Mortgage Options for Retirement

Whether you’re retiring five years from now or 25 years from now, your financial situation will be one of the keys to a happy retirement. Your savings, investments and retirement income (if any) will be your main focus, but you’ll also need to look at one other important area: your mortgage.

Depending upon your financial situation and retirement goals, you’ll have a few options with your mortgage when it comes time for you to retire. Let’s take a closer look at those options: paying off your mortgage, keeping your mortgage (or getting a new one) and refinancing your mortgage.

Pay Off Your Mortgage. For many retirees or soon-to-be retirees, being debt-free during retirement is the most important goal. If you’re one of these people, then paying off your mortgage—either before you retire or within a short time after you retire—may be right for you. By eliminating your monthly mortgage payment, your cash flow will improve and you’ll have one less item of debt to worry about. Paying off your mortgage may take some long-range planning, so talk to your mortgage professional now about your current mortgage and payoff options, if applicable.

Keep Your Mortgage or Get a New Mortgage. Being debt-free may be a nice goal, but if you have to up your current monthly mortgage payment by quite a bit just to pay off your mortgage early, you may be better off keeping your mortgage and investing that “extra” money elsewhere. If you’re looking to relocate for your retirement or downsize into a smaller home, you can also “trade” one mortgage for another. Also, by keeping your mortgage or getting a new one, you’ll have the added benefit of continuing to take the yearly tax deduction on interest.

Refinance Your Mortgage. For many people, this is the best option. With today’s still-low interest rates, refinancing into a fixed-rate mortgage—either with the same term or a shorter term—will keep your payments low and give you much more flexibility in terms of your finances when you retire. If you’re relocating or downsizing for your retirement, however, refinancing may not be the best idea because you may not be able to recoup your costs. Also, if you’re considering refinancing into a short-term loan in order to pay off your mortgage sooner, keep in mind that the higher monthly payments may reduce your ability to build up a nest egg for your retirement.

To get a better understanding of your financial situation when you retire, talk to your financial planner and make sure your mortgage options are part of the conversation. ∆

 

© Left Field Media


Thinking Long-Term When Looking at Home Loans

Buying a home is still a dream for many people. For the vast majority of home buyers, they will use home loans in order to buy their home. Many people believe it is a good idea to borrow as much money as possible when taking out a home loan. However, there are many things to keep in mind when it comes to borrowing money over the long term. A mortgage is a huge commitment for anyone to make. It is vital that everyone involved understands how financially important a mortgage is.

Types of Mortgages

A home loan is simply a way to borrow money when purchasing a home. For many home buyers, getting a 30-year mortgage is the way to go. This type of mortgage spreads the monthly payments out over a longer period of time. If the home buyers can afford the higher monthly payments, getting a 15-year mortgage is a way to pay in a lower amount over the life of the mortgage. Buyers should weigh the pros and cons of each mortgage before making a final decision. If you have questions about mortgages in general, contact us today so that we can answer your questions.

How Much To Borrow

One of the best ways to examine how much you can afford to borrow for a home is by looking at the income to payment ratio. The higher your income relative to your monthly payment, the better off you will be financially. Always think long term when borrowing money to buy a home.


What is an Adjustable Rate Mortgage and What Are the Benefits?

If you’re trying to find a loan, especially to purchase real estate, you’ve probably heard of the adjustable rate mortgage. You may be wondering why it would be good for you, or maybe even what it is. Let’s answer a few of your questions here.

What is an adjustable rate mortgage?

An adjustable rate mortgage is actually almost as simple as it sounds. The bank will give you an initial interest rate for your loan, but as time goes on, this rate will probably change. Of course, it’s not just up to the banks to choose whatever mortgage rate they want. The rate will depend on one of several indexes, so the rate can go up or down. Most of these indexes are similar, so it doesn’t make much difference which one the bank chooses, but you should still find out which one your loan will follow and why the bank chose that one.

The benefits

Using an adjustable rate for your mortgage can be very helpful to you. For example, because the bank considers you to be taking the risk when you accept an adjustable rate loan, it will often give you a lower initial interest rate. An adjustable rate loan is great if you think that interest rates are likely to go down, or even stay about the same, over the course of the loan. It also might be a good choice if you don’t plan to hold onto the property for very long.

Are you considering an adjusted rate mortgage? Contact us. We’re experts and can help you with everything that you need.


The benefits of using mortgage brokers!

You may be wondering if there are any benefits that are inherent in working with mortgage brokers, and we’re here to assure you that there are, indeed, benefits of working with brokers. Here, then, is the list of benefits you will receive when you work with a mortgage broker:

  • It will save you time and effort. You don’t have the time in the day to go searching for the best deal on your mortgage — and it definitely takes a long time to find the perfect deal. But that’s all the mortgage broker does, and will ever do: find the perfect deal on your mortgage. By hiring a mortgage broker to handle this important part of the home-buying process, you will be saving time and effort.
  • Mortgage brokers already have contacts and relationships in the banking industry that put them at a distinct advantage over non-professionals. These relationships will be suited to your needs — for instance, if you have poor credit, you will need one kind of mortgage broker; if this is your first time buying a home, you will need another kind of mortgage broker.
  • Finally, your mortgage broker will be able to streamline your application materials into one package. If you were to fill out a new application for each mortgage you were looking to apply for, you would waste time and energy and money in the process.

We are a committed team, here to help you find the right mortgage rate for your needs. We understand that every borrower is different, and we offer a variety of services to meet your individual requirements. For more information about us and our services, contact us today to see what we can do for you.

What does a mortgage broker do?

What is a mortgage broker and why work with one?

The home mortgage process is a complicated one. When you purchase a home, you don’t only have to worry about finding the right home, but you must deliver the best offer and get your mortgage lined out.

Likewise, the refinancing process is also complicated. Even though you aren’t buying a new home, you still must go through much of the same process. Luckily, there are some great options out there when it comes to those who will help you out with this process.

In either situation, most people will turn first to their bank. This is the location where they have developed a relationship and are comfortable with the environment. Plus, there is likely to be at least one mortgage loan processor to work with. However, there are some other options that you should consider in addition to your own bank.

One fantastic option is a mortgage broker. What is a mortgage broker and why work with one? They basically work in the middle of the buyer and the bank. Not only do they work with you to determine the best mortgage loan, but they will work with the bank to get you qualified.

One of the main values of a mortgage broker is the additional work that they do for the homebuyer. With any bank, there is a limited number of options available when it comes to the different types of loans that are available. However, with a mortgage broker, they will take your basic information and determine which loan will work best in your favor.

This is a process that is beneficial to both those who are looking to purchase a new home or to refinance the one that they already have. For example, most people who are refinancing their homes are looking for better loan rates. In order to find the best rate, it is important to compare the different options in your area. This is an extremely time-consuming process.

To complete this process, you would find that you would have to physically travel to every bank. For those refinancing, this is something that could make the entire loan process take longer. This would mean that you would need to continue accumulating fees and making payments towards your original loan. On the flip side, when you are looking to purchase a home, this could mean that closing is delayed, which could mean that you are not able to purchase the home of your choice.

If you are interested in purchasing or refinancing a home, a mortgage broker can help to make the process easier. To learn more about the services that we offer, be sure to contact us today.


How Do I Calculate My Monthly Mortgage Payment?

Overview

Put simply, a mortgage is a loan intended to help a borrower purchase a home. The interest rate is the ROI for the lender, and is used in calculating the monthly payment made to the lender. For a lender to guarantee to make their money back they use the home and land as collateral incase there is a default.

The following formula will be used to calculate the fixed payment of your loan:

M = L [i (1+i)^n] / [(1+i)^n-1]

The equation variables are as follows:

Variable Value
M This is the monthly mortgage payment. The answer.
L The loan amount your borrowing, or the principal.
i Your monthly interest rate. The interest rate you will get from the broker is the yearly interest rate. To calculate the monthly rate you will need to divide the interest rate by 12 (months). So a 4.125% interest rate will be i = 4.125%/12 = 0.0034375.
n This is the number of monthly payments you will be making. If you take a 30-year loan then you will have 30*12 = 360 months/payments.

The main components of a loan that you should be aware of are Principal, Interest, Taxes, and Insurance. PITI are major factors when it comes to calculating the loan. Insurance on loans PMI are usually added when the down payment is less than 20%, this insurance protects the lender in case the borrower cannot pay back the loan. The insurance also allows the lender to sell the loan to investors who will be assured their debt investment will be paid back to them.

While PITI makes up a usual mortgage, some mortgage monthly payments do not include taxes and insurance, making the monthly payment lower, however, the borrower has to pay the taxes and insurance on their own.

Mortgage Payment Example

In our example we will assume we are buying a home valued at $500,000. We will be taking a 30-year-fixed rate mortgage of 4.125% interest rate with a loan amount of $375,000 making our down payment 25%. The amortization schedule will consist of 360 payments.

We will be calculating for M (Monthly mortgage payment):

Variable Value
L $375,000.00
i 4.125%/12 = 0.0034375
n 30*12 = 360

The best approach for doing this without an online calculator (since your learning the math behind your loan payment) would be to setup an EXCEL sheet. This will allow you to easily make changes to the rate, loan amount, and duration, to automatically calculate the changes for you. You can setup the numbers and calculations in different cells, depending on your level of experience working with excel.

The following walkthrough shows you a basic approach that you can quickly setup.

Excel mortgage calculator walk through

*For the less savvy excel user: B2, B3 etc. is the location of the cell with the specified data set. When you type the = sign you can simply hover over and select the cell you want with your mouse. E.g. B2 = $375,000.00

The Amortization Table

A more complex approach, which we will not be going into detail here, is calculating the amortization table. The amortization table shows the breakdown of all 360 payments, with details on how the balances between the principle and interest payments are divided. Basically, at the beginning of your payment period, a bigger percentage of your loan payment will be towards interest and less towards your principle, further down the years your monthly payment will reverse, making a bigger percentage of your monthly payment towards principle.

The following is an example of what the amortization table looks like. Showing you the first 10 years and the last 10 years of your loan payments. The numbers highlighted in red show how the monthly payment principle and interest will reverse.

Amortitization table example

*The above table is a screenshot of khanacadamys mortgage calculator that you can download from their website.

Finally, the math for some mortgages can be much more complex than this simple example. There are many free mortgage calculators you can download or use online that allow you to calculate taxes, insurance and show you the full amortization rate. However, now you know the math behind your mortgage payment.


Top 10 Questions To Ask a Mortgage Broker

Refinancing or getting a new loan plays a big role in the value of your assets. It is a good idea to learn as much as possible about your broker and understand what they require from you for the process of your loan to run as seamless as possible.

The following are 10 questions to ask your broker to help make everything clear on your options and requirements.

1. What mortgage types do you offer?

Mortgage brokers offer an array of loan types. Such loans differ in the principal value offered, interest rates, and length and payment type. The following are common mortgage types.

2. Why should I use a mortgage broker rather than going straight to the bank?

Mortgage brokers do not lend, they work with lenders (banks) and connect you to the best lender that offers the best interest rate. Working directly with lenders limits you to the rates they offer. Brokers partner up with 100s of lenders so they have access to a huge array of interest rates giving you better choices when picking the best interest rates for your needs. Once your loan application has been created brokers lock rates for you and walk you through the payment process to educate you to make better final decisions.

3. Which mortgage is the best fit for me?

Once you’ve completed an application and provided the broker with all the requirements, employment, income, assets statement, credit, debt, expenses, down payments and other finances, he/she will go over all your information and decide accordingly.

4. What are the full costs of my mortgage?

All your costs will be available to you via the Good Faith Estimate. The GFE shows you a line-by-line estimate of mortgage costs. When your loan is ready, a final document called the HUD-1 settlement statement will be sent to you.

5. What documents do I have to provide?

Proof of income and assets, ID, SS, and a credit history are the main documents. Depending on the scenario of your loan, it can be a lot of paperwork, so it is important to know where all your documents are so you can quickly provide your broker with the requirements.

6. What are the guidelines to qualify for the loan?

Lenders require the borrower to meet a set of guidelines in order for them to fund the loan. A simple example would be, VA loans are only available to veterans who have provide a Certificate of Eligibility (COE). Each mortgage type differs and comes with its own list of guidelines, however, your broker or loan officer will be able to let you know which ones you qualify for.

7. How long will it take to process my loan application?

It mainly depends on the type of loan, the complexity of the scenario of the loan, and how busy the lender might be. The process usually takes from as little as two weeks to as long as 60+ days. The broker is the point of contact between the borrower and the lender so working closely with the broker and providing all the required documents on time can make a big difference in the closing time-span.

8. When can I lock the interest rate, and what will the cost be?

Interest rates are constantly fluctuating. Between the period you apply for your mortgage and the closing you will be seeing a lot of different numbers. To avoid losing lower rates you can lock the rate for a fixed period of time (10/30/45/60/90 days), the longer the period and the lower the interest rate the higher the fees will be. You should consult with your broker about when to lock a particular rate to avoid unnecessary expenses.

9. How many points does that rate include?

A point is a fee paid to the lender for a reduced interest rate. 1 point is equivalent to 1% of your total loan amount. It is important for you to understand how many points are included in your rate and the benefits to buying lower rates. Many people settle for higher rates to avoid the extra fees that come with the lower interest rates.

10. How much money do I need to put down?

It’s usually best to put down 20% to get the best rate and terms for the loan. Lower down payments (below 20%) usually increase the chances of adding a monthly PMI (Private Mortgage Insurance). Ask your broker about the minimum down payment required for your loan, and decide what’s best for you.