Mortgage leads loans Rates

Great news! You qualify for a second mortgage. Now what would you like to do with the second mortgage? It will be your answer to this question that determines whether or not your second mortgage is your friend, or your foe. That seems to be an awfully strange way to look in a second mortgage; however that’s exactly what the mortgage will be. Your friend or your foe.

How do you even qualify for a second mortgage, what is a second mortgage, and why would you want a second mortgage? Well, the answers here are as varied as the consumers who apply for such mortgages. Many times consumers need a second mortgage to make improvements on their home. Many times consumers need a second mortgage to put their child to college. And sometimes, consumers need a second mortgage to start a business. The reasons given here for obtaining a second mortgage increase the value of the home, provide opportunity as an investment in your child’s future, or provide the opportunity to increase income. These are the original and most beneficial reasons for obtaining a second mortgage.

Are they the only reasons consumers obtain second mortgages? No. Today’s market has been a great influx of second mortgages to pay off credit card debt, to buy new car, or to simply take a vacation. Should consumers receive a second mortgage for those reasons? Absolutely. Should consumers actually ask for a second mortgage for those reasons? Absolutely not.

An educated consumer understands the consequence of a second mortgage. The educated consumer understands the price of the second mortgage. What is the price of the second mortgage? The equity in your home. When you apply for a second mortgage, you’re trading the equity in your home for cash. You’re giving up your savings.

If you’re trading your savings, in order take a step up, you’ve made the right decision. If you’re trading your savings for a frivolous expense, you’ve made the wrong decision. That’s how you determine if your second mortgage is your friend or your foe.

Today’s consumer is acquiring second mortgages that for many will prove to be their foe. They’re not increasing the value of the home; they’re not educating their children. Nor are they increasing their income earning potential, they’re simply spending their savings. Rising real estate prices, increasing availability of mortgage products, and the decline of savings for the public as a whole is creating the “bubble” effect. The bubble effect occurs when prices rise, spending rises, at a rate greater than can be supported on a long-term basis. At some point, the bubble bursts.

Your second mortgage, if used to increase the value of your home, will have insulated you against the drop in price. Your home is actually worth more; therefore, if prices drop you’re protected. This was the original intent of the second mortgage; to provide the consumer with easy access to the savings accumulated in their home for home improvements, emergency events, or in order to better their homes or lives. You know for the most part consumers do not save money in a savings account; consumers only save money when they aren’t aware that they’re saving money. Home equity was one of the last hidden ways consumers were saving. Second mortgages and other loan mortgage products have managed to eliminate those savings as well. Has the consumer stop to contemplate the consequence of negative saving? Absolutely not, and our current system of mortgage lending encourages negative savings.

Second mortgages are a great way to access your savings and increase your income tax deductions; they are one of the greatest tools available for financial planning and beneficial consumer spending. They are also the fastest way to spend yourself in to debt under socially acceptable circumstances. Many consumers receive offers for credit card debt consolidation and financial analysis. There are never any offers to counsel the consumer concerning their choice in mortgage products, the option of second mortgages, or the consequence of those choices. Your decision to and a second mortgage can be one of the best decisions you’ve ever made or your decision can be one based on folly and frivolous spending. Now, your second mortgage, is it your friend or your foe?

As you begin your search for the perfect home, and you research your mortgage loan options, the tax consequences of a mortgage loan with mortgage interest doesn’t ever cross the minds of most consumers. But as you decide which product you need, or think you need, the tax repercussions and benefits should play a role, even if it’s a small one, in the final decision.

For many consumers, the first thought that’s given to their tax return, and tax liability, comes from the mortgage lender. Quite often, mortgages are touted as being one of the best venues for reducing your tax liability at the end of the year. Yes, your mortgage interest payments will reduce your tax liability, but is that your ultimate goal? Is that why you’re looking at mortgage packages? No. Your ultimate goal in choosing a mortgage is to pay for your home.

Every situation in this case, and this case would apply to the average consumer shopping for a mortgage loan, is probably not going to get that much benefit from the tax deduction that comes from their mortgage interest payments. The average consumer should first look at their monthly payment and choose a mortgage based on affordability, not tax liability.

The smart consumer will not allow the flashy ads displayed by many mortgage lenders to influence their mortgage loan decision. The smart consumer will examine the interest level, the term of the mortgage loan, the affordability of the monthly payment, and base their decision upon their ability to pay in relation to the mortgage that achieves their primary purpose: the payout of the loan.

You and I rarely consider the impact of any financial decision on itemized deduction statement; however many of those decisions do affect itemized deductions. Our itemized deductions and major portion of our tax liability? No. Do they contribute to a reduction in tax liability? Yes. The relativity of the contribution when contrasted to the required time in examining the actual benefit we derive from the itemized deduction calculations warrants the point mute. It’s just not worth the effort.

If you happen to be in your mid-40s and your purchasing your first home, I would suggest that you consult a financial adviser prior to making a mortgage decision; however most individuals in their mid-40s would already realize the benefit of a financial adviser. A young couple purchasing their first home would truly benefit from the interest deduction, not to the extent however off more than $40-$50 of the bottom-line for their tax liability. As you age, and your way to earning power increases, the benefit of the itemized deduction decreases. Does the average person understand how tax is configured? No. The only person who can truly enlighten a consumer would be a tax professional, and many average individuals would spend more money in the determination of the benefit than they would reap.

The new guy on the mortgage loan law, known as the interest only mortgage loan will bring the greatest benefit to the consumer. The interest-only lawn in the amount of interest you can deduct on your tax return are one and the same, but does the benefit of the mortgage interest deduction outweigh the added expense of an additional five years on the mortgage loan?

What about the mortgage loan refinance? Any equity you remove from your home in the form of cash that can be used to pay down or pay all high interest credit card accounts will transfer a nondeductible expense to your deductible expenses. However you should remember the trade-off you now owe more against your home, and you have used your equity reserves. Was the deduction worth the trade? Many times the answer is no. For many consumers, paying off high-interest credit card debt only increases the probability of additional credit card charges. In other words, not only have use your equity, you’ve returned to high-interest debt.

Prior to a final decision of your mortgage along product, take a moment to review your tax situation. Each situation is unique. The lower your income, the greater the benefit, but rarely is the benefit worth the cost. Behold, the Tax Man, cometh.

Well, here is an example of the system that isn’t functioning as intended: a mortgage loan that encourages paying off one debt, in order to overspend ourselves with another debt. The interest only mortgage and the credit card debt. As a borrowing nation, I believe we’ve reached new levels.

It would seem that in this century we’ve managed to take every form of credit possible, extend it to the limit, and then look at them as if to say, “You mean you can’t pay?” What do these loan and credit companies think they’re going to be facing, when the amount of credit and mortgage they’re willing to extend, reaches beyond the acceptable debt to income ratio? Why do they think these limits were established in the first place?

More consumers than ever before owe massive credit card debt. It’s the way to go, many college campus’ are overrun with representatives from the major credit card companies, eager to extend credit to the young hands of the college student. Are they as ready to work with them when they can’t pay? No. What about the rest of the crazed, spending public? How do they handle their credit cards? Well, thanks to the interest only mortgage, we can now pay off credit card debt we can’t afford, with a mortgage we can’t afford. Now, that’s progressive thinking.

The interest only mortgage is now a tool for replacing non-deductible over extended debt, with tax deductible over extended debt, and consumers continue to be the ones to pay. This is not a wise option, if you’re already spending more than your budget will allow, how about cutting back? Did that ever occur to the mortgage company? No, because they don’t make any money if you learn to spend less.
As a fellow consumer, each of us should take the time to question our spending habits. Is it wise or necessary? If the answer to either question is no, then don’t spend. You don’t want to have to make the decision between over the limit spending, and a nice, warm bed, do you?

Okay, now here’s an interesting spin on an already risky product, let’s give the bad credit crowd a chance to make an even worse decision, and finance a home they can’t really afford and obviously will have trouble making on time or dependable payments so they can payoff credit card debt, only to charge it up again!
Sometimes, the products and situations that you see in the everyday world of researching these loans, is truly amazing and this is one of those situations. There are actually mortgage companies that advertise these interest only mortgage options for the consumer with the bad credit record to pay off any outstanding credit card debt!

Now, what I’d like to know is why the mortgage company, in all good faith, would want to take a risk such as this. It’s risky financing for consumers with bad credit, when you’re financing with good solid collateral, well within their means to pay. You take the consumer and the mortgage loan outside those realms of operation, and you’re just simply asking for a problem.

Maybe we should have an agency that’s known as the “mortgage police” and when there’s a clear and evident violation of just good sound common sense, a whistle blows, the computer locks up, and in walks the mortgage police. I truly believe the consumer, if not the mortgage company would be a lot better off; especially when the consumer has time to really absorb the basic facts about interest only mortgage, and the mess they can make of their finances; in the case of the bad credit consumer, the further mess they can make of their finances.

With all the government control that regulates the mortgage loan industry, and all the statistics that are published about the consumer with a bad credit rating, who do you suppose thought it would be a good idea to give them an interest only mortgage, that they more than likely will have further trouble paying? You wonder if Alan Greenspan is aware of this situation, and if he takes it into consideration when raising the prime interest rate? Do you suppose there’s a number factor for the “really going to default on these loans” segment of his equation that determines our prime lending rate?

Let’s hope Alan uses more foresight and plain good business sense than our mortgage loan brokers, especially the ones that came up with this genius idea!