Home mortgages have been found to the best and easiest way of acquiring a home. Lenders and people wishing to own homes have benefited by the mortgage scheme. The scheme operates in a simple manner. The homeowner borrows money to pay for the home by mortgaging it. The loan amount has to be returned with interest as monthly payments, over a mutually agreed period. In the US, this period is usually 30 years. Thousands of people have benefited by this arrangement of being able to own homes, when they did not have the capital to buy them outright.
How It Works?
As people are eager to own homes, and are looking for people who can help with capital, there are also lenders looking for borrowers, who are reliable in the matter of maintaining the repayment schedule. The borrower takes the required capital from the lender and proceeds to buy the home. In turn, the home is mortgaged to the lender, and the terms and condition are as per the standards set by the lender. In certain cases, the terms may be negotiated. It depends on the bargaining skill of the borrower.
Repayment of the loan, with interest, every month, is the major condition of a mortgage home loan. Lenders are careful about giving loans. They lend money only after checking the credit rating and financial status of the person seeking the loan. Lenders may be taking money from banks for financing, and therefore, they are extremely careful and choosy about the persons to whom they lend the money. They wish to avoid any hassles if any of the borrowers default in paying the installments.
Likewise, a person trying to get a mortgage loan has to be very careful in choosing a lender. With so many lenders in the field, the terms and conditions are different from one to the other. The best option for any borrower is to be patient and do some homework about various lenders. This is worthwhile, because there will be considerable saving in repayments. Competition among lenders being high, doing some research, both by way of visiting their offices, and on the internet, will be beneficial.
While thinking about the options, the basic fact, to be kept in focus, is the repaying capacity of the borrower and the negotiating skill. After finding out the best terms on paper, it is time to negotiate. There are brokers, who are skilled in this business, and engaging them in return for a little commission, will be worthwhile. Internet browsing of websites gives comparisons of terms of various lenders.
How to Utilize the Home Equity Loans
In home equity loans, the borrower uses the equity in property as collateral. These types of loans are mostly used in financing major expenses like medical bills, higher education and home repairs. It claims against the borrower’s property or creates a lien and reduces the real home equity. A majority of the loans require proper credit history, a good loan to value and joint ratio of loan to value.
Types of Home Equity Mortgages
There are two types of home equity loans: closed endHET that is home equity term and open endHELOC or home equity line of credit. They are termed as second loans as they are extended against the home value like any conventional loan. These loans have a shorter duration, and the lines of credit of home equity loans are also of shorter duration than the initial loan. The home equity loan can be considered as the main loan in the place of a traditional loan, but they cannot be used to buy a home and can only be used to refinance the property. In America, one can subtract home equity loan interest on your personal income taxes.
The closed endHET is a one-time loan, which has a fixed rate of interest and the HELOC is a revolving type of credit loan, where interest rates are adjustable. In this loan, the borrower has an option to select the time as well as frequency of when he wants to borrow the equity in property. The investor would fix an initial sum to the credit line, and the criteria are same as the closed-end loans.
One can borrow the money equivalent to the value of the house excluding the liens. The HELOC or the lines of credit are only available until 30 years, and the rate of interest is variable. The minimum monthly payment of the loan however, cannot be lowered below the unpaid interest.
The home equity loan charges include the appraisal changes, title charges, stamp duties, arrangement charges, originator charges, early pay off fees and closing fees. The fees for the valuation and the surveyor are also applied to the mortgages and some part of it could also be ignored. In case the borrower makes arrangements for his own licensed surveyor to inspect the house that has to be bought, the valuation fees are cancelled. Almost all the loans have some kind of charges, therefore; it is advisable to know about the fees before applying.
How to Keep the Loan Manageable
The serious economic situation in the country resulted in unemployment and people losing their jobs. The consequence was felt very severely by homeowners who had taken loans based on mortgages. Unable to keep up the monthly installments, these people were on the verge of losing their homes. Mortgage modification was one of the methods devised to help out such people retain their homes and continue with the loan arrangement. This option is generally only for people who are having serious financial problems.
How it works?
It is a simple process; the borrower approaches the lender seeking new terms, which he will be able to meet, without default. The terms have to be satisfying to both parties. The borrower is usually a nonprofessional without adequate knowledge about the legal processes involved in mortgages. It is therefore, usual to get the advice of a lawyer. There are also brokers engaged in this work, who will be able to help.
What is important is by engaging an attorney or a broker the borrower can get terms, which he will be able to meet and are favorable to the lender as well. There may be cases where the outstanding loan amount may be greater than the worth of the property. In such cases, the bank may agree to reduce the principal amount. The renegotiated agreement on this basis will have to be honored by the borrower. He may benefit substantially by it. The modification may also help in the interest rate being reduced to make the installments practical and manageable.
No more Defaults
Once the modification has been agreed upon, the borrower has to keep up the repayments, on schedule. No default will be allowed or excused. However, as per the new terms, the lender may be good enough to suspend repayments for a short period. This is purely a temporary phase for a fixed period, and cannot be taken advantage of, by the borrower, to default again. It is important that the modification be sought soon after the borrower realizes he would not be able to maintain the loan repayment schedule.
Dithering and continuous default may not help in the negotiations of the modification program. In the modification, a fixed interest rate is preferable to one that is variable. The point of the modification agreement is that the borrower can repay the loan without default, and the lender or the bank avoids the hassle of taking legal action. Usually lenders do not negotiate with borrowers, who have missed paying a number of installments.