Ten Mistakes And How They Can Affect Your Mortgage Mortgage Payment Protection Insurance The Do S And Don Ts Home Loans A Fillip To Your Desire To Rise On Property Ladder
Wouldn’t it be great if everything in life came with a checklist? Unfortunately, for most of us we have to learn life’s lessons the hard way – by experiencing them! Fortunately, for home buyers there are some rules of the game that are well known and can help you avoid major pitfalls when buying a home or refinancing your mortgage. Let’s take a look at ten mistakes that can have detrimental affect on your mortgage so you can prepare yourself now to get the best terms possible on your next mortgage.
#1 – Not shopping around.Too many people go to their local bank or other financial institution for their mortgage and never shop around. As a result, they end up paying more over the life of the loan because they don’t realize what they could have had. Go to at least three mortgage providers when looking for a loan – make them compete and earn your business!
#2 – Using the mortgage broker the realtor recommends. Sure the realtor is the sweetest person you ever met and tells you not to worry because her friend over at ABC Mortgage will take care of you – what she isn’t telling you is that she is getting a kickback for recommending them. Realtors have one goal in mind – to earn commission on the sale. You can often get much better deals by shopping around yourself and saying “no thanks” to the recommendation.
#3 – Buying too much house. How many square feet do you need and how much can you afford? Don’t get yourself into a situation where you have too much house that you can’t afford over your lifetime. Remember, it’s not just the monthly payments you have to worry about. You also need to think about property taxes, insurance and heating and cooling costs.
#4 – Getting into the wrong mortgage. A quick scan of the newspapers will show you that a lot of people have gotten into the wrong mortgage. Make sure you know the differences between fixed and adjustable rate mortgages and seek the help of a trusted, third party to help you make the right decision. Be sure to review the prepayment penalties as well – why should you be penalized for paying off your loan ahead of time?
#5 – Credit. This one you probably already know about, but it is worth repeating again and again. Clean up your credit and don’t make any big purchases right before you go to take out a mortgage. Save the new car purchase or flat-screen TV purchase until after you have signed the loan paperwork!
#6 – Borrowing too much. This goes hand in hand with #3. Don’t anticipate future earnings and buy a house you simply cannot afford. Purchase a house you can afford now, even if it may not be your dream house. In a few years, if you are earning more, you can look into buying a bigger house. Start small and work your way up so that you know you can afford your mortgage and not get yourself into financial trouble down the road.
#7 – Missing out on programs for first time home owners. Many first time homeowners don’t take advantage of the various programs and discounts available for them. Check into local, state and federal programs that can help reduce your interest rate and potentially negotiate better terms.
#8 – Inaccurate information, or garbage in/garbage out! Don’t try and fool the lender – it isn’t worth it. Make sure you have supporting documentation for everything you put down on the mortgage application. Furthermore, never sign a mortgage document in which the lender hasn’t completely filled out all the fields. Insist on honesty on both sides of the desk!
#9 – Not locking in the rate. Rates can change in the blink of an eye. Get your rate locked in and don’t wait around until the last moment. Get your rate in writing with the complete terms spelled out from your mortgage lender when you lock it in.
# 10 – Not considering the other “charges” in your mortgage. Sure, you got a great rate on your mortgage, but did you carefully read about the other charges the lender has stuck in? Rates are important, but make sure you understand the full cost of your loan. Read (and question) all the charges listed. Sure, you might have to pay a quarter of a percent more by going somewhere else, but after you add up all the fees you may find that by going to a lender with a slightly higher rate can actually save you money.
When you’ve taken out a mortgage you’ve make a long-term commitment to maintain the monthly repayments for the full duration of the mortgage. That’s going to be over many years but you’re making that commitment without the benefit of a crystal ball – no one knows how your circumstances are going to change, for good or bad. So that must represent a big risk. Mortgage Payment Protection Insurance (MPPI) is one of a range of insurances that includes life insurance and critical illness insurance, which you can reduce that risk and protect your family’s finances.
The purpose of MPPI is to ensure that your mortgage repayments will continue to be paid if you’re off work for an extended period due to accident, sickness or unemployment. Just consider the risks that this type of insurance is designed to alleviate:
Home repossessions run at about 90 per day. Most of these are due to financial problems associated with unemployment.
One third of all people aged between 25 and 34 have experienced unemployment for more than a month.
During the term of their mortgage most people experience at least one period of illness, or the repercussions of an accident, which will keep them off work for more than 3 months.
If you have a standard repayment mortgage, you’re well advised to set the value of monthly MPPI cover to equal the value of your monthly repayment plus your life insurance and home & contents insurance premiums. However, if you have an interest only mortgage, then your cover also needs to include the monthly cost of the investment plan you’re using to repay the mortgage at the end of its term. Also remember that if your mortgage repayments subsequently change due to interest rate movement, then you need to contact your insurer and get the policy similarly modified. Oh yes, the nice bit – if you claim then the income payout is totally tax-free!
11 Top Tips for buying
Mortgage Payment Protection Insurance
Don’t think that you can only take out MPPI when you arrange the mortgage. You can take out MPPI at any time.
Be aware that some mortgage lenders will try to pressurise you into taking out MPPI along with your mortgage. If this happens, make sure you find out how much extra the cover will cost each month and then get on the Internet and get a few competitive quotes. Most people will find savings of up to 60%!
Mortgage lenders will only quote you for the cover needed to meet your monthly mortgage repayments. Remember our advice to include cover for the cost of your mortgage life insurance, your home & contents insurance and the cost of any investment plan you have allocated to repay your mortgage (the latter item applies only to interest only mortgages).
If your employment is seasonal or casual you won’t be able to claim on an MPPI policy. Every policy has what are called exclusions and seasonal and casual work is just a typical one. Exclusions are the circumstances under which you cannot make a claim. Always read these exclusions before you take out the policy and if you can see that your circumstances mean that you’re unlikely to be able to make a valid claim, don’t buy the policy. In some cases, the policy exclusions will eliminate 50% of potential claims.
Don’t automatically opt for the cheapest MPPI policy. The conditions under which policies pay out do vary so check them out carefully. Premiums are always a reflection of the extent of the exclusions in the policy, the level of cover provided and the insurers general marketing strategy.
Don’t get confused by the different names given to MPPI. It can also be described as Accident Sickness and Unemployment Insurance, Payment Cover and Payment Care. Basically, they all do the same – but remember to check out the exclusions!
Most policies state that you have to be off work for a minimum period of time before you can make a claim. The maximum period you’ll find is 60 days but many policies reduce this to 30 days – and some will then backdate the payment to the first day you were off work. You’ll find full details about these aspects in the policy’s Terms and Conditions. Always check these out before you buy and remember when you’re comparing prices, to compare like with like.
Don’t confuse MPPI with Mortgage Indemnity Insurance (MIG). Mortgage Indemnity Insurance p rovides cover for a mortgage lender for any losses the lender might suffer as a result of a property on which they provided a loan being sold for less than the amount of the loan. Any payout under a MIG policy goes to the lender, not you!
If you already have Permanent Health Insurance your may not need MPPI. Check out the terms of you PHI policy.
Be aware that there is a level of duplication between Critical Illness Insurance and MPPI. MPPI will pay you an income during the insured period for any illness that prevents you from working. Critical illness Insurance will payout a lump sum if you are diagnosed with any of the chronic illnesses listed on the critical illness policy. So if you have a critical illness claim, then you will almost certainly also have a claim on your MPPI policy. However, if the illness that’s keeping you off work is not listed on the chronic list, and all ordinary illness aren’t, then only your MPPI policy will payout.
Shop around. As with most types of insurance, the Internet is the cheapest place to shop and many sites will enable you to arrange cover immediately online. Try searching under mortgage payment protection insurance rather than just mortgage protection. That search term is totally specific and you’re bound to find what you want.
When Mr. Wilson, your colleague at office, shifted to the posh London locality, you were taken for a shock. How could Mr. Wilson manage to buy a home with his paltry income when you still had to make do in your two-room apartment? You are not necessarily jealous but surprised at the turn of events. Had you been aware of the uses of home loan, the event would not have been as jolting as it is now.
It is true that many of the people are not aware of home loans. In addition, those who are aware of home loans have drawn several misconceptions regarding their use. This has deprived a majority of the people of home loans and thus deprived them of opportunities to boost their standard of living by shifting to a better house in a better locality.
A home loan is primarily a mortgage. The most important purpose to which a home loan is put to is buying or constructing a home, which corresponds to the function of a mortgage, i.e. buying or constructing home. There are other uses too that a home loan can be put to. For these uses, the home loan becomes similar to a home equity loan where the equity in home backs the repayment of the loan. The traditional uses of the home loan in debt settlement, car purchase or in undertaking home improvement involves using the equity in home for providing finance to the borrowers.
Borrowers can pledge up to four family residences for a home loan. As mentioned above, the home/ homes so pledged serve the purpose of backing the loan repayments. In the normal circumstances, when home loan repayments are made regularly, the borrower can claim his home as soon as the full repayments are made. It needs to be stated at this stage that pledging the home to collateral does not mean a cessation of the rights to stay in the home. You continue to exercise the right to stay in the house as you continue with your duties to pay property tax and keep the home in a good condition.
Some of us will picture this as a situation wherein you are getting everything without having to lose anything. Though true to some extent, it is not absolutely correct. Lenders charge interest at a certain rate of interest and this is completely justifiable. Had the lender deposited or invested the amount lent, he would have got a certain amount in terms of interest. Many lenders do not charge fees for their services and a home loan would thus be the cheapest option available to borrowers.
Add to this the convenience in repayment through several monthly instalments. The monthly instalments enable the borrowers to repay the home loan through his monthly revenue. The tenants can especially advantage from the repayment method. The amount that they had been paying for the rented apartment can be channellised to the loan repayments.
For borrowers, who fear that the hike in interest rate will substantially increase their interest cost, loan providers have come up with several interest options on home loans. These interest options, though not covering the home loan borrowers for the entire term of repayment, give them relief for a particular time period. Fixed rate method of charging interest, for instance keep the interest rate stable for a maximum period of five years. Similar is the time period for capped rate method where interest is not allowed to rise beyond a certain level but allowed to fall freely.
Refinance presents another important technique of saving your hard-earned pounds from being wasted on an interest hike. As soon as you find that the interest rates are rising, you switch over to a loan provider who is offering a better rate of interest. However, you must ensure that the original loan provider does not expressly prohibit prepayment and refinance through a penalty clause.
When being used as a mortgage, the lender would not invest the entire amount needed to affect the purchase or construction of home. The borrower will have to put in a certain percentage of the purchase price. While this helps minimise the risk on the lender, he would reward this with a better-term home loan deal.
Home loan comes as an important finance method for those who are aspiring to go up in the property ladder. The ability to use the home loan amount for uses other than buying or constructing house makes home loans extra advantageous..
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