Sunday, November 3, 2013

Home Financing, Refinancing and Equity Loans

When it comes to financing or re-financing a home, families with stay-at-home moms may have difficulty based on the fact that one spouse has little or no visible income.This leads some financiers to try and swing loans or re-finances that are easier to approve initially, but may be detrimental to the homebuyer in the long run.An adjustable rate mortgage, or ARM, is commonly offered when interest rates are low, and the finance company is betting on the fact that the housing market will turn around and cause rates to go up so they can make more money of the interest. This basically means that if you are holding an ARM and your payments are $565 per month, if the interest rates rise your mortgage could jump to $787 per month or even $1010 a month.If you are being pressured to sign loan papers for an adjustable rate mortgage, consider carefully what the long term consequences may be. The rates might be low right now, but there is no telling what the future may bring - and no guarantee that your net income will keep pace with interest rates.A fixed rate mortgage is usually better in the long run. If you can secure one when the rates are reasonably low, then you will be protected if they rise later and your payment will not increase. This is especially good for stay-at-home moms or seniors who are living on a very strict budget.Another tactic that is commonly offered is a second mortgage in the form of a home equity loan. These are not a good idea, should be looked into only as a last resort, and should never cause your total debt to be more than 80% the value of your home.A home equity loan is designed to provide you with a lump sum of cash to use to pay for home remodeling, bills or other debts in return for a second lien on your home. If your home is worth $100,000, your first mortgage might have a balance of $67,000, with payments of $400 a month. If you add a second 10 year mortgage in the amount of $17,000 (bringing your total debt to 80% the worth of your home) you could have an additional monthly payment of $200 per month.You have to decide if it is worth it to add extra to your house payment each month, and be aware that if you default on the second mortgage they can and will take your home, even if the original mortgage is paid.This can be a very real danger if the working spouse loses his job for some reason, and the family cannot meet all their obligations. Think long and hard before taking out a home equity loan, be sure your reasons for doing so are sound, and that you have a solid plan for repaying it as soon as possible.