Second mortgages are an increasingly popular way for homeowners to raise finance by using the equity in their property. Second mortgages are also known as “home equity loans” and “secured loans.”

Essentially, second mortgages are loans secured against properties on which there are already first mortgages from different lenders. As an alternative to second mortgages, applicants could receive a further advance on their first mortgages instead.

Second mortgages are used extensively throughout the UK by homeowners who wish to release equity from their homes in order to fund activities such as home improvements, debt consolidation, purchasing a new car, or funding a holiday.

Lenders are willing to approve second mortgages for almost any purpose so long as the combined loan-to-value ratio of the first and second mortgages does not exceed their allowable upper limit.

Basically, home owners who have equity in their properties can secure second mortgages against them in addition to the first mortgages. The funds from the second mortgages will be deposited into the borrowers’ bank accounts which can then be used for any purpose.

It is important to note that second mortgages are usually secured against the borrowers’ homes. Taking out second mortgages could therefore lead to home repossession if the borrowers do not keep up with their repayments.

Secured loans normally have a shorter term than first mortgages and also attract higher interest rates due to the perceived increased risk by lenders. Therefore the monthly repayments on second mortgages can seem excessive when compared to first mortgages.

If the repayments on second mortgages seem too high, borrowers should instead consider releasing equity be increasing the balance of their first mortgages. Because the interest rate will probably be lower, and the term of the first mortgage longer, the increase in the monthly repayment should be less than for the monthly repayments on second mortgages of the same amount.

If applicants would prefer to not put their homes at risk they may wish to consider applying for unsecured loans instead. Unsecured loans, or personal loans, are not secured against the equity in the borrowers’ homes and therefore do not put their properties at risk.

It should be noted that unsecured loans usually come with higher interest rates than second mortgages.

If borrowers are in any doubt with whether or not to use second mortgages to raise funds, they should consult with an independent mortgage adviser.

A balloon mortgage is a loan that is provided for a short period of time for a set amount of money. Balloon mortgages will often involve periodic payments that are made at a fixed interest rate. During this period, the loan may not be amortized. The balance of the loan has to be paid in full at a specific time.

Another feature of balloon mortgages is that they will combine many of the features seen in adjustable rate mortgages and fixed mortgages. The interest rate will remain fixed for a certain period of time, which may be from 5 to 7 years. The payments will be based on an amortization cycle that lasts 30 years. If homeowners can’t pay the balance by the end of the term, the lender will decide how the payments will be made. The sum is usually converted into a fixed rate mortgage.

Advantages?

A balloon mortgage can be good because it offers an interest rate that is much lower than standard 30-year mortgages. If you are buying a larger home, a balloon mortgage can help you. Larger homes tend to have interest rates that are high, and this can make them difficult to pay off if you don’t have a large income. Balloon mortgages can make things easier. They are also good for people who plan on refinancing the home before the term ends.

Despite this, balloon mortgages can be much more complex than standard mortgages. Some homeowners who use them end up running into problems. You will need to make sure you have solid documents before signing up for a balloon mortgage. You will want to make sure you choose the right lender and read all contracts carefully for hidden fees or other terms. Balloon mortgages can be risky for people who don’t understand them.

Extra Charges For Balloon Mortgages

One problem that customers run into with these mortgages is prepayment penalties. These penalties will often be placed on people who choose to pay off the mortgage early. If you refinance your existing mortgage or sell the home, this can lead to prepayment penalties. The problem with these penalties is that they greatly increase the chances that your home could become foreclosed. Mortgages that have balloon payments are highly susceptible to foreclosure.

Pre Payment Penalties

The cost of prepayment penalties can be large. They are usually calculated as a percentage of the total balance owed. This could be as high as 12% and many homeowners have found themselves paying thousands of dollars more than they expected. If you choose to get a balloon mortgage you should make sure there are no prepayment penalties. If you get into a situation where you can’t afford the home, prepayment penalties can keep you from being able to refinance the home in order to get out of debt. These mortgages can be risky, and should only be used by those who fully understand the risks involved.

Short Term Mortgage – Long Term Problems

A mortgage is a serious financial endeavor that you should take seriously. They involve large amounts of money that most people simply don’t have on hand. If you get into a situation where you can’t make your payments, you could end up losing your home and your credit could be ruined. Many people have made the mistake of getting involved with balloon mortgage without doing their research. They chose not to read the fine print on the applications. They often end up in situations that can haunt them for the rest of their lives.

While balloon mortgages may have low interest rates at first, you should have a plan to make your monthly payments after the first term ends. This can keep you from defaulting on your payments.

A Mortgages short sale works when a person has a debt on a property that is greater than the Fair Market Value of the Real Estate. The homeowner who qualifies for a short sale owes more than the property is worth. The lender of the property will agree to forget the difference of the two. An example; when you owe $200. 000 and the value of your property is $170. 000. The lender will take care of the $30, 000 difference.

The process takes time and most likely will not go as fast as other types of sales. The lender of a mortgage short sale will need to find a buyer. This is most important to the lender because they will get the property back if the short sale has problems passing through. Once the wheels are in motion the lender will be negotiating the sale.

The seller can always get a fair market value by finding what prices houses in their area have sold for. List the homes similar to yours, example above, $200, 000 value and let’s say they sold for $120, 000. Give this information to the lender proving how taking a write off of $30, 000 is better than losing $80, 000.

A homeowner does not have to be behind on payments. A short sale is a matter of choice for the property owner. When you decide to take this option and talk with your lender, keep in-mind that nothing is secure in “agreements” until a “formal offer” has been made in writing. Before the process really starts you will need to produce the following. Fianancial statements, pay-stubs, tax returns, your purchase agreement, HUDs statement, and a few other papers. Your waiting period starts after all the paper work is in.

After one to six weeks you should be contacted with the terms of approval. Often they will try to collect the debt from you first and may not give you the write-off you expected. This sale is not considered “desperate” sale so you need help getting it done right.

The steps taken to get to the step where you and the lender agree can be a rocky climb. Those who want to use the option to work a “short sale” need to let a professional take care of the process. You the homeowner needs to be ready and armed with knowledge about a mortgages short sale. Be able to express what you can afford to do. The professional you chose should be experienced at negotiated with lenders.

A very important factor to remember when you have a second mortgage is that both mortgages must be negotiated and signed on the dotted line before the 2nd mortgage is in the short sale contract. This is overlooked far too often and the seller is stuck with the second mortgage.

There are only a few options for homeowners when the economy is slow and values are dropping faster than the months go by. These are some important factors to determine that the mortgages short sale fits your need.

Pre-qualifying for home mortgages is a very good idea for many people. It allows you to determine how much money you can get before you go out shopping for a home. In simple terms, it allows the lender to tell you how much money they are willing to give you for home mortgages based on the information that you provide to them prior to the actual bid on a particular house.

Consumers should understand that there is a difference between pre-qualifying and pre-approval. In pre-qualification you submit the important details of your past and current credit history, along with your employment history, to the lender and the mortgage lender will determine how much money you can afford for your loan. This amount is not set in stone but will give you an estimate of the price range that you should stay within when shopping for your home. Because there is less verification, pre-qualification can take place quickly and in many cases there is no charge for it.

While this service is helpful for determining the amount of money you can spend on your mortgages it is not a binding contract on the lender. The reason it is not binding is because in this type of program you only give as much information as is needed to determine price ranges. Once you find the house that you want, you will still need to submit the usual documents. If in the course of that process it is determined that you are not as credit worthy as earlier supposed, you may not get the loan.

Pre-approval of mortgages, on the other hand, is different. With pre-approval, the lender will verify all of your submitted information. They may contact your employer, your credit union or bank, as well as other sources in order to verify your income, credit history, financial assets, and current liabilities and debts. Once this process has been successfully completed, the lender will give you a document stating that your mortgage is approved for a certain amount of money within a certain amount of time.

The major benefit of pre-approval over pre-qualifying is that you know for certain that you will get a certain amount of money for the mortgages that you are interested in. It should be kept in mind that this type of arrangement is time sensitive. The agreement may be for thirty days or it may be for a bit longer. Having your mortgages pre-approved, however, does also give you a lot of leverage with the seller. They know that you have the money available to buy their property and in most cases this allows you more negotiating power.

Pre-approval is not always free. With some lenders you may have to pay a fee for the service. This is only fair as it does take time for the lender to move through all of your documents and to verify your information. In addition, you may have to pay for your credit reports.

In both pre-qualifying and pre-approval of mortgages, if your circumstances change before closing make sure you tell the lender. Some changes, such as losing a job, may invalidate the pre-qualification or pre-approval results.

The Fed has released several reports over the last few years that express, in detail, the differences between mortgages offered to minorities and mortgages offered to whites. While the industry tries to maintain that they offer fair business practices, the results don’t support this at all.

Minorities are more likely to be denied a home loan, often pay higher interest rates than whites and frequently must provide a larger down payment. The gap between minority home owners and whites continues to narrow at a snail’s pace, but steps are being taken to help change the situation.

Loan Rejection


African-Americans and Latinos suffer a large percentage of rejections when applying for mortgages, research suggests. Latinos have the highest denial rate, nationwide, with African-Americans coming in 6th, behind Latinos and other minorities. Lenders say it has nothing to do with minority status and much more with credit ratings and debt loads that are not taken into account by the surveys.

Local and national programs have been instituted to help minorities achieve home ownership, including Self-Help, HUD and other programs. Wachovia and BB&T also offer several programs on local levels geared towards providing sustainable mortgages for minorities.

Higher Interest Rates for Minorities


African Americans and Latinos are much more likely than whites to have higher interest rates, according to a study by the Federal Govt. The study shows that the disparity lies across the board, in all income brackets, but is especially prevalent in the instance of minorities with higher incomes. As strange as it seems, high earning minorities are more likely to get a higher interest rate mortgage than lower earning applicants. The study shows that discrimination certainly plays a role in lending, today.

Legislation, though slow moving, is before law makers to help correct the situation and several groups are lobbying Washington for more action and penalties for lenders practicing racial discrimination. Again, lenders say the study did not take into account credit ratings or debt load for the applicants.

Down Payments


Due to the nature of the loans they are able to attain, minorities are sometimes required to put down larger down payments than whites. This is a major reason for the lower percentage of home ownership among minority groups. The same study cited above released their findings that many minorities are able to pay the equivalent of a mortgage payment in monthly rent, but are unable to save enough money to make a large down payment.

The President’s much maligned “zero down” plan is aimed at providing homes for minorities with little or no money down through the American Dream Down Payment Fund. This program is designed encourage home ownership in minorities, helping to close the gap between minority home owners and whites.

Conclusion


While steps are being made, they are not enough to close the gap between minority home ownership and that of whites. Minorities face a myriad of discriminatory practices in the housing and lending industry and only a concerted effort by citizens and lawmakers will make a difference. Old stereotypes need to be wiped away and new practices instituted to change the face of the lending industry.

A common question those paying off a mortgage have is whether or not they should be putting any extra cash into a savings account or using it to overpay on their mortgage, thus reducing it’s length.

Firstly, it’s important to note that if you have any outstanding debts (e.g. credit card, personal loan, store card) along with money in a savings account, then it’s best to use your savings to pay off these debts.

Consider the following example – £1000 outstanding on a credit card with an APR of 18% will cost you £180 in interest. Whereas £1000 in a savings account with a typical interest rate of 4% will give you a return of £40. Therefore by using the £1000 saving to pay of your credit card you can save cut your repayment down to £140!

It’s also worth noting that over the long term mortgages are relatively cheap forms of borrowing compared to loans or credit cards, so any outstanding debts on these should be paid off first.

One important factor when overpaying on your mortgage is to time it correctly. The frequency at which your lender calculates your interest will vary, with daily, monthly or yearly being the options – this can make a big difference in whether you will gain or loose out by overpaying.

The best idea is to call your lender and find out when they charge the interest, with this in mind; you should make your overpayment a few days prior to the mortgage payment.

There are a couple of factors that should be taken into consideration before overpaying your mortgage. The most notable of these is whether or not your lender actually allows this.

Some lenders for instance will charge you if you attempt to repay your mortgage earlier as they want you to stay with them for longer. Thankfully though, this is becoming less common.

There are literally thousands of loan programs available in the market. Every lender tries to be as different as they can to create a special niche, which they hope will increase business. It would be impossible to provide a review of every type of loan, so in this article, we’ll just stick to the main ones. Most loan programs are variations of the loans we will cover here. First of all we will go over some terminology you should understand and then we will delve into the different mortgage programs available today.

AMORTIZATION

Amortization is the paying back of the money borrowed plus interest. The actual term, or length of the mortgage along with the amortization is what determines what the payments will be and when the loan will be paid off. It is a means of paying out a predetermined sum (the principal) plus interest over a fixed period of time, so that the principal is completely eliminated by the end of the term. This would be easy if interest weren’t involved, since one could simply divide the principal amount into a certain number of payments and be done with it. The trick is to find the right payment amount,which includes some principal and some interest. The formula of amortization uses only 12 days a year to compute the interest. The interest payment on a mortgage is calculated by multiplying 1/12th (one-twelfth) of the interest rate times the loan balance of the previous month.

On a 30-year, $150,000 mortgage with a fixed interest rate of 7.5 percent,a homeowner who keeps the loan for the full term will pay $227,575.83 in interest. The lender does not expect that person to pay all that interest in just a couple of years so the interest is spread over the full 30-year term. That keeps the monthly payment at $1,048.82.

The only way to keep the payments stable is to have the majority of each month’s payment go toward interest during the early years of the loan. Of the first month’s payment, for instance, only $111.32 goes toward principal. The other $937.50 goes toward interest. That ratio gradually improves overtime, and by the second-to-last payment, $1,035.83 of the borrower’s payment will apply to principal while just $12.99 will go toward interest.

There are four types of loans when dealing with amortization and term. They are:

1. Fixed: with conventional fixed rate mortgages, the interest rate will stay the same for the life of the loan. Consequently the mortgage payment (Principal and Interest) also stays the same. Changes in the economy or the borrower’s personal life do not affect the rate of this loan.

2. Adjustable: (ARM) also called variable rate mortgages. With this loan the interest rates can fluctuate based on the changes in the rate index the loan is tied to. Common indexes are 30 year US Treasury Bills and Libor (London Interbank Offering Rate). Interest rates on ARMs vary depending on how often the rate can change. The rate itself is determined by adding a specific percentage, called margin, to the rate index. This margin allows the lender to recover their cost and make some profit.

3. Balloon: A loan that is due and payable before it is fully amortized. Say for example that a loan of $50,000 is a 30-year loan at 10% with a five-year balloon. The payments would be calculated at 10% over 30 years, but at the end of the five years the remaining balance will be due and payable. Balloon mortgages may have a feature that would allow the balloon to convert to a fixed rate at maturity. This is a conditional offer and should not be confused with an ARM. In some cases, payments of interest only have to be made, and sometimes the entire balance is due and the loan is over. Unpaid balloon payments can lead to foreclosure and such financing is not advisable to home buyers. Balloons are used mainly in commercial financing.

4. Interest only: This type of loan is not amortized. Just like the name implies the payments are of interest only. The principal is not part of the payment and so does not decline. Interest only loans are calculated using simple interest and are available in both adjustable rate loans and fixed rate loans.

Fixed rate: The fixed rate loan is the benchmark loan against which all other loans are compared to. The most common types of fixed rates loans are the 30 year and the 15 year loans. The 30 year loan is amortized over 30 years or 360 payments while the 15 year is amortized over 180 payments. For the borrower, the 15 year loan has higher payments, since the money needs to be repaid in half the time. But because of that same feature the interest paid to the bank is much lower as well.

Even though these two are the most common terms, others are gaining in popularity, such as the 10, 20, 25, and even 40 year term loans Depending on the lender, the shorter the term, the less risk, and thus the lower the rate.

Other types of fixed rate loans:

BI-WEEKLY MORTGAGE

The bi-weekly mortgage shortens the loan term of a 30 year loans to 18 or 19 years by requiring a payment for half the monthly amount every two weeks. The biweekly payments increase the annual amount paid by about 8 percent and in effect pay 13 monthly payments (26 biweekly payments) per year. The shortened loan term decreases the total interest costs substantially.

The interest costs for the biweekly mortgage are decreased even farther, however, by the application of each payment to the principal upon which the interest is calculated every 14 days. By nibbling away at the principal faster, the homeowner saves additional interest. The ability to qualify for this type of loan is based on a 30-year term, and most lenders who offer this mortgage will allow the home buyer to convert to a more traditional 30-year loan without penalty.

GRADUATED PAYMENT MORTGAGE (GPM)

This loan is a good idea for buyers who expect their income to rise in the future. A GPM will start these borrowers off at a much lower than market interest rate. This allows them to qualify for a larger loan than they would otherwise. The risk is that they assume they will have enough income to pay increased payments in the future. This is similar to an ARM but the rate increases at a set rate, not like the ARM where the rate is based on the market. For example, a GPM for 30 years might start out with an interest rate of 5% for the first 6 months, adjust to 7% for the next year, and adjust upwards .5% every 6 months thereafter.

GROWING EQUITY MORTGAGE (GEMS)

For as long as mortgages have been around conventional fixed loans have been the standard against which creative financing has been measured. In the early 1980s the GEM was developed as a new alternative to creative financing. The GEM loan, while amortized like a conventional loan, uses a unique repayment method to save interest expense by 50% or more. Instead of paying a set amount each month, GEM loans have a graduated payment increase that can be calculated by increasing the monthly payment 2, 3, 4, or 5 percent annually during the loan. Or the monthly payments can be set to increase based on the performance of a specific market index.

So far it is sounds like a graduated payment mortgage but there is a difference. As monthly payments rise, all additional money paid by borrowers is used to reduce the principle balance. This results in a loan paid off in less than 15 years.

REVERSE MORTGAGES

While a reverse mortgage is not exactly a fixed rate mortgage (it is more of an annuity), I have included it here because the payments made to the home buyers are fixed. Reverse mortgages are designed especially for elderly people with equity in their homes but limited cash. They allow individuals to retain home ownership while providing needed cash flow. In a traditional mortgage, the homeowners repay the amount borrowed over a specified period of time. With a reverse mortgage the homeowner receives a specified amount every month.

To illustrate, say Mr. and Mrs. Smith are 70 and 65 years old respectively and retired. Their home is free from all encumbrances and worth $135,000. They would like to get the money out of their house to enjoy it, but instead of receiving it in one lump sum by refinancing it, they want to receive a little bit every month. Their lender arranges for a $100,000 reverse mortgage. They will get $500 a month from their equity and the lender will earn 9% interest.

Unlike other mortgages where the same $100,000 represents only the principle amount, with a reverse mortgage $100,000 is equal to the combined total of all principal and interest. On this particular loan, at the end of 10 years and 3 months, the Smiths will owe $100,000. The breakdown being $61,500 principle and $38,500 in interest. At this time the loan will end. So the Smiths will only receive $61,500, and they now owe the bank $100,000.

ADJUSTABLE RATE MORTGAGES

An ARM is a type of loan amortization where the most prevalent feature is that the interest rate adjusts during the course of the loan. Thanks to the adjustable rate feature, banks and lenders are better protected in case interest rates fluctuate wildly like in the 1970s when banks were lending at 8% fixed and then rates went as high as 18%. This left the banks holding loans that were losing money every month since the banks had to pay money to depositors at higher rates then they were making on their investments.

Important Tip: ARM interest rates are usually lower than fixed rates.There are multiple types of ARM loans in the market today. They all This makes it easier for borrowers to qualify for a larger loan amount with an ARM. differ from each other in minor but important ways. There are four main criteria to look at when dealing with an ARM loan: the Index used, the Margin, the Cap, and the Adjustment Frequency.

INDEX

The interest rates of an ARM loan are based on an Index, which is a published rate. The most common used indexes are:

COFI – The Cost of Funds Index. This index is related with the 11th District Federal Home Loan Bank Board in California. This index is also the most stable of all the common indexes.

The Treasury Series – This is a series of maturity lengths for Treasury Bills. These bills are used as investments by millions and are actively traded every day and so the rate varies daily.

LIBOR – The London Inter Bank Offered Rate is the rate the central bank in England uses to lend money to its banks.

Prime – This rate is the rate that banks in the US use to lend money to their best clients. This number is published daily in US newspapers, but it is important to know that each bank can set it’s own Prime rate.

CDs – This index is from the rate paid to purchased of 6 month Certificates of Deposits.

MARGIN

Margin is defined as the amount added to the index rate to determine the current rate charged on the ARM. Once you add the margin to the index rate you arrive at what is called the Fully Indexed Rate (FIR). This rate is the true rate which the borrower will pay. The interest rate quoted to a borrower at closing might be lower then the FIR.

LOAN CAPS

The Cap is a very important number because it is the maximum that a rate can change. So even if the index rises 10% in one period, the FIR will not do so if there the rate cap is reached. There are two types of caps to worry about when discussing an ARM. The Rate Adjustment Cap which is the maximum the rate can change from one period to another. And the Life of the Loan Cap which is the maximum rate that can be charged during the loan. To figure out how the rate will change, you have to know the index, the margin, the rate, and the cap. Add the index and the margin to determine the FIR. Then take the rate and add it to the cap. Whichever is the smaller change is what the new interest rate will be.

ADJUSTMENT FREQUENCY

This is how often the rate changes. Initially when the loan is closed the rate will be fixed for a certain amount of time, then it will start changing. How often it changes is the Adjustment Frequency. So you can have a 7/1 Arm which means the rate will be fixed for 7 years, and then adjust every year after. Or you can have a 3/1 ARM. Fixed for 3 years. The more frequent the adjustment and the sooner it starts, the lower the initial interest rate. So a 3/1 ARM will have a lower rate then a 10/5 will. And that is because the 10/5 has more risk for the lender. The 10/5rate will be much closer to a fixed rate loan.

When a borrower considers an ARM, it is usually because the rate is lower then the fixed rate loan. And thus it is easier to qualify for. But the borrower is then betting against the bank. The ARM loan might turn out to be more expensive then the fixed rate loan in the long run, if rate rise during the term of the loan.

You must have an idea of how long you are going to live in the house you are borrowing to buy. If you are going to stay there long-term, a fixed-rate may make more sense. ARM’s are better for military and other people who buy and sell within shorter time periods.

CONVENTIONAL MORTGAGE

A conventional mortgage is a non-government loan financed with a value less than or equal to a specific amount established each year by major secondary lenders. As of 2008, financing for less than $417,000 was regarded as conventional financing. A conventional loan is the most popular loan today, as so it has become the benchmark against all the other mortgages. It has 4 special features:

1. Set monthly payments

2. Set interest rates

3. Fixed loan term

4. Self amortization

A conventional loan is one that is secured by government sponsored entities such as Fannie Mae and Freddie Mac. Since they are secured, the lender is assured that they can easily sell the loan on the secondary market.

And because of that assurance, these loans have the lowest rates.

In order to qualify as a conventional loan, the home and borrowers must fall into the guidelines set by the secondary lenders.

HOME EQUITY LOANS

Real estate has traditionally been considered a non-liquid asset. Property can be converted to cash only by either selling or refinancing. Both are very expensive and time-consuming ways to raise money. Today’s borrowers can convert their house to cash immediately by using the equity in their home.

These loans take much less time to approve and fund then regular home loans. And the fees are generally less than a normal loan as well. But home equity loans are usually placed in a second lien position after the original mortgage, at a higher interest rate. If the borrower does not pay, the house could be foreclosed upon.

The Equity Loan is an open ended mortgage similar to a credit card. Borrowers can take the money out, use it, and pay back the money when they choose. Recently, home equity loans have brought about new government regulations in some states since people were getting these loans without really understanding the consequences and thus being taken advantage of by less than honest lenders.

SECOND MORTGAGES

A second mortgage is a loan against a property in second or “junior” position. In case of foreclosure, the creditor in first position gets first dibs on any monies. In many cases, there is not enough equity in a house to pay off both the first and second mortgage. So the second mortgage holder can get nothing. Therefore, being in second position can be a very risky place to be.

That is why second mortgages come with higher rates then first mortgages. Second mortgages come in two main forms – a fixed mortgage and a home equity mortgage. The fixed mortgage follows the same format as a regular fixed loan. The equity mortgage is based on equity in the home.

Second mortgages are used by loan officers to either help the borrower avoid paying PMI, or to avoid a jumbo loan. A jumbo loan would be a non-conforming loan and thus would have a higher rate for the entire loan. If a borrower wanted to avoid this, he could get a first mortgage at the max conventional loans allow, and a second for the balance. The rate on the second would be high, but blended together, the rate would be less than on the jumbo.

GOVERNMENT LOANS

There are two governmental agencies that guarantee loans: The Department of Veterans Affairs (VA), and the Federal Housing Administration (FHA).

VA LOANS

VA loans are one of two types of government loans and are guaranteed by The Department of Veterans Affairs under the Serviceman’s Readjustment Act. Lenders rely on this guarantee to reduce their risk. The best thing about VA loans is that for veterans is allows them to get into a house with zero or very little down. The amount of down payment required depends on the entitlement and the amount of the loan. Military service requirements vary. These loans are available to active-duty as well as separated military veterans and their spouses.

These loans are self-amortizing if held for the complete term of the loan, yet it may be paid off without penalty. These loans are only available through approved lenders. The amount of entitlement a veteran has is reported in a Certificate of Eligibility which must be obtained from the VA office in your area.

Veterans who had a VA loan before may still have “remaining entitlement” to use for another VA loan. The current amount of entitlement was much lower previously and has been increased by changes in the law. For example, a veteran who obtained a $25,000 loan in 1974 would have used$12,500 guaranty entitlement, the maximum then available. Even if that loan is not paid off, the veteran could use the difference between the $12,500 entitlement originally used and the current maximum to buy another home with VA financing.

Most lenders require that a combination of the guaranty entitlement and any cash down payment must equal at least 25 percent of the reasonable value or sales price of the property- whichever is less. Thus, in the example, the veteran’s $23,500 remaining entitlement would meet a lender’s minimum guaranty requirement for a no down payment loan to buy a property valued at and selling for $94,000. The veteran could also combine a down payment with the remaining entitlement for a larger loan amount.

FHA LOANS

The Federal Housing Administration is one of the oldest and largest sources of mortgage assistance available to the general public. The Department of Housing and Urban Development (HUD) run this program.

FHA backed mortgages are the other type of government loans and are an outgrowth of policy in the interest of the public, with the view that the government should stimulate the economy in general and the housing industry in particular. FHA loans like VA loans can only be obtained through approved lenders.

Why are FHA loans so popular? Because they have liberal qualifying standards, low or even no down payments and even closing costs can be financed and added to the loan. There is no prepayment penalty. FHA loans made prior to February 4, 1988 are freely assumable by a new buyer when the house is sold. Loans made after December 15, 1989 may only be assumed by qualified owner-occupants and cannot be assumed by investors.

FHA loans have limits too. Recent housing appreciation has pushed up the limits on this year’s loan program by nearly 16 percent in the continental U.S.

If you want to find out what the loan limit is where you live you can call the consumer hotline for the Housing and Urban Development Department . Their toll-free number is available on their site. The FHA is a division of HUD.

As always, consult a mortgage professional. A Certified Mortgage Planner will work with your own financial planner, Realtor, CPA and other advisers to find a mortgage loan product that is right for you.

When a marriage breaks down one of the biggest problem areas is finance. Each member of the couple has a feeling of insecurity immediately. Where, they wonder, will they live after separation and divorce? They will need to consider divorce mortgages – where the lender understands the situation from which the couple have come and does everything to help people make a new start.

A home, perfectly naturally, has a feeling of security, but as soon as that security is under threat, emotions are raised. A home is where you will have been with your spouse, and possibly raised a family too. So when things go wrong, it is no wonder that people put up their defences. However difficult it will be the subject of finances will have to be discussed between husband and wife, and divorce mortgages will have to be raised.

It is important to ensure that current payments on the house are maintained: existing mortgage payments, house and contents insurance, endowment policies. Arrangements to cover these costs should be made immediately, as non-payment will lead to anger, resentment, and worse – a possible blot on credit ratings.

Emotions will be running high, but it is important to discuss financial affairs sensibly with a view to the future for both parties. Independent legal advice is the best way forward as each seeks to secure a mortgage after divorce. If circumstances ended up meaning a court had to decide the division of finances then it may mean one party gets more money than the other, but both parties should realise that there is only so much to go round. Financial stress can be such that during separation and even after divorce, couples still consider living under the same roof to avoid the need for another mortgage after divorce.

If there is enough money in the pot to buy two houses, then mortgages after divorce would not present a problem, and a court would primarily be concerned about the welfare of any children.
However, if there is not enough money to fund two post-divorce mortgages, the court will of course consider selling the original home and dividing the proceeds as it sees fit. Again, the primary consideration will be for the needs of the children. A home has to be provided for any children, whatever the hopes and needs of the other parent.
It is unlikely that either party will ‘lose everything’ as the court has wide powers in aportioning assets. However, it could also rule that the deeds of the house are transferred in full to one party.

One or both parties can easily be left searching for a mortgage after divorce. It is very difficult thing to have to do at a time of great stress. Some building societies specifically provide divorce mortgages. Sometimes one party appears to take charge of financial affairs, and this can leave the other party feeling vulnerable and unsure. Mortgage brokers can help in this situation. Divorce mortgages cater for the fact that you may need to minimise your monthly mortgage payments until finances are under control. Divorce mortgages can provide additional features and benefits which will not be available when you choose a mortgage from a standard range.

Opting for a second mortgage is a popular method for homeowners to raise additional finance. The homeowner can leverage additional equity against the property value of his or her house. Until recently, second mortgages were often frowned upon. The general public felt that a second mortgage was an indication that a person was unable to maintain his or her finances. Today, this view no longer holds true, and there are a number of financial institutions offering various schemes for second mortgages.

As the name suggests, a second mortgage is a mortgage that is secured on a property that already has a first mortgage on it. The value of the second mortgage will be calculated by subtracting the value of the first mortgage from the value of the home.

The second mortgage may be taken from a different lender as compared to the first. The money received from the second mortgage can be used for a variety of purposes ranging from funding home improvements to debt consolidation. As with the case of a first mortgage, a second mortgage is secured against the borrower’s home. This means that the borrower risks forfeiting his home in case he is unable to meet the payments of the mortgage.

There are three main types of second mortgages offered to customers. These are a traditional second mortgage, a home equity loan and a home equity line of credit. A home equity line of credit will set a maximum limit on the size of the first and second loans. This is usually between 75% and 85% of the appraised value of the owner’s property. The advantage of this type of second mortgage is that it allows you to repay the loan amount according to your own capabilities and does not enforce a strict monthly payment regime on you.

Different financial institutions offer variations of these types of mortgages. Due to the wide variety of second mortgage schemes available to the customer, interest rates for second mortgages are very attractive. Interest rates in some cases of second mortgages even fall bellow the prime lending rate. The length of a second mortgage usually begins at one year and extends to as long as 15 to 20 years. Loans of smaller amounts should ideally be repaid in shorter durations, as if stretched over long periods; the borrower would have to pay greater interest.

For most people, buying an overseas property is a dream. However, with all the intricacies and complicated procedures with overseas banks, developers and solicitors, a lot of people get discouraged with the concept. However, the overseas property mortgage in the UK has undergone a sudden surge in the recent years.

This can be attributed to the growing number of people wanting to buy properties abroad for reasons of settlement or property investment and actually do something to achieve it. The majority of these people are retirees seeking a more peaceful abode, while at the same time enjoying tax benefits.

Overseas Investment Mortgages

A good number are simple investors who have seen how promising overseas investments are fast becoming. The strength of the pound is a major contributor to this improving trend. Also, the mortgage market both in the UK and in overseas banks has also become more flexible. If you are one of those seeking to buy properties overseas, you will probably want some mortgage to finance your investment.

In terms of getting a mortgage, you will be faced with two very common choices: getting an overseas mortgage or settling for a local one in your local UK bank.

An overseas mortgage is available in most countries with an established overseas property market. This includes most of Europe (Spain, France, Switzerland, and Italy) and the United States of America. Relatively new to the industry are Greece, Poland, Bulgaria, Cyprus and Turkey, among many others.

Similarities Between Overseas and UK Mortgages Overseas property mortgages are much like your ordinary one that you get from any UK bank. You are taking out a loan that is secured against your own property. You have to apply for a loan, wherein you need to submit necessary documents to prove your income. In both cases, your documents and finances will be reviewed, and your mortgage will be approved if everything looks seamless. The entire procedure for getting an overseas property mortgage is very similar as well.

Differences Between Overseas and UK Mortgages

There are major differences that can be seen between getting a UK mortgage and an overseas loan. It is important to note that the very nature of the market abroad means that everything about it works quite differently from the normal and typical approach that the UK market has adopted. For example, many lenders in other countries in Europe generally do not offer mortgages based on interest only or on the concept of buy-to-let.

They base the mortgage amount on your actual earnings rather than the potential rate you may receive. Consequently, the income multiplier that is all so common in the UK is not typically used in banks abroad. Instead, the affordability model is predominant. This model in turn, relies on the debt-to-income ratio that you have. You need to prove that no more than 40% or less of your income goes into paying debts and mortgages (including the one you are applying for).

By far the most obvious distinguishing difference between a UK-based and an overseas mortgage is the currency that the mortgage is to be denominated in. So if you buy a property and get a mortgage, you will be earning in sterling pounds but you will have to pay your mortgage in a foreign currency (USD, euros, and so on).

Advantages of an Overseas Mortgage

Getting an overseas mortgage has considerable advantages. Foreign banks and lenders have become very flexible when it comes to lending to UK buyers. This is largely part of their strategy to draw in more investors and property buyers. As if that was not enough, interest rates in the Euro zone for example are sometimes lower than rates in the UK.

Overseas mortgages are effectively back-supported by the foreign property market. So if you buy a property in Spain on a Euro mortgage, your interest rates will likely be based around the rates in the Euro zone as set by the European Central Bank. Today, most of these rates are less than those offered in the UK. Considering this and depending on the amount of loan, you may have a big difference in your monthly amortization and repayment.

Disadvantages of an Overseas Mortgage

The main disadvantage that can be discouraging about overseas mortgages comes from the fact that it uses another currency. This adds a relatively thick layer of risk into your investment. With this set-up, you earn in sterling pounds and pay in another currency. The sterling pound equivalent of your debt in another foreign currency will surely fluctuate with time as the exchange rates go up and down. If you are unlucky, and the rates move against you, the sterling equivalent may become so low that you actually end up with so much more debt than you originally had.

Another disadvantage to be pointed out with getting an overseas mortgage is the physical and communication barrier that exists. If you buy a property in Cyprus, for example, you would need to visit the country at least once to arrange your paperwork or to personally attend to matters regarding your mortgage. (You can ask a lawyer or solicitor, but nothing matches being fully aware.) Also, in countries where only few people can speak good English, communication will prove to be difficult.

There is definitely no room for miscommunication in mortgage application and processing, either oral or written. You will need to demand all transactions and documents be written in English. Which one is better? One can not say that getting a UK mortgage is better than getting an overseas mortgage. What is good for you may not be good for another. While UK based mortgages are generally easier to proceed to (considering how used you are with the system), the rates can be very slightly higher.

On the other hand, overseas mortgages may prove lower in terms of interest rates, but the additional procedures, permissions, and other complicated systems may take more effort, time and money on your part. The best thing to do is to consult an independent specialist who can offer you objective advice on your options considering your current circumstances. Remember that all decisions about investing abroad should be informed and wise, and more importantly, realistic.