Planning Your Mortgage Strategy

Whether you are buying for the first time or the third, getting financing can be a stressful task. While most are happy to take practically any deal, you need to do some planning to avoid problems later on.

Getting financing can be stressful because doing so tends to play on our insecurities. At its core, you are asking someone to look at your financial life and pass judgment. On the positive side, you have held down a job for a number of years. On the negative side, you may not make as much as you would like. You also may have some credit problems such as missed payments that are very embarrassing. All of this can lead to a situation where you apply for and accept a mortgage that really is not in your best interest.

You hear it over and over. You are crazy if you do not buy a home. Real estate is the pillar of the great American Dream. If you own it, you will be building a nest egg of wealth as your equity grows through appreciation while at the same time you pay off the debt. Oh, and you get to deduct the interest you pay on that mortgage. It all sounds so great and it is so long as you don’t get in over your head.

When applying for a mortgage, you need to have a firm grasp on your financial situation. You need to analyze it in this moment in time, but also need to focus on the future. As we are seeing now, a lot of people did not do this the past five years. They are now in trouble because they went with a mortgage that had a time bomb written into it. The bomb is now ticking down and a lot of people are in trouble.

So, what is the mistake people make with mortgage loans? They bet on a rosy future based on nothing other than a dream. The number one area this occurs with is the infamous balloon mortgage. A balloon mortgage works by giving you relatively low payments for a set period, such as five years. This lets you get into a home that you really can’t afford with a normal loan. The time bomb with such a loan is that the entire amount comes due after the initial low payment period. Assume you take a balloon loan for $500,000 and make payments of $1,500 for the first five years. In year five, you suddenly are required to pay back the remaining balance, say $490,000. All of it. Immediately!

So, why would someone do this? Well, they have a rosy view of the future. They think the home will appreciate dramatically and they can sell it. Alternatively, they will refinance the loan to get around the problem. All of this assumes the market will not have a down period. If it does, such as now, they are deep trouble. They can’t sell the home because the market is slow and they can’t refinance because rates have risen and they can’t qualify for a new loan given their finances. In such a situation, the only answers are to give the home back to the lender or face foreclosure. Neither is a good choice.

This scenario plays out over and over with a variety of loans. From interest only to hybrid loans, you must know what you are getting into and have an objective solution for how you will get out of them. As suggested by this article, this requires that you objectively plan for your mortgage needs now and in the future.

Why Should I Remortgage?

If your debts are pretty substantial but you”ve got a decent amount of equity in your property, then you may want to consider using some of it to pay off the worst debts. Remortgaging to release some of the equity will almost certainly result in a cheaper rate of interest than many other forms of borrowing.

You might want to remortgage for another reason, though, even if you don”t want to release any equity. Regardless of whether you are in debt or not, it makes sense to try and free up any money that is being spent unnecessarily. A mortgage is certainly not an unnecessary expense but more and more people are suddenly realising that they”re paying over the odds and are remortgaging to get a better deal. It doesn”t have to be hassle when you switch lenders, so a lot of people are obviously finding it”s worth the effort because of the savings they”ll make.

Remortgaging is really only feasible if you”ve had your mortgage for a few years. Think about the deal you got when you first took it on. Is it past its sell-by date? Do your circumstances now mean you could really do with reducing your monthly outgoings? Do you think you are paying over the odds with your existing mortgage?

If you”re rolling up your debts into your mortgage, there two things you need to be aware of. Firstly, because mortgages usually last longer than other loans, although the initial annual interest charge may be lower, it could end up costing you more in total interest charges. To get round this problem, look for a mortgage that allows you to make overpayments. This way you can pay down your debt quickly while still benefiting from the low rates that mortgages offer.However, if your credit profile dictates a mortgage that wont allow overpayments all is not lost speak to our advisors about our credit repair program. Secondly, because your mortgage is secured on your home, make sure you”re comfortable with any additional monthly repayments you need to make. As the adverts say, your home is at risk.