charged For Private Mortgage Insurance (PMI)? And If So, Can I Finance the Upfront Premium into the Loan Amount?If you’re unable to put a 20% down payment on your new home, you will be charged PMI (an insurance premium to protect the lender in case you default on the loan). If you are charged this, find out if you can add these premiums into your financing.

6. What Are The Total Closing Costs?Be sure and get this in writing within 3 days of applying for the loan. If they can’t provide this within 3 days…the lender has broken the law. When a list of closing fees are provided, be sure you understand each fee. Sometimes lenders will tack on unnecessary fees to boost profit. Lenders charge fees for the services incurred to process and close your mortgage. Also, make sure the closing costs that were presented to you in the beginning match the closing costs presented at closing.

7. Is There a Pre-Payment Penalty?This is a penalty some lenders apply to your loan if you decide to pay off your loan early. Either by making bi-weekly payments or 1/12 extra payments (see table of contents). This is important, since you will want to pre-pay your loan in order to eliminate costly interest overpayments. Most lenders don’t charge a pre-payment penalty, so there is no need to go with a lender who charges this.

8. Rapid Loan ApprovalBe sure and ask your lender if they utilize Rapid Loan Approval Software. This computer software allows lenders to determine a borrowers credit risk instantly. Allowing for them to approve a loan within hours or even minutes. Look for a lender who utilizes this software. It will save you valuable time especially when shopping for the best interest rate.

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