Mortgage-related articles. Feel free to critique

[Monkeyleg]

For my new website, I've been writing articles on mortgage-related topics. If anyone would like to read and critique them, I'd be glad to hear any feedback.

The articles are:

Mortgage Shopping

Reverse Mortgages

Sub Prime Mortgages

Bridge Loans

No Doc Loans

Bi Weekly Mortgages

Mortgage Buy Down

Mortgage Assumption

Portable Mortgages

HELOC

Home Equity Conversion Mortgage

Swing Loans

Gap Loans

Stated Income Stated Asset Loans

No Income No Asset Loans

[Ex-MA Hole]

Reading material for later!

Thanks!!!

[K Frame]

You don't even mention the potential tax benefits of a home equity loan on the HELOC page.

I think that's a big omission.

[Paddy]

Tax 'benefits' notwithstanding, it's a mistake to take unsecured credit (credit card debt) or auto debt and roll in into a home mortgage.  #1, you risk losing your home should you be unable to make the payment, #2 you're taking short term debt and spreading it out over 30 years.  You'll wind up paying more, way more, in interest.  You'll be paying for that 2007 car, or that steak you ate last week, until 2037.

[Firethorn]

Tax 'benefits' notwithstanding, it's a mistake to take unsecured credit (credit card debt) or auto debt and roll in into a home mortgage.  #1, you risk losing your home should you be unable to make the payment, #2 you're taking short term debt and spreading it out over 30 years.  You'll wind up paying more, way more, in interest.  You'll be paying for that 2007 car, or that steak you ate last week, until 2037.

I can see it being smart on rare occasions.  Situations where there were unavoidable circumstances* that resulted in a large load of CC debt.  In that case, rolling the debt into a house payment can save quite a bit of money.

$10k@21%= $2.1k in interest in a single year.  $10k@8% is a mere $800, for a savings of $1.3k/year.  Put the same money down on the debt as you would under the CC and you'd have the debt paid off in less than 8 years, where with the CC payments you'd still be paying in 30 years.

Now, that said, there's a real danger to this in that most people get into credit card debt not due to bad circumstances but due to poor financial control.  In this case the problem would only be masked by rolling the payment into a home loan, as that only clears up the CC debt and allows the people to go out and spend more money using their CCs.

In the cases where poor financial management is the cause of the debt, you're better off controlling that before you even bother to start on consolidation loans and such.

*Such as job loss, large medical expenses, etc...

[K Frame]

Tax 'benefits' notwithstanding, it's a mistake to take unsecured credit (credit card debt) or auto debt and roll in into a home mortgage.  #1, you risk losing your home should you be unable to make the payment, #2 you're taking short term debt and spreading it out over 30 years.  You'll wind up paying more, way more, in interest.  You'll be paying for that 2007 car, or that steak you ate last week, until 2037.

Unless you roll that debt into a home equity loan.

HELs typically have terms that are far shorter than a typical home mortgage, and the interest you pay on the loan is normally tax deductible, so there is a definite savings over a standard auto loan.

As for risking losing your home if you're unable to make the payment...

Uh, that happens no matter what the issue is if you don't make your mortgage payments.

I bought my car with the equity in my home in 2001. It was paid off in late 2004. The tax savings I realized by being able to deduct the interest on the HEL helped the year end bottom line.

[Paddy]

Unless you roll that debt into a home equity loan.

HELs typically have terms that are far shorter than a typical home mortgage, and the interest you pay on the loan is normally tax deductible, so there is a definite savings over a standard auto loan.

  OK I understand what you're saying. HELOC's are just 2nd mortgages with shorter terms.  Most auto loans have lower interest rates, if not 0%, however.   So you're paying a higher interest rate just to get the deduction?  Doesn't make sense if that's what's happening.

[Monkeyleg]

Thanks for the replies. I fully understand if nobody wants to take the time to read all of these articles.

Actually, I asked moderators--and eventually Oleg--for permission to post these links. It has far less to do with creating a real topic, and more to do with SEO. APS has a Google PR of 2. Each individual topic probably has a PR of 0, but every link helps.

Mike, I didn't go into tax implications, because those implications can vary, depending upon the borrower's tax bracket and other circumstances.

RileyMC: "Most auto loans have lower interest rates, if not 0%, however."

If you do a 0% auto loan with a dealer, you're going to be paying just about full sticker price. There are no free lunches, and I was amazed to find out how slim the car dealers' margins really are.

Go into a car dealership with cash in hand, and you'll be able to bargain 'till the cows come home.

[K Frame]

"Most auto loans have lower interest rates, if not 0%, however."

Most?

No.

Most Americans don't qualify for the zero percent interest rate. That's normally only for the people with the best credit ratings and financial structure. Even with my credit rating (very high) there's a good chance I wouldn't qualify for a 0% loan. There can also be other, significant, hurdles that have to be overcome even if you do qualify for 0% financing. For example, the terms can be very short. Two or three year terms isn't uncommon.

Here's a pretty good overview of what someone might face if they qualify for a 0% auto loan: http://www.bankrate.com/brm/green/auto/basics5-5a.asp

While it's impossible to say that a single scenario applies to every individual, it's often more beneficial for a homeowner to take any cash back incentives offered by the dealer and roll the payment into a home equity loan.

It's also impossible to say that taking an auto loan at 7% is better than using a home equity loan at, say, 8.25% is better. That requires a look at the individual's financial picture. But, as a general rule of thumb, financing through a home equity loan is, for many homeowners, a better deal financially.


I do agree, though, that it's a very bad idea to roll credit card debt into a home equity loan. Most people who do that don't make the hard personal finance lifestyle changes that need to be made in such a case, and before long they're carrying not only the HEL but a new load of credit card debt.

[K Frame]

"Mike, I didn't go into tax implications, because those implications can vary, depending upon the borrower's tax bracket and other circumstances."

You're right, those implications can vary.

But you can also make some semi-definitive statements regarding the tax implications, such as "Interest is usually tax-deductible up to $100,000. Consult your tax advisor."

[Firethorn]

Thanks for the replies. I fully understand if nobody wants to take the time to read all of these articles.

I just read quite a few of them.  They looked informative and easy to read.  Of course, I already knew what most of them are.  Basic common sense* type stuff.

Though you need to check your link for reverse mortgages - it leads to ARMs.

*Which we know is generally neither basic nor common in the real world.

[Paddy]

If, for some reason, you can't qualify for 0%, or can't find 0% on the vehicle you want, there are other options.  For example, Ford is currently offering

1.9% APR financing for 36 months
2.9% APR financing for 48 months
3.9% APR financing for 60 months
5.9% APR financing for 72 months

Shop around.  Work the numbers.  You're better off looking for ways to save money rather than ways to deduct high interest.

[K Frame]

"Shop around.  Work the numbers."

Gee, funny, I thought that's EXACTLY what I was saying.

And, once again, you really need to look into Ford's requirements for those numbers. They don't apply to everyone, and again, they often come with some rather stringent limitations.

[Brad Johnson]

Hey ML,

Couple of points I jotted down under the Morgage Shopping section...

Might remind people not to fall into the rate-game trap, especially when those abherrationally low rates that end up being the result of a hugely expensive buydown.  Most folks only look at the stated rate and don't realize that paying points only makes sense if you intend to live in the home long enough to justify the expense.

At a point per quarter percent, the break-even on a buydown is just over 5 years.  If you have that cash available it might be a better strategy to leave the rate along and make a large lump-sum payment to principal.  At the very least your dollar paid to principal buys you a dollar's equity in your home.  A dollar paid on a buydown saves you a few cents on your payment but gets you nothing else in return.

Might also remind folks that, no matter what the advertisments say, the lender is always interested in the three basics - what do you make, what do you owe, and what is your credit score.  While there are no-documentation or no-down-payment products out there, you will pay for that privilege in some manner, usually a larger down payment and higher rates.

And finally...

Once your credit standing has been established, insist that the lender give you a Good Faith Estimate.  If they won't, find another lender.

But above all, remind the over and over again to keep their wits about them and use some sense.  If it sounds too good to be true, it is (no "probably").  You are asking a total stranger to loan you hundreds of thousands of their dollars.  Expect them to be curious, cautious, and thorough - very thorough.  Renind the borrowers that they might as well have the basics in order:  Last three months of paycheck stubs, bank statements, and savings account statements, last two years of tax returns, a picture ID, and a check for the credit report.  And that's just for starters.

That's just the stuff that popped into my head on the spur of the moment.  I'll cruise through the other articles and see if anything pops out at me.

Brad

[cfabe]

I did not read through all the articles, but in the few I did I did not see mention of mortgage preapproval and how you will be qualified for a mortgage of a certian principal.

[Monkeyleg]

Thanks for the comments, Brad. I'll work them into the buydown article.

cfabe, I still have literally hundreds more pages to write. I'll get to pre-qualification at some point.

[Brad Johnson]

Thanks for the comments, Brad. I'll work them into the buydown article.

cfabe, I still have literally hundreds more pages to write. I'll get to pre-qualification at some point.

Pre-approval, as in 100% done.  A pre-qual isn't worth the paper it's not printed on.

Brad

[Art Eatman]

CAveat for "right now" on home-buying:

From today's "Daily Pfennig", comes this little tidbit,

"Good day...The first day of what will be a very busy week saw the housing data come in as expected.  Existing home sales dropped .3% during the month of May, to 5.99M, the lowest level since Jund 2003.  Inventory of homes for sale rose 5% to 4.43M which is 8.9 months of supply - the highest level since June 1992.  More importantly, prices dropped another 2.1% year on year which doesn't bode well for homeowners who need to refinance.  The data released today will be more bad news for the housing markets.  New Home sales are expected to be down 6% after last months surprising 16.2% gain.  As Chuck pointed out in May, last month's data was just a one hit wonder and now the markets can move back into the realistic assumption that the housing slump will last into next year."

The average peak-to-bottom of a housing price slump, historically, is four years from the peak.  The last peak was mid-2005.

Art