Tag: mortgages

How to Consolidate Credit Card Debt

Credit card debt is on the rise. Millions of Americans are in over their heads. They’re losing sleep, losing control, and worried about what the future will hold. But there are solutions, and consolidation is one of the best.

Consolidation works by “consolidating” multiple debts into one. It’s the perfect solution for mounting debt, one that doesn’t destroy your credit score, liquidate your assets, or make it difficult to acquire mortgages and personal loans in the future.

With that said, let’s look at some of the best ways to consolidate credit card debt.

Option 1: Do It Yourself

The idea of debt consolidation essentially boils down to acquiring a large, low-interest loan and using that to repay multiple high-interest debts. If your credit score is high enough, you can get that loan yourself, clear your credit card debts, and then focus on repaying the loan.

Do It Yourself Consolidation Explained

The average credit card APR is close to 20%. If you have a balance of $10,000 and a monthly payment of $300, this APR will cost you over $4,700 in total interest and your debt will be repaid in just over 4 years. If you were to acquire a $10,000 personal loan at a respectable rate of 8% over the same 4 years, you’ll pay just under $1,800 in interest.

That’s a saving of nearly $3,000 over 4 years, and it’s based on an 8% rate (lower rates are available) and on the assumption that you don’t accumulate any credit card penalty fees or penalty APRs, which are very common on rolling balances.

Pros

  • You Will Save Money: As noted above, this process could save you a lot of money over the long-term and will also free up some additional cash in the short-term.
  • Complete Control: You don’t have to worry about company fees and service charges; you don’t need to concern yourself with hidden terms. With this credit card consolidation option, you are in complete control.
  • Easy on Your Credit Score: While your credit score will take an initial hit because of the loan inquiry and the new account, as soon as you use that loan to clear your credit card debts you should see an improvement. Just remember to keep those cleared cards active, otherwise, your credit utilization ratio will drop.

Cons

  • Good Credit Needed: For this option to be viable, you will need an excellent score. Anything less and you may struggle to be accepted for a low-interest loan. Let’s be honest, if you’re struggling with growing credit card debt, the odds of you having a flawless credit score are pretty slim.
  • On Your Own: While there are benefits to doing everything by yourself, it can also be a little time consuming, and if you don’t know what you’re doing, it can be intimidating.

Option 2: Work with a Debt Management Company

Credit counseling agencies can help you manage your debt by working with your creditors. A new payment structure will be created, and your money will go straight to the agency, after which it will be released to your creditors.

Debt Management Consolidation Explained

To begin the process, search for reputable debt management services in your area. They will assess your situation and determine if you are a good fit for the program. Some charge fees, some don’t, but all will serve as an intermediary between you and your creditors.

Every month you will make a single payment and the money will then go to your creditors. The agency will negotiate reduced payments by bringing the interest rates down and removing fees, therefore making these debts cheaper and more manageable.

Pros 

  • Professional Help: Get quality support from an experienced debt management company, one that will assume control and take the stress away.
  • Cheap: This is one of the cheapest and most cost-effective ways to clear your credit card debt, greatly reducing your total interest repayments.

Cons

  • Fees: Some debt management companies charge fees for their services, although these tend to be nominal and you’ll still save more money in the long-term.
  • Canceled Contract: If you fail to make one of the agreed-upon repayments, your creditors may cancel the improved contract and revert back to the previous terms, erasing all the agency’s hard work.

Option 3: Balance Transfer

A balance transfer is a promotion offered on new credit cards. It invites you to move your balance from your current card to a new one, and in exchange, it offers a period of 0% interest. 

You will need to pay a balance transfer fee, and this is typically charged at between 3 and 5% of the total transfer amount, but it’s often one of the cheapest and easiest ways to consolidate credit card debt.

Balance Transfer Consolidation Explained

As an example of how balance transfers work, let’s imagine that you have three credit cards, each with a maxed-out balance of $10,000 and an APR of 20%. If you’re repaying $300 a month, that’s $900 a month and in 4 years and 2 months, you’ll pay around $14,000 in interest to clear the full $30,000.

Alternatively, you can move all three balances onto a single balance transfer card with a $30,000 limit. Immediately, that balance could grow to $31,500. If you continue paying $900 a month and the balance transfer period lasts for 18 months, the balance will be just $15,300 when interest begins to accrue again. And if you use that 18-month period to initiate a debt repayment strategy, you could clear it in full and avoid paying any interest.

Pros 

  • Multiple Balances Can be Consolidated: You can consolidate multiple credit card balances, providing you’re not moving them to the same creditor.
  • No Interest Repayment: If you plan it properly, you can repay your balance in full before accruing any interest.
  • Available to Everyone: Credit cards are generally easier to acquire than low-interest personal loans and you won’t need an excellent credit score to get a good one.

Cons  

  • Higher Interest: The interest rate and fees may be higher once the 0% balance transfer period ends. If you use the intro period to avoid repayments and not to clear your debt, you could find yourself in serious trouble when interest begins to accumulate again.
  • Large Limits May be Difficult: The bigger your current credit card balances are, the harder it will be to get a balance transfer card with a large enough limit.
  • Fees: Although it’s a great option for consolidating credit card debt, it’s not completely free, as you’ll pay an initial balance transfer fee.

Option 4: Debt Consolidation Loans

Some companies offer specific loans tailored toward debt consolidation. These options work a lot like personal loans, as they are large loans designed with consolidation in mind. However, there are a few key differences, including the fact you don’t need an excellent credit score.

Debt Consolidation Loans Explained

The ultimate goal of debt consolidation loans is not to save you money in the long-term or to reduce the debt period. In fact, it does the opposite. The goal is to reduce your monthly payment and give you a smaller rate of interest, but it does this while increasing the loan period, which means you ultimately pay more money over the term.

Pros

 

  • More Money Every Month: Your monthly payments will be reduced, freeing up some extra cash to use every month.
  • Cleared Debts: Your credit card debts will be cleared in one fell swoop, potentially giving you some financial breathing space.

 

Cons

  • Longer Period: The total length of your debt will be extended, which means you’ll be stuck with the debt for a prolonged period.
  • Cost: While you’ll save some money every month, you’ll do so at the cost of an increased overall balance. Depending on your credit score, you could find yourself paying thousands more in total repayments.

Other Credit Card Debt Consolidation Solutions

If you have a supportive and financially-free family, you can ask them for the money to clear your debts and then promise to repay them in time. 

Of course, this option isn’t without its problems. Firstly, there’s the old adage that you should never lend money to friends or family. It may seem pretty heartless, but it’s a saying steeped in experience. It causes problems, as that debt is right at the bottom of the borrower’s list of priorities and if they’re skipping payments and begging for relief, while at the same time buying new clothes and going out every night, it can anger the borrower.

To avoid these issues, agree to pay them in monthly installments, offer a little interest, and get everything in writing. Make that debt your priority, because by skipping your payments you’ll be hurting your finances and your relationships.

Don’t guilt-trip a friend or family member into lending you money. Don’t ask them unless you have a very close relationship with them, have known them a long time, and know they can easily afford to lend you money. The last thing you want is for them to leave themselves short or to acquire debt just to help you out.

Alternatively, if you own a significant amount of home equity, you can opt for a home equity loan. This will give you a sizeable loan charged at a small rate of interest. It will take longer to repay your mortgage, but by reducing your debt demands you’ll save more money in the long-term.

How to Consolidate Credit Card Debt is a post from Pocket Your Dollars.

Source: pocketyourdollars.com

Is Your Mortgage Forbearance Ending Soon? What To Do Next

mortgage forbearanceSEAN GLADWELL / Getty Images

Millions of Americans struggling to make their monthly mortgage payments because of COVID-19 have received relief through the Coronavirus Aid, Relief, and Economic Security Act.

But mortgage forbearance is only temporary, and set to expire soon, leaving many homeowners who are still struggling perplexed on what to do next.

Enacted in March, the CARES Act initially granted a 180-day forbearance, or pause in payments, to homeowners with mortgages backed by the federal government or a government-sponsored enterprise such as Fannie Mae or Freddie Mac. Furthermore, some private lenders also granted mortgage forbearance of 90 days or more to financially distressed homeowners.

According to the Mortgage Bankers Association, 8.39% of loans were in forbearance as of June 28, representing an estimated 4.2 million homeowners nationwide.

So what are affected homeowners to do when the forbearance goes away? You have options, so it’s well worth contacting your lender to explore what’s best for you.

“If you know you’re going to be unable to meet the terms of your forbearance agreement at its maturity, you should call your loan servicer immediately and see what options they may be able to offer to you,” says Abel Carrasco, mortgage loan originator at Motto Mortgage Advisors in St. Petersburg, FL.

Exactly what’s available depends on the fine print in the terms of your mortgage forbearance agreement. Here’s an overview of some possible avenues to explore if you still can’t pay your mortgage after the forbearance period ends.

Extend your mortgage forbearance

One simple option is to contact your lender to request an extension.

Homeowners granted forbearance under the CARES Act can request a 180-day extension, giving them a total of 360 days of forbearance, according to the Consumer Financial Protection Bureau.

The key is to contact your lender well before your forbearance expires. If you let it expire without an extension, your lender could impose penalties.

“If you just stop making regular, scheduled payments, you could have a late mortgage payment on your credit,” warns Carrasco. “That could severely impact refinancing or purchasing another property in the immediate future and potentially subject you to foreclosure.”

Keep in mind, though, a forbearance simply delays payments, meaning they’ll still need to be made in the future. It doesn’t mean payments are forgiven.

Refinance to lower your mortgage payment

Mortgage interest rates are at all-time lows, hovering around 3%. So if you can swing it, this may be a great time to refinance your home, says Tendayi Kapfidze, chief economist at LendingTree.

Refinancing could come with some hefty fees, however, ranging from 2% to 6% of your loan amount. But it could be worth it.

A lower interest rate will likely lower your monthly payment and save you thousands over the life of your mortgage. Dropping your interest rate from 4.125% to 3% could save more than $40,000 over 30 years, for example, according to the Consumer Financial Protection Bureau.

“Lenders have tightened standards, though, so you will need to show that you are a good candidate for refinancing,” Kapfidze says. You’ll need a good credit score of 620 or higher.

As long as you’ve kept up your end of the forbearance terms, having a mortgage forbearance shouldn’t affect your credit score, or your ability to refinance or qualify for another mortgage.

Ask for a loan modification

Many lenders are offering an assortment of programs to help homeowners under hardship because of the pandemic, says Christopher Sailus, vice president and mortgage product manager at WaFd Bank.

“Lenders quickly recognized the severity of the economic situation due to the pandemic, and put programs into place to defer payments or help reduce them,” he says.

A loan modification is one such option. This enables homeowners at risk of default to change the terms of their original mortgage—such as payment amount, interest rate, or length of the loan—to reduce monthly payments and clear up any delinquencies.

Loan modifications may affect your credit score, but not as much as a foreclosure. Some lenders charge fees for loan modifications, but others, like WaFd, provide them at no cost.

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Watch: 5 Things to Know About Selling a Home Amid the Pandemic

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Put your home on the market

It may seem like a strange time to sell your home, with COVID-19 cases growing, unemployment rising, and the economy on shaky ground. But, it’s actually a great time to sell a house.

Pending home sales jumped 44.3% in May, according to the National Association of Realtors®’ Pending Home Sales Index, the largest month-over-month growth since the index began in 2001.

Home inventory remains low, and buyer demand is up with many hoping to jump on the low interest rates. Prices are up, too. The national median home price increased 7.7% in the first quarter of 2020, to $274,600, according to NAR.

So if you can no longer afford your home and have plenty of equity built up, listing your home may be a smart move. (Home equity is the market value of your home minus how much you still owe on your mortgage.)

Consider foreclosure as a last resort

Foreclosure may be the only option for many homeowners, especially if you fall too behind on your mortgage payments and can’t afford to sell or refinance. In May, more than 7% of mortgages were delinquent, a 20% increase from April, according to mortgage data and analytics firm Black Knight.

“When to begin a foreclosure process will vary from lender to lender and client to client,” Sailus says. “Current and future state and federal legislation, statutes, or regulations will impact the process, as will the individual homeowner’s situation and their ability to repay.”

Foreclosures won’t begin until after a forbearance period ends, he adds.

The CARES Act prohibited lenders from foreclosing on mortgages backed by the government or government-sponsored enterprise until at least Aug. 31. Several states, including California and Connecticut, also issued temporary foreclosure moratoriums and stays.

Once these grace periods (and forbearance timelines) end, and homeowners miss payments, they could face foreclosure, Carrasco says. When a loan is flagged as being in foreclosure, the balance is due and legal fees accumulate, requiring homeowners to pay off the loan (usually by selling) and vacating the property.

“Absent participation in an agreed-upon forbearance, deferment, repayment plan, or loan modification, loan servicers historically may begin the foreclosure process after as few as three months of missed mortgage payments,” he explains. “This is unfortunately often the point of no return.”

The post Is Your Mortgage Forbearance Ending Soon? What To Do Next appeared first on Real Estate News & Insights | realtor.com®.

Source: realtor.com

15-Year vs. 30-Year Mortgages: Which is Better?

Once you decide to become a homeowner, it’s likely that you will need to take out a mortgage to purchase your new home. While the conclusion that you need a mortgage to finance your home is usually easy to arrive at, deciding which one is right for you can be overwhelming. One of the many decisions a prospective homebuyer must make is choosing between a 15-year versus 30-year mortgage.

From the names alone, it’s hard to tell which one is the better option. Under ideal circumstances, a 15-year mortgage mathematically makes sense as the better option. However, the path to homeownership is often far from ideal (and who are we kidding, under ideal circumstances we’d all have large sums of money to purchase a house in cash). So the better question for homebuyers to ask is which one is best for you?

To help you make the most informed financial decisions, we detail the differences between the 15-year and 30-year mortgage, the pros and cons of each, and options for which one is better based on your financial priorities.

The Difference Between 15-Year Vs. 30-Year Mortgages

The main difference between a 15-year and 30-year mortgage is the amount of time in which you promise to repay your loan, also known as the loan term.

The loan term of a mortgage has the ability to affect other aspects of your mortgage like interest rates and monthly payments. Loan terms come in a variety of lengths such as 10, 15, 20, and 30 years, but we’re discussing the two most common options here.

The Difference Between 15-Year Vs. 30-Year Mortgages

What Is a 15-Year Mortgage?

A 15-year mortgage is a mortgage that’s meant to be paid in 15 years. This shorter loan term means that amortization, otherwise known as the gradual repayment of your loan, happens more quickly than other loan terms.

What Is a 30-Year Mortgage?

On the other hand, a 30-year mortgage is repaid in 30 years. This longer loan term means that amortization happens more slowly.

Pros and Cons of a 15-Year Mortgage

The shorter loan term of a 15-year mortgage means more money saved over time, but sacrifices affordability with higher monthly payments.

Pros

  • Lower interest rates (often by a full percentage point!)
  • Less money paid in interest over time

Cons

  • Higher monthly payments
  • Less affordability and flexibility

Pros and Cons of a 30-Year Mortgage

As the mortgage term chosen by the majority of American homebuyers, the longer 30-year loan term has the advantage of affordable monthly payments, but comes at the cost of more money paid over time in interest.

Pros

  • Lower monthly payments
  • More affordable and flexible

Cons

  • Higher interest rates
  • More money paid in interest over time

15-Year Mortgage

30-Year Mortgage

Pros

• Lower interest rates
• Less money paid in interest over time
• Lower monthly payments
• More affordable and flexible

Cons

• Higher monthly payments
• Less affordability and flexibility
• Higher interest rates
• More money paid in interest over time

Which Is Better For You?

Now with what you know about the pros and cons of each loan term, use that knowledge to match your financial priorities with the mortgage that is best for you.

Best to Save Money Over Time: 15-Year Mortgage

The 15-year mortgage may be best for those who wish to spend less on interest, have a generous income, and also have a reliable amount in savings. With a 15-year mortgage, your income would need to be enough to cover higher monthly mortgage payments among other living expenses, and ample savings are important to serve as a buffer in case of emergency.

Best for Monthly Affordability: 30-Year Mortgage

A 30-year mortgage may be best if you’re seeking stable and affordable monthly payments or wish for more flexibility in saving and spending your money over time. The longer loan term may also be the better option if you plan on purchasing property you couldn’t normally afford to repay in just 15 years.

Best of Both: 30-Year Mortgage with Extra Payments

Want the best of both worlds? A good option to save on interest and have affordable monthly payments is to opt for a 30-year mortgage but make extra payments. You can still have the goal of paying off your mortgage in 15 or 20 years time on a 30-year mortgage, but this option can be more forgiving if life happens and you don’t meet that goal. Before going this route, make sure to ask your lender about any prepayment penalties that may make interest savings from early payments obsolete.

Best of Both- 30-Year Mortgage with Extra Payments

As a prospective homebuyer, it’s important that you set yourself up for financial success. Fine-tuning your personal budget and diligently saving and paying off debt help prepare you to take the next steps toward buying a new home. Doing your research and learning about mortgages also helps you make decisions in your best interest.

When picking a mortgage, always keep in mind what is financially realistic for you. If that means forgoing better savings on interest in the name of affordability, then remember that path still leads to homeownership. Try out these budget templates for your home or monthly expenses to help keep you on a good path to achieving your goals.

Sources: Consumer Financial Protection Bureau

The post 15-Year vs. 30-Year Mortgages: Which is Better? appeared first on MintLife Blog.

Source: mint.intuit.com

10-Year Mortgages vs. the 30-Year Fixed: Which Is Better?

It’s time for another mortgage match-up folks. Today, we’ll look at 10-year mortgages versus the 30-year fixed mortgage to see how these home loans stack up against one another. Before we get started, it’s important to note that there are two very different types of 10-year mortgages out there. One a fixed-rate mortgage that is [&hellip

The post 10-Year Mortgages vs. the 30-Year Fixed: Which Is Better? first appeared on The Truth About Mortgage.

Source: thetruthaboutmortgage.com

6 Types of Home Loans: Which One Is Right for You?

kroach/iStock

If you’re a first-time home buyer shopping for a home, odds are you should be shopping for mortgage loans as well—and these days, it’s by no means a one-mortgage-fits-all model.

Where you live, how long you plan to stay put, and other variables can make certain mortgage loans better suited to a home buyer’s circumstances and loan amount. Choosing wisely between them could save you a bundle on your down payment, fees, and interest.

Many types of mortgage loans exist: conventional loans, FHA loans, VA loans, fixed-rate loans, adjustable-rate mortgages, jumbo loans, and more. Each mortgage loan may require certain down payments or specify standards for loan amount, mortgage insurance, and interest. To learn about all your home-buying options, check out these common types of home mortgage loans and whom they’re suited for, so you can make the right choice. The type of mortgage loan that you choose could affect your monthly payment.

Fixed-rate loan

The most common type of conventional loan, a fixed-rate loan prescribes a single interest rate—and monthly payment—for the life of the loan, which is typically 15 or 30 years. One type of fixed-rate mortgage is a jumbo loan.

Right for: Homeowners who crave predictability and aren’t going anywhere soon may be best suited for this conventional loan. For your mortgage payment, you pay X amount for Y years—and that’s the end for a conventional loan. A fixed-rate loan will require a down payment. The rise and fall of interest rates won’t change the terms of your home loan, so you’ll always know what to expect with your monthly payment. That said, a fixed-rate mortgage is best for people who plan to stay in their home for at least a good chunk of the life of the loan; if you think you’ll move fairly soon, you may want to consider the next option.

Adjustable-rate mortgage

Unlike fixed-rate mortgages, adjustable-rate mortgages (ARM) offer mortgage interest rates typically lower than you’d get with a fixed-rate mortgage for a period of time—such as five or 10 years, rather than the life of a loan. But after that, your interest rates (and monthly payments) will adjust, typically once a year, roughly corresponding to current interest rates. So if interest rates shoot up, so do your monthly payments; if they plummet, you’ll pay less on mortgage payments.

Right for: Home buyers with lower credit scores are best suited for an adjustable-rate mortgage. Since people with poor credit typically can’t get good rates on fixed-rate loans, an adjustable-rate mortgage can nudge those interest rates down enough to put homeownership within easier reach. These home loans are also great for people who plan to move and sell their home before their fixed-rate period is up and their rates start vacillating. However, the monthly payment can fluctuate.

FHA loan

While typical home loans require a down payment of 20% of the purchase price of your home, with a Federal Housing Administration, or FHA loan, you can put down as little as 3.5%. That’s because Federal Housing Administration loans are government-backed.

Right for: Home buyers with meager savings for a down payment are a good fit for an FHA loan. The FHA has several requirements for mortgage loans. First, most loan amounts are limited to $417,000 and don’t provide much flexibility. FHA loans are fixed-rate mortgages, with either 15- or 30-year terms. Buyers of FHA-approved loans are also required to pay mortgage insurance—either upfront or over the life of the loan—which hovers at around 1% of the cost of your loan amount.

VA loan

If you’ve served in the United States military, a Veterans Affairs or VA loan can be an excellent alternative to a conventional loan. If you qualify for a VA loan, you can score a sweet home with no down payment and no mortgage insurance requirements.

Right for: VA loans are for veterans who’ve served 90 days consecutively during wartime, 180 during peacetime, or six years in the reserves. Because the home loans are government-backed, the VA has strict requirements on the type of home buyers can purchase with a VA loan: It must be your primary residence, and it must meet “minimum property requirements” (that is, no fixer-uppers allowed).

USDA loan

Another government-sponsored home loan is the USDA Rural Development loan, which is designed for families in rural areas. The government finances 100% of the home price for USDA-eligible homes—in other words, no down payment necessary—and offers discounted mortgage interest rates to boot.

Right for: Borrowers in rural areas who are struggling financially can access USDA-eligible home loans. These home loans are designed to put homeownership within their grasp, with affordable mortgage payments. The catch? Your debt load cannot exceed your income by more than 41%, and, as with the FHA, you will be required to purchase mortgage insurance.

Bridge loan

Also known as a gap loan or “repeat financing,” a bridge loan is an excellent option if you’re purchasing a home before selling your previous residence. Lenders will wrap your current and new mortgage payments into one; once your home is sold, you pay off that mortgage and refinance.

Right for: Homeowners with excellent credit and a low debt-to-income ratio, and who don’t need to finance more than 80% of the two homes’ combined value. Meet those requirements, and this can be a simple way of transitioning between two houses without having a meltdown—financially or emotionally—in the process.

The post 6 Types of Home Loans: Which One Is Right for You? appeared first on Real Estate News & Insights | realtor.com®.

Source: realtor.com