Mortgage Archives - Lazy Man and Money

Don’t Get Buried in Debt: Find the Right Mortgage

July 3, 2017 by Guest Poster 7 Comments

Editor’s Note: The following is a guest post by George. He’s a Baltimore Oriole’s fan who is trying to become a better writer. (I think he’s a pretty good one already.)

I’ve been scouring the market for a property. After years of going nowhere paying rent, I decided that my money could be put to better use paying down an investment than making somebody else rich.

I’m not sure why I paid rent for so many years – perhaps it was because we never felt sure about where we wanted to lay down roots. Regardless, it’s better to own the asset and enjoy the benefits of ownership than to have nothing to show for all your hard work.

This got me thinking: How do you find the perfect mortgage for your needs?

We’re living in difficult times. The Federal Reserve Bank – the Fed – is increasing interest rates, and this means the cost of credit is going up. This has a profound effect on long-term debt, especially if you do not to lock in a low rate with your mortgage broker, bank, or financial institution.

That’s the short-term perspective, but with increasing global uncertainty it’s never a sure bet which way interest rates will go over 10, 20 or 30 years.

Consider the people who locked in their mortgages at fixed rates 10, or 15 years ago, and then the Federal Funds Rate was eroded away to historic lows since the 2008 global financial crisis.

Nonetheless, this highly charged topic requires careful thought, planning and decision-making.

What are the benefits of a variable mortgage versus a fixed mortgage?

Let’s say you are considering purchasing a property worth $300,000, and you’re looking to put down 20% ($60,000) and take out a variable mortgage. That leaves you with $240,000 to pay back over the lifetime of your loan. A variable rate mortgage, often known as a floating rate mortgage, means that the interest rate on that home loan will fluctuate according to what the federal funds rate is doing.

More specifically, it moves in tandem with the prime interest rate. This is true in all countries that offer variable mortgages and/or fixed mortgages.

What will the Central Bank Do?

If you have an inkling as to how the Fed, the Bank of England, the Bank of Canada, or the European Central Bank is going to move with respect to interest rates, you may be inclined to lock in a fixed interest rate or a variable interest rate. In the US now, the trend appears to be moving in favor of increasing interest rates, making a fixed mortgage more attractive.

However, nothing is ironclad. Floating mortgages can go in any direction. People who opt for them are hoping that the interest rate that have locked in will be better than the interest rate by the time they are finished paying their mortgage.

Truth is: nobody knows which way interest rates are going to go over the long-term.

A fixed mortgage by contrast is fixed at the current rate. If you like certainty, and you’re not interested in the current state of the economy, a fixed mortgage is something that you can bank on not to change. People in many countries around the world prefer fixed-rate mortgages, since they provide that certainty that is so absent in the broader economy.

Of course, there are alternative options available to homeowners in the form of hybrid mortgages which allow a specific portion of the mortgage to be fixed, and a specific portion to be variable. Think of it as a compromise solution which gives you the best, or the worst, of both worlds.

Understand your options with mortgages

When you’re evaluating the pros and cons of variable and fixed/closed mortgages , it’s important to understand all options available to you based on your current financial situation. A closed mortgage and a mixed mortgage are also available. These refer to your ability to repay your mortgage prior to full duration of the mortgage term.

If you have excess funds available, or you will be coming into excess funds, you may wish to repay your mortgage ahead of time, to save on interest-related payments. Be advised that if you have a closed mortgage, you will have to make payments until the final payment is due on your term. Occasionally, banks and financial institutions will permit prepayments, but this is at the discretion of your mortgage provider.

By conducting the necessary research, you can avoid a lot of headaches, and possible financial ruin. Don’t get sucked into the wrong mortgage, because you may pay dearly for it over the long-term.

Your Bedroom or Your Life

April 5, 2017 by Lazy Man Leave a Comment

A couple of weeks ago, I wrote an article Rich Chicken, Poor Chicken, which was very loosely modeled after a popular book. I’m not a fan of the author since he seems to promote pyramid schemes. (And unfortunately, Dave Ramsey seems to as well.)

I apologize for the Debbie Downer lede. I got a little off-track there. Let’s start over.

Today’s title is inspired by Your Money or Your Life. It’s a book that all my favorite and like-minded bloggers recommend as a definitive personal finance “bible.” (Disclosure: I’ve never read it. From what I’ve heard it covers the basics very, very well. After 10 years of personal finance finance blogging (and 25 years studying personal finance), I’m not sure I’d gain too much from it.)

The bedroom part needs a little explaining. Yesterday Zillow released a study that moving from a home with 2 bedrooms to 3 costs $450 more a month. That’s an average. Bozeman, Montana will differ greatly from New York City. (Zillow has a lot more information at that link.)

The key takeaway for me is that mortgages were 50% more a month for an extra bedroom. For most people, housing is the biggest expense. You can cut lattes here and there, but they are proverbial drops in the bucket. A 50% change in your biggest expense is life changing…

… life changing in either direction. If you have a 3 bedroom home that you don’t need, you could reduce it and put the savings to good use. If you were thinking of super-sizing from your 2 bedroom home, it’s worth thinking twice whether you really need that 3rd bedroom.

What would do with an extra $450? Decisions, decisions. A-ha there’s the light-bulb above my head.

It turns out that $450 a month is $5400 a year. That’s almost exactly what it takes to max out a Roth IRA. Maybe I should have titled this article your money or your retirement?

Normally, I’d walk you through the math of what $450 more a month means. Today, I’m going to live up to my moniker. Everything I’d say is here: Compound Interest is a River.

Important Steps to Home Ownership

March 23, 2015 by Guest Poster Leave a Comment

This post is written and sponsored by U.S. Bank.

So, you’re ready to make the big leap into home ownership? Good for you. Home ownership can be a great experience and holds a number of tangible and intangible benefits. But first, you need to actually buy that property, which, especially if this is your first home, can feel more than a little complicated.

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Understanding the mortgage process

Since a home is arguably the biggest purchase you’ll ever make, being prepared is key to having a successful experience. Doing some homework ahead of time – specifically on mortgage prequalification, the type of mortgage that’s best for you and determining how much home you can afford – will benefit you when it comes time to take the plunge.

U.S. Bank is a great resource to help you navigate the often complex home-buying process. And if you’re really new to this frequently perplexing world, look no further than Achieve Your Goals, a new financial resources site from U.S. Bank. It’s full of information on a wealth of topics, including a My Home section filled with great articles on everything related to mortgages, homes and the home-buying process.

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What is prequalification?

Prequalifying for a mortgage is an important step in the home-buying process. It lets everyone involved know you’re serious about buying a home, and is a great way to help keep the process running smoothly. To see how much you may be able to borrow, and under what conditions, complete a mortgage prequalification request with U.S. Bank to get the ball rolling. You may be surprised what you may possibly qualify for. To do this, know that you’ll need to be a legal U.S. resident and 18 or older. Also, you’ll need to know your pre-tax annual household income and monthly household debt.

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If you have been pre-qualified, the next step is determining what type of mortgage makes sense for your individual circumstances, as there are various types of mortgage loans. There are plenty of resources available where you can learn about the different types of mortgages that could be available to you.

How much home can you afford?

First, figure out your plans for occupancy. Are you intent on living in the house for only a few years? Or maybe for the rest of your life? Are you in the military? Or have your eye on your dream home? Your answers to these questions could determine the type of loan and home that will work best for your personal buying experience.

undefined Whatever your circumstances are, give it some thought ahead of time. To get estimates of what your mortgage payments could look like, try this U.S. Bank mortgage calculators.

Once you’ve been prequalified, determined what type of mortgage makes the most sense for you and know how much home you can afford, you’ll be ready to start looking for that dream home.

Happy house-hunting!

Refinancing Your Home Through the VA

February 10, 2015 by Megan Sullivan Leave a Comment

If you are struggling with the interest rates and payments on your current loan, are looking to refinance, and are a veteran, active service member, you might want to consider looking into the loan options available through the Veteran’s Administration (VA). If you are a spouse, or surviving spouse, of a veteran or service member, you could also qualify for a loan guaranteed by the VA.

The biggest advantages of refinancing through the VA is that you can refinance up to 100-percent of your home’s value, even if you don’t have equity, and you don’t have to pay for mortgage insurance.

There are three options available to eligible homeowners: The Interest Rate Reduction Refinance Loan (IRRL), Cash-Out Refinancing, and converting a Conventional Loan to a VA Loan.

The Interest Rate Reduction Refinance Loan (IRRL)

This option is available to borrowers who already have an existing VA home loan. The IRRRL allows you to reduce your interest rate to reduce the monthly payments on your loan. You can also use the IRRRL to shorten the term of your loan, so that you can pay it off faster.

The advantage to the IRRRL is that the VA does not require a credit check or appraisal for you to qualify for the loan. It’s also possible to get the loan without having to pay out-of-pocket for closing costs and other fees. However, the fees for the IRRL are generally lower than they would be for a conventional loan.

The disadvantage to the IRRRL is that you can’t use an IRRRL for a cash-out refinance. Also, you might end up paying more in interest if you opt to shorten the term of your loan, or avoid closing costs. You also cannot use the IRRRL to pay off a second mortgage on your home, without first getting approval from the second lender.

If you have an existing VA loan and do not need a cash-out refinance, the IRRRL could be the option for you.

Cash-Out Refinance

This option is available to borrowers who already have an existing VA home loan and want to borrow against the equity in their homes. You can use the cash-out refinancing program to get money to put back into your home, and you can also use it if you have a double mortgage to consolidate them into a single payment, and possibly at a lower interest rate.

Just like the IRRRL, you can refinance up to 100 percent of your home’s value, but you will need to pass a credit check and have an appraisal of the property. However, you won’t have to make a down payment or pay for private mortgage insurance, and there will be limits on the amount that you’ll have to pay in closing costs.

If you have an existing VA loan, a strong credit history, and need cash-back, a Cash-out Refinance could be the option for you.

Convert a non-VA loan into a VA Loan

The process of converting a non-VA loan into a VA loan is similar to a cash-out refinance. The difference is that you don’t already have a VA loan, so you also have to make sure you meet the VA’s eligibility requirements.

Once you meet the requirements, you’ll have the same advantages and disadvantages as someone doing a cash-out refinance on an existing VA Loan.

Getting a VA Loan

VA loans and IRRRL loans are both handled by private lenders like Lowvarates.com, who might also offer other refinance options the would allow you to use the equity in your home for a specific purpose, such as home improvement or debt consolidation.

If you have never applied for a VA loan before, you will also need to gather and submit the necessary documentation to get a Certificate of eligibility from the VA, which you will need to present to the lender.

Once you have proven your eligibility, the process of applying for the loan is similar to that of a conventional loan – the lender will do a credit check, appraise your home, and determine how much they can lend you. The only exception to this process in the IRRRL, for which there is no credit check or appraisal.

As you can see, there are a lot of advantages to refinancing through the VA, especially if you already have a VA loan. This is because the VA guarantees the loan, which gives both lenders and borrowers peace of mind. Because of that guarantee, you don’t need to make a down payment, you’ll have significantly lower fees and closing costs, and you can get some loans without a credit check.

If you are a veteran, active service member, or eligible spouse or widow(er), VA refinancing could be the best option for you.

Lifestyle Inflation Cure: Real Estate Investing

August 11, 2014 by Lazy Man 2 Comments

A couple of weeks ago, when I wrote about Approaching a Net Worth Milestone, I got a great comment by Big-D:

“I find that as I hit milestones, and surpassed them, they meant not as much to me as I thought they would. The issue with Net Worth is that it is kind of like looking at a toy chest. There are some toys you can play with, there are some that are your favorites, and there are some that you don’t play with because of various reasons. Net worth is like that. You have assets which are cool for net worth but you cannot play with them (liquidity).

An example of this is real estate and life insurance (which are considered assets for net worth). So let me see, yes I have a house, which I can use for home equity lines of credit, but that puts me more in the red than in the black. Life insurance is like a toy you have, but cannot do anything with until you die.

In my example, I have a $400k life insurance policy, and have $300k in equity in homes (I have rental properties, plus my own home). So at the end of the day, Yes, I am a millionaire… but [I can’t] live stupidly as much of my million dollars is “non-liquid” and not able to be turned into “cash” if needed. Granted I am not hurting, but still this makes the issue a “what does a millionaire mean now days?” conversation.”

I think this is exceptional insight and it mirrors a lot of what we are doing. We now have 3 rental properties, plus our own home. Two of them were never intended to be rental properties, the first condos my wife and I bought to live in separately. As such, they aren’t your typical investment property… and actually run at a loss. The loss is small enough, and possibly even a positive if you include the equity we are building that it is better than taking the big hit with selling.

Each month, we are forced to put our money towards these appreciating assets. The bank wants their mortgage payment. If it was a voluntary deposit into a brokerage account, we could decide to skip this month. Even with a retirement account we could probably do the same. Or worse, we could pull that money out of the brokerage and use it to buy a great McMansion. Many people do that and maybe it’s the right choice for them, but I like my financial freedom and McMansions can be a recipe for being “house rich and cash poor.”

The great thing about real estate investing is that the bank gives us no such flexibility… and I love it.

Big-D hit the nail on the head. The investment is so illiquid that it would be a bear to the get money out. (I plug my ears and close my eyes like a child whenever Mr. HELOC mentioned.)

Now you might say, “If you are mostly breaking even, you have rental income coming in and that’s covering those mortgage payments.” That’s true to some degree, but we had to put 20% down, which is a significant check to write at the beginning. If we want to buy another, we are going to save up another 20%. Plus there’s the emergency fund that has to be bigger than usual due to these obligations (what if there are tenants?) There’s money that goes into maintaining it as well.

Overall, between saving up money to buy the places, maintaining them, the emergency fund necessary for them, and still maxing out retirement accounts, we mostly steer clear of lifestyle inflation.

However, like many things in life there is a balance. It’s okay to enjoy life. You don’t want to be living like you are on your last penny because you’ve forced yourself with too many obligations.

Finally, if you are thinking about investing in real estate, here’s a little tool you can use to find the latest mortgage rates in your area: