One of the most intimidating aspects of getting a loan is trying to sift between jargon and fact. For something as important as a mortgage there is plenty of misinformation out there. If you talk to five different people you may get five different opinions and observations about their mortgage. One person will tell you how you should take advantage of the reduced interest rates that an adjustable rate mortgage (ARM) offers. Someone else will say that you should stay far away from ARMs regardless of the situation. Whether you are talking about a mortgage for an investment property or a primary residence you need to know as much as you can about what you are getting into. Some information about your mortgage is pretty cut and dry but some may surprise you. Here are five random mortgage items you may not know.
- There Are No True First Time Homebuyer Programs. One of the biggest myths in the home buying community is that there are discounts for first time homebuyers. There are cleverly worded programs for new homebuyers but there is no rate discount or down payment reduction solely for first time buyers. Where buyers may be confused is with FHA or other minimal down payment programs. Since these programs are only offered to buyers without any other mortgages they appear to be for first time buyers only. The reality is that if you have bought & sold a property and are currently renting you have access to the same programs that a brand-new buyer has. If you are working with a lender or mortgage broker who claims to have an exclusive first time homebuyer program you may want to ask exactly what it entails.
- You Have A 30-Day Payment Window. Most people know how important it is to pay their bills, particularly their mortgage, on time. What not everyone knows is exactly when they are required pay it by. Lenders give their borrowers until the 15th of every month before they impose a late fee. Depending on the specific lender this can be as much as $100, in most cases around the $50 mark. While you should always strive to avoid unnecessary fees whenever possible you are not technically late if you miss the 15th. Paying on the 20th of the month may still leave you with a late fee from your lender but not a mortgage late on your credit report. You are not late in the eyes of a creditor until you are thirty days late. This doesn’t mean you should get in the habit of paying on the last day of the month but there are times when things happen out of your control. Don’t take out a high interest rate short term loan because you think you must pay by the 15th. You are not technically late until the 30-day mark.
- 4 Months To Foreclosure. You don’t have to be a real estate investor to be familiar with a foreclosure. As much as you may have heard about, or even invested in, a foreclosure you may not know what it takes to get to that point. A foreclosure starts after a homeowner misses four consecutive mortgage payments. At that point, they receive notice from their lender that they are moving to foreclose the property. This shouldn’t exactly come as a surprise. Starting from the first month they are late they receive notice from their lender every few weeks with attempts to modify or restructure the loan. Depending on the specific lender once you hit the 90-day late mark they may only accept the total amount owed. If your plan was to pay one month just to catch up you may be in for a surprise. Foreclosure laws vary based on the state and the lender but everything starts at the 120-day late mark.
- Extra Principal Payments Really Do Work. One of the myths regarding principal reduction is actually based in fact. If you are looking to pay off your mortgage as quickly as possible extra payments towards principal will accelerate the payoff. On a thirty-year mortgage one extra mortgage payment towards the principal every year will knock roughly seven years off the mortgage. On a fifteen-year term one payment can chop off four years. Even if you don’t make a full monthly payment paying something extra towards the principal has an impact. Even you if never pay your mortgage off entirely additional principal payments will increase your equity which will give you home equity or refinancing options.
- Interest Rates Matter….But Only On Larger Loans. Most mortgage shoppers are hung up on getting the lowest possible interest rate. While everyone is entitled to the best possible deal the reality is that a reduced interest rate may not make as big a difference as you think. The smaller the size of your loan the lower the impact is on your payment. For example, on $100,000 loan amount the difference between a rate of 4.5% and 3.5% is only $57 a month. Conversely, on a $300,000 with the same rates you are looking at a $173 difference every month. The higher your loan amount the more impactful every eighth of a point is to the interest rate.
Currently, all mortgage brokers must be licensed. If you have a general mortgage question they should be able to answer it or find the answer within 24 hours.