| Use Your Mortgage To Create Wealth And Residual Income (mortgage refinance)
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Use Your Mortgage To Create Wealth And Residual Income
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How to Get Lenders to Offer You Low Rates on Mortgage Refinance
While getting approved for a Texas mortgage refinance after bankruptcy won't prove to be much of a problem, getting lenders to offer you low rates is another matter entirely. If you want to save money on your refinance and get a low rate in the process, here are a few tips that may help:
Improve Credit Prior to Refinancing
The average credit score in Texas is 651, quite a bit lower... Read mortgage refinance article
Mortgage Secrets
Being able to buy that house you have always wanted probably means that you will need to get a mortgage. Another word for a mortgage is loan - which you usually get from a bank or other lending agency. Since most people are not able to buy their house with cash, a loan is the most common practice. Here are some things to help you understand mortgage basics.
Length Of The Mortgage
Use Your Mortgage To Create Wealth And Residual Income
Most people who buy homes get mortgages where they pay principal, interest, taxes, and insurance. They are taught that they must pay down the debt and have their equity--their investment--in the house.
Now, let's think about this for a moment. On a 30 yr mortgage with a fixed interest rate, most of your payment will go towards paying the interest with very little towards the principal. You don't start making a major dent on the principal until year 20 or so.
Second, by having the money in the home, is it working for you and making you more money? The answer is no! What happens if you need some of that equity for an emergency? You have to either get an equity line of credit, get another mortgage, or refinance to get cash. That money, your money, that you're borrowing, you will have to pay interest on it. You're already paying interest on your mortgage but now you're going to pay payment to borrow your money?
Does that sound right?
NO!
What's the solution you ask?
Here it is: You get an interest only loan and never pay it off--never pay off the principal.
You get the money out of the house. By not paying the principal, you use that principal payment--money you would have paid in a regular 30 yr mortgage--and invest it in a mutual fund that's earning you 8-10%. Your money then is working for you making you money.
Your money now becomes more liquid--you can access it easier and you don't have to pay interest on it when you want to use it, unlike a HELOC or a second mortgage. In essence, you're using the bank's money to create wealth for yourself.
You're probably wondering, how do I build equity? Do you know that the mortgage has very little bearing on whether or not your home will appreciate? Your home will appreciate regardless whether you pay down the debt or not. The thing to remember is that you'll use your mortgage to build wealth. However, the key aspect to creating wealth is to invest regularly and consistently.
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What You Must Know About Caps In Adjustable Rate Mortgages
Caps are applied in adjustable Rate Mortgages to limit the risk that a borrower may have to face in case the amount to be paid every month shoots up with time. Thus, caps are protections against any rise in interest rates prone to happen if the indices to which the rates are tied suddenly increase. The cap must be specified in the loan agreement.
Caps are applicable to three features of the ARM:
To the frequency at which the rate of interest varies
To the periodic alteration in the rate of interest
To the total change in the interest rate over the entire span of the mortgage (also called life cap)
For instance, in case of the first type of cap, it might be so agreed between the borrower and the loaner that the interest rate is allowed to change once a year only.
Or, in the case of the second type, in any year, the interest rate may be allowed to alter no further than, say, 1%. That is to say, a maximum amount is delimited over which the interest rate will not be permitted to rise in one year.
In the cases where the cap is applied to the periodic change of interest rates, one limit may be applicable to the first periodic change, and a second limit on the following ones, say, 4% on the first and 3% on the subsequent alterations. This limits the rise in the amount of payment at any point of time.
The life cap is such that a maximum value is set over which the interest rate cannot be elevated over the life of the loan.
Some ARMs use another type of cap where a limit is set on the amount payable per month. This is the Payment cap. If the index rises, the monthly due rises to this limit only, and not any further.
Cap arrangement may be designated in terms of initial adjustment cap/subsequent adjustment cap/ life cap. As for example, a 2/2/5 loan is one in which there is a 2% cap on the initial adjustment, again a 2% one on the following adjustments and a 5% cap on the overall adjustment in interest rates throughout the loan period. If the cap is written as 2/5, it means that the initial change cap and the periodic change cap are identical.
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Use Your Mortgage To Create Wealth And Residual Income
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