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Top 4 Mortgage Mistakes To Avoid

Getting the wrong financial product can end up costing you tens of thousands of dollars over the life of the mortgage. While you don’t need to know all of the nuances of mortgage financing, it is important to avoid some of these common mistakes. Continue Reading

Too many people spend money they haven't earned, to buy things they don't want, to impress people they don't like ~ Will Smith

What is a Second Mortgage? - Should I Get One?

So, you have heard a lot of people talking about second mortgages, but are yet to get a gist of what it exactly means. Well, simply put, as the name suggests, a second mortgage is an additional loan against your home; it gives you access to the equity in your home. For example, if your home is worth $200,000, and you have paid off $100,000 (including the down payment and subsequent installments), you have $100,000 of equity in your home. A second-mortgage lender takes into account this equity and offers you a loan.

Why do Homeowners Take It?

There are a number of reasons why people take out second mortgages; some do it to pay off their other high-interest loans, such as credit cards, auto loans, while some want to use the money to fund a home renovation or say, child’s education. Whatever the reasons may be, it is important that you consider the implications of taking out a second mortgage. Like a conventional mortgage, the lender files a lien against your home, meaning that if you default on your payments, you could end up losing your home.

Types

There are two types of second mortgages – home equity loans and line of credit. The former gives you a lump sum amount (depending on the equity in your home), which you have to pay along with the interest in a stipulated time. Line of credit on the other hand works more like a credit card; you have access to a certain amount of credit limit, and you can draw on it anytime you want to, provided you do not exceed the maximum amount.

It is Another Debt

While the idea of capitalizing on your home’s equity is tempting, you need to understand that at the end of the day, you are adding one more debt for which you will need to make monthly payments. Taking a second mortgage also involves additional costs, such as the cost of appraising the property, processing fees, annual fees, etc. The important thing that you need to keep in mind is that if you are not able to repay the loan, your home will be on the line.

Average Interest Rates

For homeowners in Toronto who are looking forward to take a second mortgage, it might be worthwhile to know that the interest rates are in the range of 10% to 15%. If you have considered all your alternatives and definitely want to take it, remember to take the services of a well-known and credible lender.

Tips For First Mortgages

Assess your Financial Situation

One of the first and foremost things that you need to do is to assess your finances. You need to know how much money you can afford to pay towards your mortgage payment. As a rule, ensure that your mortgage payment is lesser than 30% of your net monthly income. For example, if your monthly income is $6000, try to keep your mortgage payment within $1800. After the sub-prime crisis of 2007-08, lenders have become wary of lending to people who have a host of liabilities such as car loan, maxed-out credit cards, student loans, etc. After doing the assessment, if you find out that a mortgage payment will be more than 30% of your net monthly income, you might be better off clearing your other debts first.

Prepare in Advance

As we mentioned before, borrowers are being put to additional scrutiny these days as the housing market is posting a recovery from the devastating crisis of 2007-08. Because of this reason, financial experts advise first-time homeowners to start the proceedings as early as six months to one year before they want to apply for a mortgage. Preparing for the mortgage involves checking your credit score to see if there are any discrepancies. Knowing how much you need for down payment and other fees can also go a long way in ensuring that your dream of owning a home does not face any last-minute hiccups. You should also get the required information about the documents needed for loan application so that you can work towards gathering them.

Benefits Of Mortgage Refinancing

Discussed below are some of the most common benefits of mortgage refinancing:

Reduced Monthly Payment

Homeowners who find it difficult to cope with huge monthly installments think on refinancing their current mortgage loan so that they can reduce the size of their monthly installments; therefore helping them in covering other expenses and debts. However, you need to make sure that you pay the new installments on time if you do not want another debt to accumulate.

Better Rate of Interest

This is one the best reasons for go for mortgage refinancing. Lowering the interest rate on your existing home loan will not only save you a lot of money on the entire life of the loan but it will also help you in building equity in your home faster. Furthermore, it also cuts down the size of your monthly payments. It is advisable to consult a good mortgage broker to know about the most affordable rate for your new home loan.

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What is Bad Credit Mortgage Refinance?

When financial troubles strike, many of us turn to our most valuable asset, our houses, to bail us out. This is where refinancing comes in; refinancing is nothing but taking a mortgage on your home so that you can pay off a previously taken mortgage, or even multiple mortgages. Besides this, it also comes in handy in many other ways like changing the duration of your loan repayment period (either by shortening or by lengthening it), giving you a fixed mortgage rate, placing some much needed cash at your disposal, etc. Another huge advantage of refinancing is that you can correct a decision that you had taken previously, where you had taken a mortgage at a high interest rate or for durations that have now proven unsuitable to your needs.

A question often asked is whether persons with bad credit can avail refinancing mortgages. The answer to that is yes, refinancing mortgages are given out by lenders to persons with bad credit as well, and are known as mortgage with bad credit refinances.

A poor credit rating is a bane in more than one way, as anyone with bad credit is well aware; the doors of many banks end up shut for us and those that aren’t end up charging a higher than normal rate of interest combined with an endless stream of paperwork and legalities. In fact, seldom do banks agree to refinance clients, an exception to this (often) unwritten rule being if the bank has funded the first mortgage on your home; even in this case, do not expect any benefits or a lowering of interest rate.

Financial institutions that give bad credit mortgages also do charge a slightly higher rate of interest, but in context this is a minor pitfall considering it gives you the opportunity to lower your overall interest rate and consequently decrease the amount of money you’ll be shelling out; besides, refinances also give you a chance to better your credit score (the last point is applicable provided your refinancing loans are repaid on schedule).

Bad credit refinances, like all bad credit mortgages, need an in-depth study of your finances, which is something that most good lending companies will help you with by giving you access to financial experts who can guide you with regard to the type of refinance most appropriate for you. There are no hard and fast rules when it comes to refinancing mortgages, and a variety of factors will be taken into consideration by a lender. It is advised that you too scout around for a plan which best suits your requirements.

Refinancing is doubly beneficial to persons with bad credit, since they allow you to consolidate the previous mortgages that were probably responsible for your poor credit rating in the first place. Persons with bad credit also often use refinancing to increase the duration of their loan repayment period, which proves a lesser strain on their finances. While the above two are the common ways in which it is used, refinancing are often flexible and can prove extremely beneficial for persons with bad credit, making them a viable option to look into.

Home Equity Line of Credit Rates in Canada

A home equity line of credit also known as HELOC, is a type of home loan that provides the borrower with equity in one’s home. This means that, the borrower can build a new line of credit using its home as the collateral. The rate of interest on this loan is comparatively lower than the other conventional loans owing to the fact the loan is backed by an asset i.e. your home.

In Canada, there is a limit on the value which you can borrow against the home. Particularly, the combination of the balance of your mortgage and the home equity line of credit cannot exceed beyond 80% of the value of your home. To put in simple words, you can access only up to 80% of the total value. To calculate the available equity, you can multiply your home’s value by 80% and then subtract the current mortgage from it. The difference will leave you with the amount you can borrow against the home. In addition to this, there is one more criterion which applies to the maximum value of HELOC available to you. As per this norm, as a borrower you need to make sure that the HELOC balance represents a value less than or equal to 65% of your home’s value.

The home equity loans in Canada are advanced through a revolving line of credit. You have the privilege to decide on the credit you want to use. Moreover, unlike the traditional loans where you have to pay interest on the complete loan plus the principle amount, HELOC offers you with an advantage of paying interest on only the amount you withdraw. However, the rate keeps on fluctuating with changes in the prime rate. This means that, when the market goes up you may have to pay more on the interest than what the rate was at the time of loan. Likewise, if the market goes down, you may enjoy the benefit of lower rate of interest. Most of the borrowers find this factor a big drawback of this type of loan, as they have to be ready for both ups and downs.

Reasons For Home Loan Refinancing

Debt consolidation

Many homeowners opt for refinancing to get out of debt. Handling multiple credits requires you to perform so many tasks that you may tend to miss out on some or the other installment. If you keep on missing on your monthly payments, it is very likely that you will have to pay more on the loan. The best way to tackle this situation is debt consolidation. Moreover, if you go for refinancing mortgages, it provides you with an opportunity to consolidate all the credits to one fixed rate loan, thus ultimately saving you hundreds and thousands of dollars for the entire life of the loan.

Changing the loan program from fixed rate to variable rate

In case of a variable rate loan, the interest rate is not fixed and is bound to the market conditions. In other words, if the housing market goes up, the interest rate will also jump higher; however if the market turns down the interest rate will also take a rain check. Since it is very difficult to predict the exact behavior of the market, variable rate loans tend to be more unstable. It is to avoid this volatility that most of the homeowners refinance their mortgage so that they can move in to a fixed interest rate and let go off the undue pressure of ups and downs in the housing sector.

Adjusting the loan repayment term

One more reason for refinancing is shortening the loan term. Locking into a long term loan, say 30 years, entitles you to pay the installments for such a big tenure. Moreover, if it is a floating rate loan, you will have to be ready for both increase and decrease. Hence, there are many homeowners who consider refinancing when the interest rates are low, as it allows them to shorten the loan repayment term while enjoying the benefits of minimal rate of interest. If the new estimated amount is feasible, it is advisable to contact a mortgage broker soon.

First Mortgage: Tips & Tricks

Assess your Financial Situation

One of the first and foremost things that you need to do is to assess your finances. You need to know how much money you can afford to pay towards your mortgage payment. As a rule, ensure that your first mortgages payment is lesser than 30% of your net monthly income. For example, if your monthly income is $6000, try to keep your mortgage payment within $1800. After the sub-prime crisis of 2007-08, lenders have become wary of lending to people who have a host of liabilities such as car loan, maxed-out credit cards, student loans, etc. After doing the assessment, if you find out that a mortgage payment will be more than 30% of your net monthly income, you might be better off clearing your other debts first.

Prepare in Advance

Compare the Deals Offered to You

Buying a home is an overwhelming process for many first-time home buyers. Because of this, sometimes, they let their emotions to get the better of them, causing many a homeowners to make impulsive decisions. Well, one important point that all those people who are taking up a mortgage for the first time need to remember is that a mortgage loan will stay with you for a period ranging between 15 to 20 years. So, if you do not make prudent decisions, you run the risk of being locked up in a bad deal for a considerable length of time. Therefore, when an agent or a broker offers you that ‘fabulous offer’ do not get swayed away and instead look at the offer in detail. Mortgage deals vary from lender to lender; therefore it is important that you get a clear understanding on the interest rate, pre-payment penalty, the option of switching between fixed and adjustable rate, etc. Comparing the deals that are offered to you will give you the power of choosing the best mortgage deal. One important point we want to add here is that some lenders might offer you a lower interest rate, but they make up for it by charging you ‘junk fees’. In mortgage parlance, a junk fee is any charge levied to the consumer that provides little or no benefit for him. An example of this is the processing fee that most lenders charge to customers. So, don’t be tempted by a lower interest rate alone; do a detailed check about all the associated fees.

Take the Help of a Mortgage Broker

Some people might disagree with us on advising first-time home buyers to hire a broker. Well, we are telling you from experience that mortgage brokers have the ability to open those doors which might not open normally for you. A reputed broker, who has a vast industry experience, will not only make the whole process of getting a mortgage loan a little less tedious, but he will also guide you in making the right decisions. He can also help you in cutting down the junk fees that is charged to gullible customers. You should ask your friends and family about some trusted names in your area. Internet is also a good platform for getting to know about the reputation of a broker.

Getting A Mortgage For People With Bad Credit

People with a bad credit history are finding it increasingly difficult to get a mortgage. The sub-prime crisis has made lenders wary of doling out loans to people with a poor credit rating. Applicants are being put to intense scrutiny, as a result of which, only a minority of people with bad credit mortgages are able to qualify for a mortgage. People who have had bankruptcies in the past are finding it next to impossible to get a mortgage and realize the dream of owning a house. Although the housing market seems gloomy for credit-challenged people, there are still some alternatives through which a mortgage can be secured. The following points will take a look at the mortgage options for people with a poor credit history.

Consult a Mortgage Broker

One of the best ways in which people with poor credit can avail a mortgage is by taking the services of a mortgage broker. These brokers have the know-how about the mortgage industry, and they can help you in setting an appointment with those lenders who are willing to take the risk of offering a mortgage to low credit score applicants. As most of the large financial institutions are shying away from lending to people with a low credit scores, an alternative lending institution can work for you.

Offer to Pay a Higher Down payment

For people with a good credit score, a down payment of 5% is good enough to qualify for a mortgage. However, as you have a bruised credit, you might need to put in a higher down payment, usually in the range of 15% to 20% of the total cost of the property. By taking a higher down payment from you, the lender tries to cash in on the high risk they have taken to offer you a mortgage.

Alternate Mortgage Solutions for People with Bad Credit

Eligibility Criteria

With a private mortgage loan, you need not have to worry about your score, since this criterion is waived off by the lenders. The decision about your entitlement to a loan is done on the basis of earnings that you make. Moreover, the amount of loan to be offered is fixed according to your source of income. In addition to these restrictions, there are some requirements which you need to satisfy for qualifying for private mortgages.

Requirements

The basic requirement is you must have a steady source of income. Whether you are a self employed individual or whether you are working for some organization, lenders ask you to furnish proofs of your employment in order to make sure that you can repay their loan.

Limitations

As the private mortgage loan provides you with finances as per your demand even if your credit score is unacceptable, there are some drawbacks as well. Unlike the other conventional loans.

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5 Tips For Refinancing A Mortgage With Bad Credit

Bad credit mortgages doesn’t happen overnight. It’s a culmination of repetitive bad actions that put a blotch on your credit standing. Of course, with a past stained credit history and a not-so-good financial report either, you may find yourself restrained and in a fix while trying to juggle speculations and get a refinancing solution that aids in crucial times.

Complex, the above statement may seem. Well that’s exactly how it is when you get caught in debt issues while being labeled for bad credit. We have tips for you that will help you refinance your mortgage woes even if you have a bad credit tag stuck with you.

Tip 1: Start by improving your credit lines. This may seem out of box, but that is what really you need to focus on - straightening out your previously bruised credit image. When looking for refinancing options understand that making amends to your current poor condition is your only big ticket to a better refinance.

Tip 2: Get a high-paying income source if possible, because that’s going to be yours ultimate life-saver. Overtime or part-time, extra income will only put you across as good risk for the lenders and help you better in achieving a refinance loan that well suits your pocket. A higher income-to-debt ratio is profitable for both - the lender and the debtor.

Tip 3: Pay off as much dues and debts you can, in order to be deemed as a good candidate by the refinance lender. This will further refurbish your previous credit image and help you sail smoothly while knocking doors in the pursuit of a mortgage with bad credit. There is really no quick-fix mantra for a bruised credit, so do prepare yourself for a relatively tougher time.

Tip 4: Home equity can be your last solace. If you own more than you need to pay off, many banks will be interested in helping you with a mortgage consolidation refinance. Different banks may different equity criteria to be fulfilled, so make sure you are well aware with the requirements that these banks may ask for.

Tip 5: Go window shopping. Not literally, but look around for the lenders with the best deals. That sounds funny, but it has its own proven benefits. Just as you may enquire and shop around for the best rates in town, do the same for the lenders who will give you the best options on bad credit mortgages as a means to refinancing.

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