Mortgage Customization Options

Tips for making your mortgage fit into your long-term financial plan

For most people, a home mortgage represents their biggest financial commitment, in terms of both the amount of money involved and the length of time they will make payments. Therefore, home mortgages are a major component of long-term financial planning for many individuals and families.

Fortunately, there are creative options available that may enable you to customize your mortgage to match your long-term financial goals. These primarily include variations in the length of the mortgage term – or in other words, how long payments must be made before you own your home free and clear.

The traditional home mortgage is paid over a period of 30 years at a fixed rate of interest. But because it’s rare nowadays for an individual or family to actually live in a home for this long, banks have created mortgages with shorter terms to provide homeowners with more flexibility and the opportunity to build up equity in their homes faster.

With a 15-year mortgage, you can own a home in half the time it would take with a traditional 30-year mortgage. However, the monthly payment on a 15-year mortgage will be considerably higher than the monthly payment on a 30-year mortgage, though not twice as high, because the amount of interest paid over the life of a 15-year mortgage is considerably less than that paid on a 30-year mortgage.

For example, the monthly principal and interest payment on a 30-year, $250,000 mortgage with a 6 percent fixed interest rate would be $1,499. Switching to a 15-year mortgage on the same amount at the same interest rate would raise the monthly principal and interest payment to $2,110, or an additional $611. But paying off the mortgage in half the time would reduce the amount of interest paid over the life of the mortgage by $159,859. Mortgages with 10- and 20-year terms may also be available.

Whether or not it makes sense for you to choose a shorter-term mortgage as part of your long-term financial plan depends on several factors:

• If you can afford the higher monthly payment
• How long you plan to stay in the house
• Your age, when you plan to retire, and your projected retirement income and expenses

If you can afford the higher monthly payments without undue stress and strain on your budget, some experts say that choosing a shorter-term mortgage is a smart move. Doing so provides a guaranteed “return” on your money that’s equivalent to your mortgage interest rate (not factoring in potential deductions for mortgage interest).

However, other experts counter that more money could be earned over the long term by investing the difference between short- and long-term monthly mortgage payments – or in the case of our example with the 15-year mortgage, $611 per month. They point out that the stock market has historically earned higher returns over the long term than the current low mortgage interest rates.

Meanwhile, if you plan to stay in a home for the long term (at least 10-15 years), many experts advise opting for a shorter-term mortgage. This is where factors such as your age, planned retirement date, and retirement income and expenses come into the equation.

For example, suppose you’re 45 years old, plan to stay in the home for the long term and want to retire at age 65 with minimal living expenses. By opting for a 15- or 20-year mortgage, you could own your home free and clear when you retire, which would eliminate what is probably your biggest monthly expense.

Of course, every situation is unique. We can work with you to help you determine the best mortgage options and strategy for your long-term financial goals.

Getting a Loan If You Have a Low Credit Score – Tips to help you on the road to financial security

According to the San Francisco Chronicle (sfgate.com), the average U.S. household debt (excluding mortgage debt) is about $14,500. If you are among the many in debt and have a low credit score, you may think that securing a loan for a vehicle, college or emergencies is impossible. However, by following some of the tips below, you may find that you actually can secure the credit you need.

• Check your credit report for errors: The first step you should take before applying for a loan, whether you have a high or a low credit score, is to check your credit report for errors. One inaccuracy on your credit report can make a big difference in your FICO score. There are three credit reporting bureaus whose reports you need to check: TransUnion, Experian and Equifax.
• Work with your established financial institution: It is often easier for a borrower with a lower credit score to get a loan from a financial institution with which he or she already has a relationship. Talk to a loan officer to see what he or she can offer.
• Make large payments, on time: Reducing your debt always helps your credit score, but even more important is the process of making payments on time. For a few months before you plan to apply for a loan, make larger-than-normal payments on time; you’ll improve your credit score through that one simple move.
• Pay something off: If your debt-to-income ratio is high, your ability to get a loan will suffer. If your account balances are close to your account limits, your credit score is similarly impacted. Reduce your balance-to-limit ratio by paying off some of your smaller balances before you apply for a loan. Not only will this help your credit score, but it will also reduce the amount of interest you pay to creditors each month.
• Talk to your creditors: If a creditor was paid in full but paid late, that history may be negatively affecting your credit score. You can call creditors to see if they will remove negative history from your report; especially with paid-off debt, they may be amenable to this. Additionally, if a recent late payment was reported to the credit bureau and is hurting your score, but you are generally an on-time payer with that creditor, call the company to see if it will re-report the data to remove the black mark on your credit record.

Our loan officers are here to discuss your borrowing options. No matter what your credit score, stop by to learn about the ways that we can make our lending programs work for you.

The Basics of Mortgage Insurance. Why you may be required to, or should opt to, have this kind of insurance.

A recent study commissioned by the California Reinvestment Coalition and the Alliance of Californians for Community Empowerment states that foreclosures have cost the city of Los Angeles $80 billion since 2008 due to lost tax revenues and increased expenses for safety and maintenance issues. And while California may be high on the list of states most affected by the housing crisis, this doesn’t mean that other states and cities aren’t feeling the same pinch from higher-than-normal foreclosure rates.

In recent years, mortgage lenders have placed an increasing emphasis on ways of mitigating risk. When you buy a home and put 20 percent or more down on the purchase price, you reduce the financial institution’s risk substantially because you borrow less to buy the home and you create equity. In the event of a default, the financial institution suffers less in losses.

If you do not have 20 percent to put down on a home, then your  financial institution will require you to have private mortgage insurance. Unlike mortgage life insurance, which can be designed to pay a benefit to your lender upon your death, private mortgage insurance protects  financial institutions against default by paying benefits when the borrower stops making mortgage payments.

Private mortgage insurance (or PMI) premiums are generally rolled into the overall mortgage payment, although borrowers can opt to make annual payments beginning at closing or make a single premium payment. Some borrowers may choose to get PMI even though they have enough money to make a down payment of 20 percent, simply because the cost of the insurance is less than the return they can get on the down payment when it remains invested.

Over the life of the loan, you’ll eventually reach the point where you’ve reduced your principal enough to have 20 percent or more equity in your home. At that point, you don’t need PMI. To cancel PMI, you typically need to make the request in writing for cancellation and then pay for an updated appraisal of your property.

After evaluating all your options, you may find that private mortgage insurance is a great way to give the financial institution the protection it needs without creating a mortgage payment that is beyond your budget.

How Much Should You Borrow? Tips for taking out home loans.

According to a 2011 report issued by CoreLogic, roughly 23.1 percent of mortgaged homes were underwater – worth less than the amount mortgaged – in the fourth quarter of 2010. If you are one of the lucky 75 percent of homeowners with some equity, then you might be considering taking out a loan in order to get some repairs done and take advantage of current rates. But with home prices still falling in many states and an uncertain recovery timeline, how much should you borrow?

1. Consider your present and future income. What you can afford to pay right now for your mortgage or equity loan is not necessarily what you will be able to afford in five, 10 or even 20 years. While you may assume that you’ll be able to afford greater payments in the future, there is no guarantee that this will be the case. According to Bankrate.com, your monthly mortgage payment (which includes contributions to escrow that pays for property taxes and insurance) should not go over 28 percent of your gross monthly income. It’s a good idea not to exceed this estimate even if you expect your future financial situation to enable you to afford more. And just because 28 percent is the magic number for Bankrate.com and other advisors, that doesn’t mean borrowing less, or making additional payments to the principal in order to pay off the debt sooner, is a bad idea.

2. Think about upcoming repairs. Every time you take out a loan to tap into the equity of your home, you must pay fees. The same occurs when you decide to refinance. When obtaining a loan in order to take advantage of lower interest rates, you may end up saving more money in the long run. However, if you don’t borrow enough, you may find that you need to borrow again in order to take care of emergency repairs due to roofing, plumbing or electrical problems. Therefore, when you take out an equity loan – or even an initial mortgage – consider any upcoming repairs that need to be done and, if you can afford the payment, consider borrowing more in order to take preventive measures to maintain your home.

3. Don’t borrow to pay fees. Closing fees, title insurance and document preparation are all part of taking out a new loan or mortgage. If you include these fees in the overall loan balance, you end up paying interest on them because you’re borrowing their value along with the loan you’re taking out. Instead, pay all your closing costs and loan expenses in cash.

4. Leave some equity. Even if you regularly make loan payments, it is never a good idea to allow your home’s loans to exceed its value. Since you can’t predict how your home will be valued in future years, make sure you leave some equity in the home rather than borrowing everything that’s currently available. Consider the fact that your home may lose value each year and that you are also paying down the principal of your loan during that time. If you leave yourself enough of an equity cushion, you may avoid becoming a negative housing statistic.

Your house is probably your greatest asset. But it’s also the place where you live, where you raise a family and where you come home after work every night. By doing what you can to preserve it while also taking advantage of low interest rates, you can maintain and improve that asset and make it a comfortable home for you and your family for decades to come.

Looking to refinance? Start with our Refinance Calculators. Crunch the numbers for yourself with North Shore Bank’s helpful online Refinance Calculators.

Refinance Interest Savings Calculator Discover how much interest can you save if you refinance your mortgage. Enter the specifics about your current mortgage along with your current appraised value, new loan term, rate and closing costs. Next, we’ll determine how much interest refinancing can save you and calculate the number of months it will take to breakeven on closing costs with your reduced monthly payment.

Mortgage Refinance Breakeven Calculator Interested in knowing how long it will take to breakeven on a mortgage refinance? Your breakeven depends on many factors, including your current interest rate, the new potential rate, closing costs and how long you plan to stay in your home. Use this calculator to sort through the confusion and determine if refinancing your mortgage is a sound financial decision.

When you are ready to refinance, we’d be happy to sit down with you to help you understand all your options. To speak with us about your unique situation, stop by your nearest branch or call us today. Don’t miss out on the low rates currently available to you!