Choosing a Mortgage

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You can free up cash for other things- this being the holiday season and all, by lowering your housing debt.

Lately I've noticed that I get more quires on mortgages than on real estate property it's self. It's not surprising, since a lot of people fell for the easy lending practices (creative loans with hooks) mortgage brokerages and direct lenders dished out. And since most homeowners cant move the house now- literally or figuratively, they can more than likely move the paper around-literally. After all, your mortgage commands attention since the average homeowner owes $115,200 , a small fortune.

There are other things that you can do besides refinancing, since most don't have that option because rates are still low or not lower enough to justify refinancing.

Here are three other options that make sense today.

Cancel PMI 

If you put down less than 20% , you're probably paying mortgage insurance, unless maybe you got a piggy back loan- two loans (20/80) to avoid PMI.

The extra cost-$16 to $50 a month for every $100,000 of debt-it may not seem like much but it adds up throughout the life of the loan. Your lender must automatically cancel your PMI if you took your mortgage out after July 1998, once you've paid off 22% of the loan. But as long as you've paid the loan in time for the last two years, you can ask that PMI be discontinued when your equity reaches 20%. You'll have to spend about $300-$400 for an appraisal to prove that your gains and principle payments add up to 20%. Just a months of PMI savings could cover the cost.

Prepay

Prepaying your mortgage (or any debt) is economically the same as earning a return equal to the interest rate on the loan. However, recent low mortgage rates- you could be paying less than 6% on a 30 year loan- don't outstrip what stocks have returned historically. For someone with poor funded retirement and a lot of home equity may be to take on more debt. If your planning on selling that 5 bedroom behemoth when you retire, you could take money out of your home with a cash-out refi and invest it. Not a bad move if you've enjoyed big gains in your home's value and can get more bang for your buck.

Refi The Expensive Heloc

About four years ago, the minimum monthly payment on a $100,000 line of credit was just $333. But now that the prime rate (which is the rate most HELOCs are pegged to) had doubled to 8%, the minimum is $666.

If you can't pay off the HELOC, you may be able to convert it to a conventional loan or refinance it and your mortgage into a single fixed- rate loan-if that is you can find a rate that beats what you are paying for both loans and saves you enough to cover refi costs.

You'll need to calculate your blended interest rate. Let's say you have a 6.5% mortgage with a $200,000 balance and a 10.5% HELOC with a $100,000 balance. You're blended rate is 7.8% - a rate you can still beat today.

 The rate you need  to beat:

To figure out whether it would pay to refinance your mortgage and HELOC with one loan, you need to calculate a blended interest rate for your total housing debt. If the result is higher than what you could get on a new fixed-rate mortgage, go for it.

                    

 (Mortgage Rate   x  Mortgage  Balance-total debt)

                                              +

    (Heloc Rate       x   Heloc  Balance-total debt)

                                    =

                      Blend Interest Rate

For professional advise on all aspects of buying or selling Real Estate, please contact me Richard Recuset at-786-287-9272 -email:   BailOutCentral@yahoo.com
The Recuset Group