Understanding your mortgage and all aspects of it is important to ensure that you really are getting a good deal. There are some features of a mortgage that homeowners should take advantage of but are often not aware that they exist. This article will provide an explanation about many issues pertaining to mortgages that homebuyers and homeowners should know.
Are Mortgage Insurance Premiums Deductible?
Ever since 2006, homeowners have been able to claim a deduction for their mortgage insurance (MI) or private mortgage insurance (PMI). It had an adjusted gross income cap of $109,000, or $54,500 for people filing separately. In 2018, taxpayers who make less than the cap can deduct the amount of premiums paid for MI or PMI, according to the Bipartisan Budget Act of 2018. It is not yet known what will happen with mortgage insurance payments made in 2018.
Are Mortgage Rates Going Up?
Whenever the Federal Reserve raises its rates, you can be sure that the local banks will soon follow their lead. At the present time, the interest rates at the Federal Reserve are at the highest they have been in the past decade. Just in the past 10 weeks, the interest rate has been raised several times. This trend means that homebuilders and home buyers may want to move quickly to get a lower interest rate. It is not likely that they will be going back down anytime soon. The lower rates will also apply when refinancing, as well.
Are Mortgage Rates Negotiable?
When you apply for a mortgage, the rate you are given based on your financial situation and credit score is basically fixed. Some of the additional costs, however, may be adjusted, but doing so will likely affect your rates.
Some of the fees may be dropped, such as the origination fee, which is usually 1% of the loan. Other fees that may be dropped are the application fee and the processing fee. When seeking a lender, be sure to look at the various fees because lenders will vary on these costs, as well as on the interest rates.
Most often, if you are not careful, when fees are dropped the rate is going to be raised. You may also pay points at closing to get a lower interest rate, but you are still paying some of the interest by buying points – it is just upfront.
Are Mortgages Public Record?
Home mortgages are on public record. This enables anyone to search for a property by address or by the name of the owner and discover whether or not there is a lien on the property. You may visit the office of the county clerk, the county recorder, or the county assessor’s office. This information may also be found online by searching the above offices in the county where the home is located. Not all counties make this information available online, so a personal visit to the county office may be necessary.
Are Mortgages Simple Interest?
Most mortgages are based on simple interest. This means that the amount of interest is calculated by dividing the interest amount for the year by 12 months, and that is how much will go toward the interest portion of your mortgage. With this type of mortgage, it does not matter whether you pay early, on time, or late – the interest for each month is the same, as long as it is payed each month.
Some mortgages are calculated on a daily basis, and the timing of your payment in those cases will make a considerable difference. Every day the interest is calculated from the time of your last payment. This means that every time you pay early, you will actually pay less in interest. It also means that you will pay more in interest with this type of loan during each leap year.
Are Mortgages Compounded Monthly?
No, most mortgages are not compounded monthly. Generally, they are simple interest, but the interest may be calculated differently. In many cases, it is calculated by the month, which is the better option for the borrower. It means that the interest will be the same whether you make your payment on the first day of the month, or on the 15th (after that date, you may pay a late fee).
On the other hand, it will make a considerable difference if the interest is calculated daily. When calculated daily, you will pay considerably more in interest if you regularly pay on the 15th than on the 1st day of each month. This means you will save a lot of money if you pay on or before the 1st day of the month. Those people with mortgages that calculate interest daily will also pay more because of leap year. In a 30-year mortgage, paying later in the month, and for the leap day, this can add up to a couple of thousand dollars more difference in interest.
Can Mortgage Insurance Be Cancelled?
Private mortgage insurance (PMI) is required by lenders when the buyer puts down less than 20% of the home’s value at the time of purchase. When you owe 80%, you may request the mortgage company to drop the cost of PMI, but they are not required to until you get down to 78%. You will also usually be required to have to pay PMI for anywhere from two to five years.
FHA loans work differently. At one time, buyers would have to pay the Mortgage Insurance Premium (MIP), which is the same thing as PMI, until they passed the 78% mark – but not before five years had passed. Now, if you obtained an FHA loan any time after June 2013, you are required to pay MIP until you no longer are paying on the loan.
Can Mortgages Be Paid Off Early?
Many mortgages will come with a clause in them that states there will be an early pay-off penalty, also called a prepayment penalty. This penalty is a fine that is given when an owner pays off the mortgage before the allotted life of the mortgage is completed.
A number of lenders will not have this clause in a mortgage agreement, and other lenders who have it in there may remove it if you ask them to. Because there are many that will not put it in, or they will remove it, be sure to find one that does not include it. Some lenders will put it in a section called “Addendum to the Note.”
Other lenders may have a modified statement that says that the borrower will only pay a fine for early pay-off under certain circumstances. Most often, a lender will allow a certain percentage of the mortgage to be paid per year without a penalty – often up to 20%. This penalty may also be imposed when the homeowner sells the home, or when it is refinanced – or both.
Did the Mortgage Insurance Deduction Expire?
You can still claim a deduction for your mortgage insurance payments made in 2017 on your tax returns. Congress has not yet made a decision about whether or not they can be deducted for the tax year 2018.
Did Mortgages Have PPI?
PPI, or Payment Protection Insurance, is often offered when getting a mortgage. It may also be called mortgage protection insurance, and its purpose is to pay off the mortgage in the event of your disability or death. This policy can be easily obtained when getting a mortgage and it is not based on your current health or physical condition. Premiums may be raised if you have a dangerous job. When there is a death or permanent disability, a lump sum is paid directly to the mortgage company, paying off the entire balance, or most of it.
Do Mortgage Lenders Use FICO?
After you fill out the application for a mortgage, you can expect that all lenders are going to check your FICO score. They will take a look at all three credit bureaus: Experian, Equifax, and TransUnion, but may end up basing their decision on only two, or possibly even one of those scores. Your credit score will be used to determine the interest rate and how much money you will be eligible to receive for a mortgage. An FHA loan requires a score of 580 or more in order to qualify for a 3.5 percent downpayment.
Do Mortgage Brokers Assume Risk?
If you choose to go through a mortgage broker to get a home loan, then the broker is not at any risk. Brokers merely help you fill out a form, provide counsel, and will run checks to verify your employment, and other qualifications. After that preliminary is completed, they will try to find a lender who will fund the mortgage.
In some cases, lenders may lend money to a broker, who may release the money to you after completing your application. Minutes after the transaction has been completed, the broker will sell it to a lender – virtually eliminating any risk that might be associated with the loan.
Do Mortgage Lenders Look At Student Loans?
Having a student loan is not going to deter a lender from giving you a mortgage. What may happen, however, is that when all of your debt is taken into consideration, that you may exceed the debt-to-income ratio of 36 to 43 percent. Different lenders have a slightly different number, and if it is already too high, or if the mortgage places your debt-to-income ratio over this number, you will not get the mortgage.
Do Mortgage Lenders Use VantageScore?
More and more lenders are using VantageScore since 2015. This includes most of America’s largest banks. The advantage it offers is that it takes a softer approach to people with credit that is less than perfect. This position is currently enabling more people to obtain mortgages than could when using the traditional FICO model. Potential borrowers who want to know whether or not a lender uses VantageScore simply needs to ask them before applying. Too many applications for credit in a short time span can hurt your credit score, so find out beforehand which lenders use it and apply only to them for a loan. If your credit score is low, it is worth it to take time to raise it and get a better deal.
Do Mortgages Have A Grace Period?
Most mortgages do have a grace period. This period is usually for 15 days, allowing borrowers to pay anywhere between the 1st of the month to the 15th. While paying your mortgage anywhere between these dates is not going to hurt your credit score, it will mean paying considerably more in interest on certain types of mortgages. It is definitely to your advantage to pay on the day it is due – or before – if the interest is calculated on a daily basis.
Do Mortgage Lenders Look At Rental History?
As a lender looks at your credit report, they will be able to tell whether or not you have been paying rent on time. A form will also be sent to your landlord to ask about what kind of a renter you have been, and how often you paid your rent late.
Although it will not matter much if there are only a few occasions of being late, a regular pattern of it will likely prevent you from getting the loan you want. The standard is three times in a year; any more than this and you will likely be turned down. If you have ever been evicted, they will want to know about that, too, and it will probably end the loan process.
Do Mortgage Brokers Originate Loans?
There are different types of mortgage brokers and they get paid differently. Some of them do originate loans, usually from a warehouse line of credit, and sometimes they may use their own funds. In either case, they will usually sell the loan to a lender right after the sale.
Brokers who originate loans will usually be paid from an origination fee at closing. This is usually equal to one percent of the mortgage. If an arrangement is made to remove this fee, it will usually result in an increase of the interest rate. When this happens, the buyer will actually pay more, but it is spread out over the life of the loan. In some cases, the buyer may also pay a combination of these methods to cover the broker’s fee.
Does Mortgage Insurance Cover Death?
There are two types of mortgage insurance, and you need to understand the two to know what you are covered for. Private Mortgage Insurance (PMI) is required by your lender if you have a downpayment that is less than 20 percent of your home’s value. It is for the lender’s benefit in case you default on the loan.
The other kind is called Mortgage Protection Insurance (MPI), and this is the kind that will benefit you and your family in the event of death. Some of these policies will also cover you if you become disabled or lose your job. This type of policy will pay off the balance on the mortgage, enabling the family to keep the house.
When looking into this type of policy, you need to be certain to look at the details. It may provide coverage for only one spouse – which can be a problem if both incomes are necessary to make the mortgage payments. On the other hand, some of these policies only payout if both spouses die. The policy may also only cover accidental death – not natural death, or disability, etc.
Does Mortgage Interest Reduce AGI?
The amount of interest you pay on your mortgage is not going to affect your adjusted gross income, or AGI. It is calculated as part of your itemized deductions, which has no effect on your AGI. The interest is considered as being below the line.
Does Mortgage Prequalification Affect Credit?
Getting a mortgage preapproval may or may not hurt your credit score. Many lenders do not actually check your credit score during the preapproval process, but some will. Since a preapproval is not at all a guarantee that you will get the loan you want, a lender may base the preapproval on the basic financial information you provide.
The way that it can hurt your credit score is if you have several lenders check your credit score in more than a month’s time. As long as the checks are made rather close to each other, within about a two week period, it is counted as a single credit check. Because of this, it is better to select a few lenders that you want to apply to, and then apply to all of them within a two week period.
Remember that a prequalification is not at all the same thing as being preapproved. In order to be preapproved, you must submit all of your documentation to the lender, and it will take some time for the lender to check your information, and finally – and hopefully – provide the preapproval.