Paying Off Your Mortgage Early? Watch Out for Penalties!


What is a Prepayment Penalty?





How Can Paying Off Your Mortgage Early Hurt You?



Lowering Your Prepayment Penalty





3 Quick Steps for Negotiating Mortgage Forbearance

3 Quick Steps for Negotiating Mortgage Forbearance- 150x150Money trouble can occur at any time and can make the repayment of a mortgage loan very difficult. Especially during and after an economic recession, the chances of losing your home are much greater. One way in which a borrower can save himself from losing his home is by making an agreement with his lender, in which the lender agrees to not foreclose on the borrower’s mortgage, if the borrower agrees to start making payments that will bring him up to date on his mortgage repayment.

This agreement is called mortgage forbearance and it’s designed to help borrowers who are going through tough financial times. Borrowers can stop making mortgage payments or even postpone them for a period of time, after which they can catch up and resume making regular monthly payments. Mortgage forbearance also allows the borrower to negotiate some of the default amount with their lender.

Is Mortgage Forbearance the Right Option for You?

Mortgage forbearance is a good option for those who experience temporary financial hardships, such as changes in employment, an expensive divorce, a death in the borrower’s family, having to temporarily pay two mortgages due to a job relocation, military service, or being jailed. If you consider that your financial troubles are only temporary and you will be able to recover shortly, then mortgage forbearance is worth taking into account.

If your financial hardship is of a more permanent nature, your lender may still agree to a mortgage forbearance if they consider that you have enough equity in your home and will be able to refinance with another lending institution. Either way, you will need to go through the necessary steps in order to obtain a mortgage forbearance agreement.

Obtaining Mortgage Forbearance

  1. Analyze your financial situation and call your lender. Carefully analyze not only the unexpected decrease in income or increased expenses, but also every source of monthly income and all expenses. Your lender will want to know all these aspects of your financial situation in detail, so researching them thoroughly will help you and your lender both better determine if your financial crisis is temporary or permanent, and how long will it take you to recover. Your income sources may include salaries, child support, financial aid, pension or veteran’s benefits, home rental income and others. Expenses may include loan and rental payments, food, utilities and many others. Having every source of income and expense laid out in front of you can also help you determine where improvements can be made in order to get out of this situation quicker.
  2. Write a hardship letter. After writing down all your sources of income and expenses, and determining that even after making changes, your expenses are still greater than your income, it is time to document your financial situation to your lending institution through a hardship letter. Lenders have great resources for finding out information about your income and expenses, so it’s recommended to be completely honest and provide all of the necessary information in your hardship letter.
  3. Sign the mortgage forbearance agreement. After receiving your hardship letter, if your lender approves your request for mortgage forbearance, the last step is for you to read the agreement and sign it. The lender agrees to not file for foreclosure for the duration of the agreement, and you agree to catch up on your mortgage payments. Mortgage forbearance will not waive the interest that you must pay, or the late fees.

Mortgage forbearance is a great way of getting back on track with your mortgage repayment and avoid losing your home to foreclosure. But before committing yourself to this agreement, make sure that you fully understand what it involves, and that you will be able to recover from your financial hardship in a short time. Also, make sure that the mortgage forbearance is the right choice for your financial needs and not just a tool that will help postpone the inevitable mortgage default.


How a Graduated Payment Mortgage Can Help You

How a Graduated Payment Mortgage Can Help You- 150x150One of the many loan options that home buyers have today is the graduated payment mortgage (GPM). In a graduated payment mortgage, your mortgage payments start low and increase gradually over a pre-determined period of time. This type of loan is very beneficial for people who can’t afford a large monthly mortgage payment shortly after becoming home owners, but expect to have a better financial situation and afford larger mortgage payments in the future. Most people that his type of loan is geared towards are college/university students or recent graduates who wish to become home owners, but can’t afford to make the often large payments that come with conventional mortgage loans.

How Does a Graduated Payment Mortgage Work?

Because the graduated payment mortgage is designed to help those who can’t afford to make large payments on their mortgage, the loan has an initial period when the interest rate is very low. This is followed by a period of 3 to 5 years when the interest rate increases gradually and remains fixed for the remainder of the loan. The payment increase can be from 2.5 percent to 7.5 percent in the first 5 years, or 2-3 percent over 10 years.

The graduated payment mortgage uses a negative amortization schedule, meaning that at first your monthly mortgage payments will include a smaller interest payment than the one owed on the loan, while the remaining interest will be added to the principal. This makes it easier for you to get approved for this type of mortgage loan, but the downside is that the overall cost of the mortgage loan will be higher.

Graduated payment mortgages are not a favorite type of loan for most lenders as it is considered to have a higher degree of risk, so it is most likely that you will receive a higher interest rate than on a regular fixed -rate mortgage loan.

Benefits of a Graduated Payment Mortgage

Graduated payment mortgages can be very beneficial, depending on your situation and the plans that you have for your future. Here are the advantages that a graduated payment mortgage comes with:

  • The largest benefit that a graduated payment mortgage has is that it allows someone with a lower income to become a home owner. People who expect to see an increase in their income in the next few years after taking on a mortgage shouldn’t have a problem acquiring a GPM. Because of the low initial mortgage payments, you will be able to make monthly payments on your mortgage loan while increasing your income.
  • You have a greater flexibility in choosing the type of home that you purchase. This is also an effect of the low initial payments. By paying less for the first few years, you gain more buying power, allowing you more flexibility on the price.
  • People with lower credit scores and not so perfect credit histories can qualify for this type of loan and become home owners much easier than they would for a regular mortgage loan.

Risks of a Graduated Payment Mortgage

The greatest risk that comes with a graduated payment mortgage is that the borrower doesn’t fully understand how much his or her mortgage payments will increase after the initial period, leading to financial troubles or even losing their home. This can happen due to poor budgeting or unrealistic income growth expectations. The initial payments may seem very attractive, but before you know it, a few years go by and you are required to make much higher payments that may be more difficult for you to budget for.

Graduated payment mortgages can be very advantageous for someone who has properly researched what this type of loan offers. But, as with any loan designed to help the home buyer qualify much easier, you will find that the graduated payment mortgage will end up costing you more than a regular fixed-rate loan. This tradeoff is not necessarily that bad for people who expect an income growth but want to become home owners before this happens.


How to Calculate Mortgage Payments


How to Calculate Mortgage Payments:





For Example:

Loan amount: $150,000
Loan Term: 30 years
Interest Rate: 4.75%

Monthly Mortgage Payment: $782.47
