Mortgage leads loans Rates

Let’s first define what private mortgage insurance actually is, and why you might be required to purchase the insurance. Private mortgage insurance is an insurance purchased to protect the lender, not the borrower. The borrower however pays for the mortgage insurance, and this is provided to the lender instead of the 20% down payment normally required when purchasing real estate. The insurance provides the difference between the fair market value of the home and the actual price a lender may be able to sell the property for, in case of a default on the loan. Normally, the lender will require a 20% down payment and forgo the private mortgage insurance option. However, under certain circumstances if the buyer has an excellent credit rating, is well known to the lender, and is deemed to be low risk, private mortgage insurance may be an option offered by the lender.

The current mortgage market is flooded with such varied products as the interest only loan and the 125 loans and private mortgage insurance seems to be a thing of the past. You rarely encounter a situation when the buyer is required to purchase the private mortgage insurance; those situations most likely to continue to require the purchase of the private mortgage insurance are those where the lender is a traditional lending institution. Mortgage companies have long since ceased requiring borrowers to purchase private mortgage insurance.

Mortgage investors, such as the Fannie Mae and Freddie Mac programs, have recently come to the aid of the borrower by introducing an option to the primary mortgage market that allows borrowers to pay as little as 5% down and purchase only enough mortgage insurance to cover 25% of the loan; this creates a potential citing situation for the borrower. The borrower may pay a slightly higher interest rate in order to lower the cost of insurance that the advantage lays here: mortgage interest is fully tax deductible, private mortgage insurance is not.

There’s another option, also regulated by the federal government and passed into law in 1999, known as the Homeowners Protection Act of 1998 established rules for regulation of private mortgage insurance requirements once a homeowner reaches a level of 20% equity. What the law requires, in layman’s terms, is that a lending institution must notify you once your equity levels reach 20% of the appraised value of the home. Once you the kind of 20% equity level, you must be given the option to drop private mortgage insurance. If this proposal had passed into law some 20 years ago, it would have been met with great resistance among the lending community; today, the interest only loan and loans that offer mortgages in excess of the appraised value of the home overshadow the effect of the 1998 homeowner’s act.

The regulations passed into law by the 1998 Homeowner’s Act do not affect FHA or VA loans, and many of the Fannie Mae and Freddie Mac programs have additional stipulations and requirements in addition to the 1998 law. Also, your state laws and regulations may also affect your insurance requirements. Due to the recent increases in real estate pricing, and as a result the increased level of a mortgage borrowing requests, Fannie Mae and Freddie Mac have increased their loan limits and private mortgage insurance limitations. They even the secondary market has a need for the private mortgage insurance requirements, thanks to the booming real estate economy.

Many homeowners seem to mistake the private mortgage insurance purchased in order to secure the loan, with that of the homeowner’s liability insurance. Lenders are responsible for making clear the distinction between private mortgage insurance purchased to protect the lender versus the homeowner’s liability insurance purchased to protect the homeowner. Both forms of insurance will need to be purchased, and the borrower will be responsible for payment of both insurance premiums.

The Homeowner’s Act of 1998, served as a way for the borrower to decrease their monthly mortgage payment, once the 20% equity level have been established; this seems like a small contribution when you examine the mortgage products offered today, that do not require the borrower to establish any equity.

Interest only products and the mortgage market don’t seem like they would have anything to do with an MSA, SEP or an IRA; but they can, and sometimes it’s to your advantage if they do. First, let’s explain what an MRA and IRA are, and how you can use them to your benefit. While offering the explanation, we’ll look at how they can be used in conjunction with interest only mortgages as a benefit to the consumer.

An MSA, or medical savings account is a tax-deferred way to save money, especially if you are self-employed, and do not have a 401k or medical insurance. The medical savings account gives you a tool for taking a deduction straight off your bottom line, thereby reducing the amount of tax you owe. The mortgage interest portion of your mortgage only provides a tax deduction in the form of an itemized deduction, and it is limited to a certain percentage of your income. Refinancing, or first-time financing of your mortgage with an interest only mortgage, can be used to pull more of the equity out of your home, or save money on mortgage payments that can be used to fund an MSA account. The biggest drawback to this kind of savings is the penalty you pay if the money is not withdrawn for its intended purpose, paying for medical expense. If you find yourself in a situation where you must have the money, and it’s not for medical expenses, you can pay up to 10% in penalties.

The IRA or individual retirement account works on the same premise as an MSA. The IRA is intended to give the consumer a way to save for retirement, when there is not a retirement plan where they work or they’re self employed. The interest only mortgage can be used in the same way as was explained above, and with the same restrictions. The IRA account is supposed to be used by the consumer as a tool for retirement savings; if the money must be withdrawn prior to reaching a certain age, there is often a 10% penalty to be paid on early withdrawal.

The SEP is the equivalent of the 401(k) for the self-employed individual. How does the SEP work? Basically, you as a self-employed individual can allocate up to $20k each year to be put into an SEP, or self-employed pension. The money is treated as tax deferred income, and it comes directly off your AGI, just as if you participated in a 401(k).

As you can see, the MSA, IRA, or SEP offer the consumer direct one-to-one savings by reducing their AGI, or the amount of income for which they are going to incur a tax liability. The mortgage interest portion of their itemized deductions is not a dollar for dollar reduction; it is limited to a percentage of your AGI. But what if you could find a way to benefit from both deductions? Would that not create a more beneficial tax and savings situation for the homeowner? Quite possibly, and the only way to assess your real savings is to sit down with a financial analyst and look at your individual situation.

The only way to really benefit from this possible scenario, however, is to make sure that you have ample savings from the interest only mortgage payment versus the traditional payment, to justify making such a move, and that the money will actually make it to a tax-deferred savings account.

What is the potential savings for the consumer? Well, imagine the following situation: self-employed taxpayer wants to buy a home. He has $10,000 available in cash to either put down on the house, or put into an SEP; his tax liability without the SEP will be $8,000. With the $10,000 SEP, he would receive a refund of $600.00. He can only afford to make mortgage payments of $600; the house he’s chosen financed with a fixed rate mortgage would be $826 each month. Using the interest only mortgage option, his monthly payment for the next 5 years is only $488 and the mortgage product does not require a down payment. It frees up the $10k to be put into the SEP and the taxpayer benefit will also include deductible mortgage interest. As you can see, with this illustration, financial planning and fully utilizing your options can make a tremendous amount of difference in your life.

Not everyone that applies for a mortgage loan is a homeowner seeking to purchase their dream home, or their first home, or even their second home. Some of the mortgage market centers around individuals who invest in property for the purpose of increasing their investment portfolio, or building their retirement fund. What are the differences in the needs of the investor and the homeowner? There are some great differences, and then there are some basic values that every person seeks to fulfill when soliciting a mortgage product.

Let’s take a moment to examine the mortgage loan from an investor’s viewpoint, and determine how their needs and objectives differ from the average homeowner. As an investor, of course the objective is to make money. You want a return on your investment, preferably, as much as you can possibly get. This means that you seek the lowest interest rate possible, with the least amount of expenditure on your part.

The rising real estate prices, and the low interest rates, have generated much activity in the investment area of the mortgage and real estate markets, and many of these investors are fairly new to the investing game. So what are the best bets in mortgage loans? Interest only loans have everyone buzzing, especially the investor. Why? These loans require very little expenditure on a lot of real estate. Many of the interest only products out there today, do not require the homeowner to make a down payment, nor do they require the investor to make a down payment. Unlike traditional loans, the payment each month only requires that you pay the interest due on the principal. This equates to less cash out for the investor, and more retained for improvements to the property, or in the active solicitation of a buyer. Either way, the investor gets to keep more of his or her money, for the real objective, buying and selling.

Fueling the mortgage product market are the low interest rates, and the rising real estate prices. For many of the lending institutions, these investment properties are a fairly safe bet. Most of the investment property is in a resort or vacation area, and as the numbers go, these areas will only see increases in demand, not decreases. Also available in these areas, for investors and homeowners alike, are the jumbo, super jumbo mortagage, and 125 mortgage options. The jumbo and super jumbo require much more paperwork, normally a higher interest rate, and higher private mortgage insurance; but they also provide the huge amount needed to finance resort property during the construction phase.

The other great contributor to the real estate investment market is the coming of age for the baby boomers. Many of these individuals are reaching retirement age, and they have expendable, investment income. They prefer a safe bet, also. They prefer resort, retirement, and vacation properties, also. A great many of these individuals are investment savvy, and understand the different loan products available, and how to use them to their advantage.

It would be wonderful if the market continued to grow, and we continued to experience the wonderful effects of an ever-increasing and growing real estate market, but I’m afraid we are going to hit a few years, in a few short years, that will see a leveling, if not decline in real estate prices, simply as a result of the continued climb of these last few years.

However, for the investor today, the real estate market is a wonderful and exciting market on the move and on the rise. Take the time to seek financial advice, and in some cases legal counsel prior to jumping into the water; the need to prepare is just as necessary for investing as it is for average home ownership. The only black mark on this market would come from the volatility of real estate, in relation to the stock market, and the investor’s cash assets. If we should begin to experience problems in the stock market with heavy fluctuation, or spiraling portfolio balances, you could possibly see an effect on the real estate investing market. But, just like many other disasters, even though the possibility exists, our current market trends and projections do not lend debt credit to this potential threat. For the most part, the investment portfolio that includes real estate and the mortgage market seems to be climbing steadily!