Take Your Mortgage Learning to the Next Level

Take Your Mortgage Learning to the Next Level

Mortgage Secrets

There are many mortgage industry secrets that the average person might not know about. In discussing some of them, we will go over several keys secrets that can be very helpful in understanding how mortgage companies, lenders, and servicer's operate. Mortgage companies, just like any other company are in business to make money, and they do a great job at it. There are many things that mortgage companies would rather you not know about the industry. We will cover some of them here.

Teaser or Adjustable Rates

When the mortgage industry was hot and many people around the country were buying real estate in the early 2000'S, mortgage companies were happy with all the new business they were getting. That was in the time period when credit was given out easily to almost anyone with a job, and or had fair credit. The industry was booming and we had the highest homeownership rate ever in the history of this country. There were some real estate agents making millions selling high priced real estate, and the need for loan officers to close on those deal were high. The lending institutions started hiring taxi drivers, pizza delivery driver, fast food restaurant workers, or anyone with a high school diploma and had the ability to fellow simple instructions unbelievable money. Many of these individuals came from minimum wage jobs and started to make $20-40,000 a month to close mortgage deals. Their income transformed quickly.

Then after the new home buyers started to fizzle out, homeowner started becoming late on the payments, and previous buyers need new cash infusions, then came the refinance era. Refinance ruled for years between 2002 and 2007. Banks and mortgage companies started to refinance all those homeowners that took out home loans a year or 2 earlier, and now had equity, and many new homeowners suddenly had lots of equity in a short space of time. They were drawn into these low interest or teaser rates, also known as adjustable rate mortgage loans(ARM). These loans promised a great new low rate for a fixed period of time, usually up to about 5 years. Then after that period passed then the rate starts to adjust, and sometimes like crazy. The rates adjusted and based on the London Interbank Offered Rate(LIBOR).

A typical ARM loan would start out somewhere around a 3% interest rate for 3 yrs, and then after that is starts to adjust maybe every 6 months, for the rest of the life of the loan. The 1St adjustment does not move more than 3 points up. For example, if you started out with a 5% interest rate and your loan is now ready to adjust your interest rate will not go up more than 3% =8% interest rate for the next 6 months, and so on. There is usually a ground and a ceiling for your interest rate; which is the loan's lowest and highest possible rate percentage. Mortgage companies made allot of money using ARM loans to entice many borrowers looking for easy refinance money, and then the borrowers watch their interest rates in most cases, go up a great deal. This type of loan is usually a good choice in a strong real estate market that is appreciating, and also good if you plan on not staying in the home for more than about 5 years; Otherwise it might not be wise to keep this kind of loan long term.

Property Tax Sales

Property tax is necessary if you want to buy a home, unlike living in an apartment. Property taxes helps to pays for school, roads, teachers, police officers, fireman, among other community services. If you don't want or expect to pay property taxes you should not buy a house. Usually when someone buys a house in any year their taxes are not due until the next year at a pro-rated basis. You are being pro-rated for the year that you bought the property and you may not have had the home in your name the whole year, therefore your 1St year's taxes are usually pro-rated.

You will have a set amount of time to pay those taxes or else your will start to incur penalties for your taxes being past due. If you continue to keep your property taxes past due, then your local taxing authorities can begin the process of selling a tax lien certificate that was placed on your property to try to recover the delinquent taxes that you owe. The tax sale is usually publicized for potential bidders to get information on the tax sale. All counties across the country hold usually conduct property tax sale, normally monthly on a set day. For example, the 1St Tuesday of each month at the local court house or downtown. They will bid on the tax amount owed, lets say a homeowner has $500 in past due taxes. They will start the bidding at a set price, usually the price of the taxes owed, and hopefully they will sell the tax lien certificate to the highest bidder.

If the certificate is bid up to $1,000 to the highest bidder, then that's what the highest bidder will have to pay($1,000) for the $500 delinquent property taxes owed. The homeowner now has a set amount of time to pay back the $1,000 which is at a set interest rate based on that tax certificate terms. The interest rate paid back on the certificate is varies, but a common one is maybe 25% interest charged if paid back from day 1 to 180 days after the sale of the tax certificate; then 50% interest charged from 181 days to 365 days after the sale date; then 75% interest from 366 days to 546 days after the sale date; then100% interest from 547 days to 730 days after the sale date.

If the homeowner does not pay back the money owed within a set time, which varies from state to state; then the bidder will end up owning that property free and clear of any obstacles. The bidder will now need to just get a real estate attorney to put that piece of property in his/her name, because that person is the new property owner and owns the property outright. The bidder does not have to pay mortgage payments on the property, they own it free and clear. That's the beauty of a tax sale.

Mortgage companies will always keep on the look out for any of their homeowners who are not paying their property taxes, or who have fallen behind on their taxes. They will sometimes threaten them with possible foreclosure actions if they don't hurry up and pay their past due property taxes; The reason is, the mortgage company has a stake in that property and does not want that property to go up for a tax sale due to the homeowner not paying their taxes on time. So many companies will pay their borrowers property taxes for them and then increase their house payments to recover what they have paid out on behalf of their homeowner, which is called a forced escrow. Since a homeowner's account was not set up to have their property taxes/and or the insurance escrowed; they were to pay that on their own but somehow they did not, and the mortgage company ended up paying it for them. So they now see a higher house payment until the paid taxes or insurance have been recovered.

Lenders do not always catch properties that have delinquent taxes and so the property can end up a local tax sale. Mortgage companies loose properties from time to time due to the taxes liens going to sale, and the homeowner are not able to pay off those taxes in time to recover the property from a tax sale bidder that has a tax certificate on their property. This risk of losing a property to a tax lien is built into each mortgage contracts.

If someone owns a house and is having problems paying their property taxes they should talk to their lender to see if they can work something out. The worst thing to do is to try to avoid the topic with your lender, and hope everything works out fine in the long run. Sometimes your lender might not find out that you are behind on your taxes, and if they find out they will pay your taxes allot of times to try to avoid a possible tax sale.

Pre-payment of your mortgage to reduce your outstanding mortgage principal drastically.

Pre-paying your mortgage is one of the biggest mortgage secrets out there. Pre-payment is an interesting topic, the reason being is that you can save yourself a great deal of money by doing so and shortening your mortgage life span tremendously. All you have to do is check your loan contract to see if you have a pre-payment clause in it that allows you to pay down your mortgage quickly with little or no effect.

Many mortgages allow a borrower to pay down their mortgage substantially, which can sometimes cut their mortgage payment time in almost half, assuming you do not have a adjustable mortgage rate. If you want to pay off your mortgage early all you have to do is this; get out your mortgage amortization schedule, and if you don't have one you might be able to get it online, or you order it from your lender for a few dollars. Once you get it open it up and look at your payment schedule. You can see from your 1St mortgage payment to where you are right now into terms of the last house payment you have made. Your payments has a break down of the principal and interest, and it give you a break down of how each payment is applied in terms of principal and interest.

What you will notice is that in the first few years on your payments, a tiny amount of your payments are going to the principal balance, most of the payment is going towards interest. That just how mortgage loans are set up due to the length of time it takes to pay off a mortgage. Now look at this, lets say you have some extra money and want to start cutting out some of the years on your mortgage payback. Lets say you have had your mortgage around 2 years now, and you have just made your 23rd house payment. So on your next payment(the 24th payment based on your amortization schedule)all you have to do is send in your regular payment, and in different envelope mail in the next principal payment amount for the next payment, or for the next 10 payments.

All you have to do is on the payment that you are paying early, just put in the "memo section of your check," "this payment is to be applied to my principal payment for payment(s) #25(or what ever principal payment number that the payment(s) is for)." When you do this 2 things happen. First, you have just avoided paying future interest on those principal amount that you have decided to pay for now; so you don't ever have to worry about paying that interest amount anymore because you have just paid the principal early.Secondly, for the principal amounts that you pay now, early, you take those many months off your mortgage payments in the future. The earlier you start doing this with your payments, the more beneficial it is for you in the future.

The reason is that you pay more interest in the earlier years of your mortgage on a regular loan, and when you do this early you can reduce your mortgage payments by years, and build equity really quickly. Another example, lets say I have a $1,500/month mortgage and I am now getting ready to pay my 5th mortgage payment but I want to wipe off 1 year of my 30 year mortgage; All I would have to do is send in a payment for my 5th payment of $1,500 in one envelope, and in another envelope I would send in another payment for my principal payments for my 6th-17th principal payment amount and put that in the "memo section" of my check, to be applied to future my principal payments #6-17. Just by doing that I have just reduced my mortgage pay back time by one whole year.

I have tons of tips and trick to make the most of your mortgage situation, and help take charge of for mortgage problems. Keep following up for the latest mortgage strategies for getting a lower mortgage payment regardless of your credit. In fact, you don't even need credit whether you are in foreclosure or not you can get help to lower your mortgage payment.

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