How to Get a Cheap Mortgage Deal: Receive Approval for the Best Remortgage Deals

A cheap mortgage deal can substantially increase the amount of disposable income that is available to clear other personal debts and household bills. However, the best mortgage rates will be offered to the most financially stable customers. These will typically be individuals with a good credit history, stable employment, a low income to debt ratio and who are able to offer a sufficient house deposit.

Why are Cheap Mortgage Deals Available for Some?

The best remortgage deals are only made available to those customers who present the least risk to them. A lender wishes to protect their legitimate business interests by ensuring that the borrower is in the best position to keep up with the repayment schedule. Failing that, they want to make sure that they are able to recover any money they have lent by ensuring that sufficient equity is available.

The Best Remortgage Deals Require Good Credit

Whilst there are bad credit mortgages available, a cheap mortgage deal will only be offered to a homeowner with a reliable repayment history. Lenders will report any missed/late payments to credit reference agencies each month and this will have a serious effect on the borrower’s credit worthiness. Whilst it takes a number of months/years to repair credit, it is possible to get any inaccurate data removed under the Fair Credit Reporting Act personally or by using the services of a credit attorney.

A High House Deposit Means the Best Mortgage Rate

A cheap mortgage deal is far more likely to be available to those who have built equity or are able to offer a house deposit of 25%. Whilst there are a number of loans available with a 5% deposit, these represent a higher risk to the lender. This is because minimal home equity fails to provide protection in the event of default, especially in a falling market. Should it be necessary to repossess the property, it will be more difficult to recover any primary and/or secondary loans that are secured on it.

Stable Employment to Reduce Monthly Mortgage Repayments

Those who have been in their job for longest are more likely to remain that way. Given the criticality of keeping-up with house payments, a reliable income is fundamentally important. It is difficult to get approval for any loan when in temporary employment or if still in a probationary period.

Low Income to Debt Ratio

A low percentage of debt relative to income helps to ensure that the borrower is better placed to make their monthly mortgage repayments. Most lenders will only approve a loan when an income to debt ratio is 36% or less. The best remortgage deals will be made available to those who have a low percentage of personal debt. Unless the borrower is able to comply with the majority of the above criteria, it will be difficult to get approval for a cheap mortgage deal.

How to Reduce Mortgage Debt: Ways to Pay Off Secured Debt, Home Mortgages and Loans Early

The global economic crisis has made millions of families realise why it is so important to reduce mortgage debt. Until the last mortgage payment has been made, the family home can still be repossessed. Those with mortgage arrears stand to gain the most from these strategies.

Reduce Mortgage Debt

Clearing extra secured debt not only reduces the cumulative amount of interest paid, it provides a cushion against negative equity. Paying an extra sum of money each month can reduce the life of a mortgage by years. It is necessary to check the T&C’s of the loan to see if a redemption penalty applies.

Easiest Ways to Save Money

Identify money saving techniques to reduce household bills as this will leave additional disposable income to reduce mortgage debt. Consider the following:

  • Use an online comparison service to reduce the cost of different insurance products (car, life, home and critical illness coverage) and utility bills (gas and electricity).
  • Switch from branded to generic supermarket foods. Look for bargains- 2 for the price of 1 deals and discounted perishable goods. Stock up on canned goods when they are on sale.
  • Cycle or walk to work instead of taking the car. Consider forming a car pool with work colleagues- this can cut the cost of gasoline/petrol by as much as 75%.

Ways to Make Extra Cash

Although saving money is normally easier than making money, the ideas below can help someone to make extra cash to reduce mortgage debt:

  • Consider renting out an unused driveway through parklet.co.uk or yourparkingspace.co.uk. This is an excellent way to make money, especially if located near a major city, public transportation, school or hospital. This can generate $100 to $300 pcm.
  • Sell unwanted items on eBay or at a garage sale to raise some extra money. This can provide a quick cash injection for the purpose of paying-off secured debt.
  • Create a dog walking business. Many dog walkers who are capable of walking several pets can earn as much as $10 per hour during the evening or at weekends. A great way to make an additional sum of money for reducing mortgage arrears.
  • Become a freelance writer. Other than setting up a website. Those who are prepared to invest the time can earn a substantial second income.

Tackle Unsecured Debt

If a borrower’s debt-to-income ratio is starting to spiral out of control, consider clearing unsecured loans and credit cards with a Debt Management Plan or debt settlement program. This will increase the amount of money available to reduce mortgage debt.

Although paying-off the entire mortgage in a short space of time is unlikely, it is possible to reduce mortgage debt at an accelerated rate. If mortgage arrears are a problem, it is important to get professional debt counseling. They will work with the debtor to identify potential savings and will discuss what debt solutions are available for a homeowner.

Avoid Repossession with a Sell and Rent Back: A Property Cash Buyer Can Prevent Repossession

Why Alternative Ways to Avoid Repossession May Not Work

  • The £285 million government rescue scheme will only assist those in a vulnerable position (for example, a family with young children or elderly people with mobility issues) – about 10% of families.
  • Although the government may offer help with mortgage interest payments, this won’t happen for a period of 39 weeks if the loan was taken out after September 1995. The interest rate is pre-determined and may not be sufficient to make the payment. The threshold is just £100,000.
  • A judge will only agree to a suspended possession order if the homeowner is able to maintain their monthly repayments and make a contribution to clear any mortgage arrears.

What is a Sell and Rent Back Scheme?

It involves selling to a property cash buyer for about 20% below the properties current market value. Whilst the terms may not sound favourable, the homeowner doesn’t need to pay an estate agent, legal fees, wait to find a buyer and can avoid repossession. The family is also able to become a tenant for a fair rent and doesn’t need to move unless they genuinely want to. Most plans also provide the opportunity for that person to buy the property back in the future should their personal circumstances change for the better.

A Sell and Rent Back Can Help to Avoid Repossession

A property cash buyer not only allows a homeowner to prevent repossession, they will also take all the necessary steps to stop any legal proceedings. A judge can stop repossession from going ahead at any time (even on the day it is meant to go ahead), provided that a more viable alternative is available. Rather than trying to recover the money from a property auction on the open market, the judge will be satisfied if lenders are able to recover their money.

Pros and Cons of Selling to a Property Cash Buyer

A sell and rent back scheme provides a viable way to avoid repossession, especially if there is very little time remaining. Although it is possible to sell property quickly, the maximum amount received is likely to be about 20% below fair market value. However, it is still possible to avoid many of the legal expenses and costs associated with selling a house. That person can also continue to live in the property as a tenant. Always seek assistance from a debt advice charity before proceeding as a judge may be prepared to grant additional time to allow a homeowner to sell on the open market. There are also several other alternatives.

How to Save Money on Mortgage Refinance

The following hidden costs when taking on a mortgage with a very low borrowing rate could leave the homeowner wondering if a good deal had been bagged after all:

Placing mortgage costs onto the mortgage itself: These little extras may seem incidental at the time, but placing costs onto the mortgage is a big mistake if the homeowner hopes to make savings on the mortgage repayments. Twenty five year’s worth of interest will increase the fee dramatically. Although it might hurt at the time, paying necessary mortgage fees outright will save the homeowner hundreds or even thousands of pounds over the mortgage repayment period.

Valuation fees: The mortgage lender may insist that the homeowner have a mortgage valuation on the property. The borrower may accept this as part and parcel of remortgaging or buying a property, but the valuation is more for the lender’s benefit than the homeowner’s. This report may be unnecessary if the homebuyer’s report or building survey reveals that the property is in good condition and is worth disproportionately more than the mortgage itself.

Saving Money on Arrangement Fees

Booking fees or arrangement fees: This is the money paid upfront to safeguard the mortgage. These fees vary wildly from lender to lender and are given different names, but the purpose of it is the same. Some lenders charge this fee as a percentage of the mortgage. A small percentage may not sound much, but could end up amounting to a few thousand pounds, and all for an arrangement fee.

Save Money on Remortgage Costs

Many lenders charge homeowners for moving between mortgage packages within the same lender. Whereas some lenders do not charge this fee, others charge an admin fee or the full arrangement fee, just for moving the mortgage from one agreement to another.

Getting out of Early Redemption Fees on Mortgages

Watch out for mortgage agreements containing a mortgage redemption clause. This will restrict the homeowner’s powers to save money when deciding to opt out of the mortgage agreement early. Paying a redemption penalty is often costly, usually six months’ mortgage interest.

Loan to Value Charge

Loan to value, or ILV, is charged to the homebuyer if the mortgage is around 90% or more of the property’s value. This is worked out as a percentage of the difference between the amount borrowed and the property’s value. Sadly, such a fee works only to make buying a property more costly for a purchaser who likely has little funds to put down on the property. In such cases, buying a house at a property auction may be worth consideration.

Exit Fees for Mortgages

Incredibly, some lenders charge homeowners for paying the mortgage off. Like many hidden mortgage fees, this varies wildly from one lender to another.

Mortgage Refinancing Advice

A mortgage with a very low borrowing rate may entice the homebuyer into a poor mortgage deal due to hidden mortgage costs which may be unnecessary or higher than other lenders charge. Putting such fees onto the mortgage itself may be convenient at first, but will cost the homeowner dearly in the long run. Being aware of other hidden drawbacks such as early redemption fees and exit fees will prevent nasty surprises. For this reason, when shopping and comparing mortgage rates, it is always wise to find out the other hidden costs involved.

What is a Lease Purchase Agreement?: An Alternative Financing Option to the Conventional Mortgage Loan

A lease purchase agreement is a contract between the buyer and seller in a real estate transaction. Lease purchase contracts are commonly known by terms like lease option, lease with option to buy, lease purchase, LP and lease and purchase agreements.

What is a Lease Purchase Agreement?

A lease purchase (LP) is typically used in a case where a buyer wants to buy a home but for certain reasons cannot qualify for a conventional mortgage at this point in time. This can be for a variety of reasons, maybe they have credit issues that need to be resolved or need time to save for the down payment. Some buyer who are self employed may need time to establish the required employment verification and still others may need to sell an existing home before they commit to a new home.

On the other hand, lease with option to purchase contracts are ideal for sellers who need to sell their home quickly may or an investor who needs to improve his cash flow. Lease purchase arrangements are very beneficial for those who have been transferred or have lost their job and must move quickly. The immediate rental payments typically cover most if not all of the existing monthly mortgage payment and relieve a large financial burden from sellers who see themselves in this situation.

How does a Lease with Option to Buy Work?

The lease purchase agreement is basically two contracts coupled together.

The first contract is the lease or rental agreement between the parties. The buyer agrees to pay to the seller a monthly rental amount, usually an amount equal to the monthly mortgage amount for a period of 12-36 months.

The second contract is the purchase and sale agreement. It is in this contract where the terms of the eventual sale of the property are spelled out. Purchase price, closing date and other stipulations in conjunction with the transfer of ownership of the property are described and agreed upon at this time. Once the lease term is up the will have the option to exercise their rights under this agreement and purchase the property.

Components of Lease Purchase Agreement

In the past, lease purchases were traditionally seen as only beneficial to buyers in tough credit circumstances or investors who needed to flip their investments quickly, but this is no longer the case. In today’s tough mortgage market a lease purchase agreement can provide benefits for both parties.

As underwriting guidelines continue to tightened and minimum credit standards rise almost daily, many potential home buyers are being pushed out of the market and many homes are going unsold. A lease option agreement may give buyers enough time to get qualified and the seller immediate relief of a quick sale.

Typically, a lease-purchase agreement will include these features:

  • A complete rental agreement outlining the lease terms and conditions.
  • A complete purchase and sale agreement. This contract will contain the purchase price, the “on or before” closing date, and the other terms of the eventual sale. It is through this contract, a non-refundable “down payment” is often made from buyer to seller. This down payment will be credited to the buyers at closing but will be forfeited if the buyer either cannot close or chooses not to exercise the purchase option.
  • A common feature of these agreements is a “rent to own” provision. This clause specifies that some portion of each rental payment will be credited toward the buyer’s down payment at closing. A typical example of this clause would be a monthly credit of $250 towards the buyer’s down payment. At the end of a two year lease agreement the buyer would have a total of $6,000 towards their down payment, which on a $200,000 purchase price is the 3% minimum requirement for an FHA loan.
  • Another attractive feature of these types of contracts is the “As-Is” provision. The buyer agrees to accept the property in as-is condition. This clause prevents the renter from damaging the house, then asking the seller to make repairs prior to the sale. The flip side of this provision would be where a home has several cosmetic flaws, for example paint or carpet. The buyers agree to purchase the property as-is and the seller allows the cost of the repairs to be credited towards the buyer’s down payment, closing costs or purchase price at the time of closing.

Parties who desire to enter into a lease purchase agreement are encouraged to discuss the terms of the agreement with a real estate professional and their mortgage lender to ensure compliance with lender standards. If written to guidelines, some lease purchases can be treated as a refinance instead of a purchase. Mortgage refinance loan requirements are not as stringent as a conventional mortgage and will be easier for a buyer to qualify for, have less paperwork and are quicker to close.

Sellers Benefits in Lease Option Purchases

The benefits for the buyers in a lease option situation are obvious, but the sellers also obtain substantial benefits in these contracts. During the lease term the seller continues to own the property and will retain the tax benefits until such time as ownership has been transferred and the sale completed.

In addition to the tax credits, lease purchase agreements typically require the renter to be responsible for all repairs during the life of the lease and until the purchase occurs, relieving the seller of the headache of property maintenance. Sellers also typically net more at closing between the tax benefits, rental income and maintenance fees they would have had to pay if the property was to remain on the market.

Consumers can expect lease with option to purchase homes to become more of a standard as the mortgage industries attempts to regain their footing and continues to tighten credit guidelines. Other alternative financing options such as wrap-around mortgages, hard money loans and new creative financing methods are sure to become more mainstream in the coming years and even possibly a safer investment option for the wealthy, just as they were in the 80’s and 90’s.

A Guide to Mortgage Types and How to Choose the Best Product

Mortgages may all share a common purpose but the products on offer from lenders are not all the same. Both first time buyers and those looking for a new mortgage deal may benefit from looking at how different types of mortgages work and how product choice can affect their repayment commitments.

Repayment and Interest Only Mortgage Types

The first thing to remember about mortgages is that there are two ways to pay back borrowing: repayment or interest only loans. Both will involve a regular monthly repayment but the way that this repays the overall loan is different.

A repayment mortgage, for example, will see each monthly payment go towards paying back some of the interest charged on borrowing and some of the loan. Each monthly payment will see the overall lending commitment reduced and, when the mortgage ends, it will be paid off in full.

A monthly repayment on an interest only mortgage, however, will go towards paying back interest and not the capital loan itself. At the end of the term the homeowner will still owe the lender the original money that they borrowed. Most will set up a savings plan (i.e. an ISA, endowment or pension) when they take out their mortgage to save for this payment.

A repayment mortgage will generally have a higher monthly payment. With an interest only product, however, the homeowner will also need to save for/factor in the final capital sum repayment so the lower monthly payment is not the only factor to consider here.

Fixed Rate and Variable Mortgage Loan Products

Mortgages can also be charged at variable rates or fixed rates. Each lender will have their own Standard Variable Rate (SVR). This can be attached to a loan or, as is more often the case, can be used as the base figure on which deals are set.

Fixed rate mortgages tend to be offered as time-limited deals. Here, the mortgage payment that is made will be set at a specific rate for a set period of time (i.e. months or years). Variable rates, however, may change over time as base rates fluctuate. If rates are high then payments will rise; if they are low then they will decrease.

Those that want to know exactly how much their repayment will be may find a fixed rate useful. Locking into this kind of deal, however, may see them paying more than necessary if rates go down. They won’t, however, have to pay more if they go up. Variable loans may suit those that prefer to take a gamble that rates will decrease as this will cut their mortgage payments. They may, however, have to pay more if markets increase.

How to Choose a Mortgage Deal

Understanding the basics of mortgage repayment types and rate options is important. This knowledge may then make it easier for a consumer to go on and choose the best deal to suit their finances. Lenders all offer a range of fixed and variable deals that come with different repayment options and it may be worth investigating these in more detail (and working out repayment options with a loan calculator) before using a mortgage comparison site to find the most cost effective solution.

What You Need to Know About Mortgage Lenders: The Basic Definition of a Mortgage, Subprime Mortgage, or FHA Loan

Though tighter regulations following the subprime loan meltdown of 2008 put many mortgage loan makers out of business for good, many others remain, and still present a confusing choice for would-be borrowers. A little background on the home loan business may better equip consumers with this challenging part of the home-buying process.

What is a Mortgage?

Technically speaking, nearly all mortgage loans are an agreement to facilitate the purchase of real estate by allowing a home buyer to pay loan installments to the lender. The lender will supply the payment to the seller in full, and over time will recollect the principal as well as additional interest payments form the borrower. The interest portion of the monthly payment is how mortgage lenders generate profits.

In almost all cases, the real estate itself is the loan collateral, which would be considered a ‘secured’ loan. In the unusual case where no collateral is required, the loan is said to be ‘unsecured.’

Who Are Mortgage Lenders?

Consumers can borrow money for a real estate loan from the obvious entities, such as banks (like U.S. Bank), or through a dedicated mortgage lender (such as Lending Tree). However, those institutions may or may not actually use their own cash to purchase the property upfront and then gradually resell it to the borrower through monthly loan payments. In many cases, lenders are simply face agents for a ‘behind the scenes lender’; both parties generate income in the process, though.

Mortgage brokers are often a better choice for borrowers, as they may have access to several lenders where a bank or loan company may only use one lender, or only make loans using their own cash reserves. A larger number of potential lenders to choose from mean a broker has a better chance at finding better loan terms.

Many stock brokerage firms also offer mortgage loans, though in many cases those too are simply passed along to a nameless or faceless lender, generating income for both the broker as well as the lender.

What is a Subprime Mortgage Lender?

For all intents and purposes, a subprime lender is the same as a conventional mortgage lender, except that a subprime lender specializes in dealing with borrowers who may have less than perfect credit.

Generally speaking, they may require more documentation, will charge higher interest rates, and will not likely offer the same size of loan that they would to someone with a higher credit score, but comparable income and a comparable down payment. Nevertheless, even a subprime loan can be better than no loan at all.

What is an FHA Loan?

FHA stands for Federal Housing Administration – a government agency designed to regulate the mortgage market by (1) insuring the loan to benefit the lender, and (2) regulate interest rates and loan terms to benefit the borrower. The FHA’s involvement facilitates loans that may not have transpired otherwise, and is therefore considered to provide a vital service to U.S. citizens who want to own homes but may not qualify for a loan with most lenders. However, the FHA rarely insures a loan that would be considered subprime.

That said, the FHA is not a lender in itself, and not all loans utilize the FHA’s insurance protection to lenders. Most large home loans will not qualify for FHA terms.

When Selling A Home, Small Details Count!: Maximize Home Sales Potential

During a walk through an area of homes mostly well-landscaped and cared for, it was striking that there were a number of “For Sale” signs on the lawns for several months.One cannot help but wonder whether sellers, along with their realtors, have done everything to make sure the homes show at their utmost. It must be said that the current economy is absolutely a factor. It is also true that in order to be the home that sells in this market, a seller must put certain things in place.

A Glaring Repair Item

One home specifically, stood out. It is a lovely corner lot home with a deck leading ones eye directly to a large, gaping hole in the exterior of one of the window screens. It looks like someone put a fist through the thing. Why would the seller allow that easy repair to remain? Don’t give a prospective buyer reason to pass by!

Use a Professional Home Stager

A home stager can be an invaluable part of this process. This professional will have ways to enhance each room, ensure furniture is arranged most beneficially, will know how to take an owner through the steps of decluttering and depersonalizing. It is important that a potential buyer can actually envision themselves in every room of the home. Therefore, every facet from cleanliness to color to accessorizing is vitally important.

Following are some tips to get started:

Steps for Making a Home Ready For Sale

  • Before a home is listed for sale, make sure the following are tended to:
  • All light bulbs in every fixture work.
  • All screens and all windows are in perfect condition.
  • Carpets are cleaned.
  • Kitchen counters are cleaned and cleared of excess.
  • Windows are clean.
  • There are no pet or other odors.
  • The entry is set up tastefully to greet visitors.
  • Walls have no stains, nicks, holes.
  • If a coat of paint is needed, paint.
  • All floors are clean and dust-free.
  • All furniture is appropriate for the space, arranged accordingly, and clean.
  • All excess furnishings and accessories are removed.
  • Personal items are removed or to a minimum.
  • There are no cobwebs or similar crawly things.
  • Light fixtures are clean. (Buyers do look up)
  • Exterior entry ways are clean and clear of obstructions.
  • All landscaping is pruned and clean.
  • Any issues with fencing are repaired.

There may or may not be a heavy to-do list once the decision to sell is made. In the long run, if issues are handled before the realtor is contacted, and surely before the first prospective buyer arrives, a home will be most likely to sell more quickly and for the best price.

How a 15-Year Mortgage Reduces Borrowing Costs: Outright Home Ownership Sooner with Less Interest Paid

Whilst the 30-year mortgage has traditionally been the loan of choice, the 15-year mortgage has grown in popularity in recent months. First American CoreLogic, a San Francisco real estate consulting company, recently stated that the number of 15-year loans had increased from 42,178 to 74,497 between January and February 2016.

Less Interest Paid with a 15-Year Mortgage

The shorter loan duration means that a homeowner can substantially reduce the cost of borrowing with a 15-year mortgage. In the example below, the cumulative amount of interest paid is $197,578 more than on a 30-year mortgage deal; this is more than double the amount paid on a 15-year loan.

Achieve Home Ownership and Build Equity

Home ownership can be achieved more quickly with a 15-year mortgage. Equity is developed sooner which helps protect families against negative equity in the event of a property slump. Homeowners with a 30-year mortgage are paying interest for many years to come.

A 15-Year Mortgage Means Higher Mortgage Payments

Whilst the cost of borrowing is lower due to less interest being paid over the duration of the loan, a 15-year loan means higher mortgage payments. These increased payments can place a strain on family finances and increase the likelihood of repossession. It may be possible to extend the term of the loan in the event of financial difficulties.

15-Year Mortgage Vs 30-Year Mortgage

Example 1: The 15-Year Mortgage

Mr Smith takes out a 15-Year mortgage for $350,000 at 5%. He makes a monthly mortgage payment of $2,767.78. The total amount paid is $498,200; the interest paid is $148,200.

Example 2: The 30-Year Mortgage

Mrs Philips opts for a 30-year mortgage for $350,000 at 5.25%. She makes a monthly mortgage payment of $1,932.71. The total amount paid is $695,778; the interest paid is $345,778.

* Whilst the interest paid is $197,578 less on a 15-year loan, a homeowner will need to make an extra mortgage payment of $835.07.

Borrowing costs are substantially higher on a 30-year mortgage because more interest paid due to the extended term of the loan. A 15-year mortgage means higher mortgage payments, but equity can be built faster and outright home ownership will become a reality considerably sooner. Affordability is essential as a homeowner must be able to afford the higher payments.

Negative Amortization Adjustable Rate Mortgage: Interest Only Home Loan and Monthly Payment Option ARM

What is a Monthly Payment Option Adjustable Rate Mortgage?

The payment option ARM allows the homeowner various choices each month on how they want their payment applied to their home loan. Each payment option has varying affects on the how the principal is paid, as well as how the interest is applied to the loan. The homeowner can choose one type of payment one month and a different type of payment the next month. There are generally three payment choices:

  • principal and interest
  • interest only
  • minimum payment

A principal and interest payment choice is like a traditional fixed loan where the interest is paid along with the principal. An interest only pays the interest, but not the principal. The minimum payment is an amount that is set as the minimum amount that can be paid each month. The minimum payment is an amount that is less than principal/interest and interest only options.

Advantages and Disadvantages of an Adjustable Rate Mortgage

The main advantage of an adjustable rate mortgage is the monthly mortgage payments are lower than a traditional fixed rate mortgage at the beginning of the loan. If the homeowners plans on staying in the home for a short period of time, like two to three years, an ARM may be a good option. If the homeowners will realize an increase in income in the near future, an ARM may also be a good option.

If the mortgage holder is on a fixed income and is planning on keeping the home for a long period of time, an adjustable rate mortgage may not be a good option. The payments in the early part of the loan will be less than a traditional fixed mortgage, but the homeowner runs the risk of substantially higher payments in the future.

Minimum Payment Option and Negative Amortization

With a payment option ARM, the interest rate is generally very low for the first few months. After a few months the interest rate usually reflects that of a traditional mortgage rate. If the homeowner uses the minimum payment option, the amount of unpaid interest will be added to the principal of the loan. The increase in principal is known as negative amortization.

If the mortgage holder continues to use the minimum payment option, the principal will continue to increase creating negative amortization. Generally after five years, the monthly payments are recalculated. A higher principal, as a result of negative amortization, will result in higher monthly payments when the loan is recalculated.