Low mortgage rates present a variety of opportunities
Courtesy Landmark Bank, Texoma LIVING WELL Magazine
Average rates for 30-year and 15-year fixed mortgages fell to new record lows this spring. Mortgage buyer Freddie Mac reported that the average interest rate on 30-year loans fell to 3.84%, lowest since long-term mortgages began in the 1950s.
While rates and home prices continue to fall, a number of unique opportunities are becoming available to consumers.
First Time Home Buyers
First time home buyers will face both opportunities and challenges. There is plenty of inventory on the market, but many banks have tightened their lending requirements making it difficult for some first time borrowers to get into a home. In this low rate environment with stricter lending criteria it’s important first time buyers know how much house they can afford. Their local banker can help or websites like Bankrate.com offer mortgage calculators to help out. First time home buyers should also consider paying off revolving debt. This will help borrowers boost their credit score and ultimately get a better rate from their lender. The U.S. Department of Housing and Urban Development (HUD) sponsors a number of homebuyer programs, including down payment and closing cost assistance. A listing of statewide and regional programs is available at www.hud.gov.
Refinancing a mortgage means paying off an existing loan and replacing it with a new one. There are many common reasons why homeowners refinance: The opportunity to obtain a lower interest rate; the chance to shorten the term of their mortgage; the desire to convert from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage, or vice versa; the opportunity to tap a home’s equity in order to finance a large purchase; and the desire to consolidate debt. Refinancing can be a great financial move if it reduces your mortgage payment, shortens the term of your loan or helps you build equity more quickly. When used carefully, it can also be a valuable tool in getting your debt under control. Before you refinance take a careful look at your financial situation, and ask yourself: How long do I plan to continue living in the house? And how much money will I save by refinancing?
HELOC (Home Equity Line of Credit) and Home Equity Loans
With a home equity line, you will be approved for a specific amount of credit. Many lenders set the credit limit on a home equity line by taking a percentage (say, 75%) of the home’s appraised value and subtracting from that the balance owed on the existing mortgage. The remaining amount would represent the potential line of credit available. A home equity loan or traditional second mortgage loan provides you with a fixed amount of money, repayable over a fixed period. You might consider a second mortgage instead of a home equity line if, for example, you need a set amount for a specific purpose. One of the acceptable tax deductions is mortgage interest. However, while all of the interest paid on first mortgage loans is a valid deduction, the interest paid on a HELOC may or may not be deducted from an individual’s taxes. Because HELOC proceeds can be used for any purpose, like buying autos, clothing, electronics, and other consumer goods and services, some interest paid may not qualify as a deduction. Typically, the first $100,000 balance of a HELOC is deductible. After that level is reached, only those amounts spent on the home securing the loan are technically deductible. Consult with your tax advisor or CPA for specific details regarding your loan and the state you live in.
If you’re 62 or older – and looking for money to finance a home improvement, pay off your current mortgage, supplement your retirement income, or pay for healthcare expenses – you may be considering a reverse mortgage. It’s a product that allows you to convert part of the equity in your home into cash without having to sell your home or pay additional monthly bills. In a “regular” mortgage, you make monthly payments to the lender. In a “reverse” mortgage, you receive money from the lender, and generally don’t have to pay it back for as long as you live in your home. The loan is repaid when you die, sell your home, or when your home is no longer your primary residence. The proceeds of a reverse mortgage generally are tax-free, and many reverse mortgages have no income restrictions.
For more information on Landmark Bank and to find a location near you, visit their website at www.landmarkbank.com or give them a call at 800-618-5503.
Mortgage Basics tutorial- http://www.investopedia.com/university/mortgage/
Buying a home- http://portal.hud.gov/hudportal/HUD?src=/topics/buying_a_home
Reverse Mortgages- http://reversemortgageguides.org/reverse_mortgage/what_is_a_reverse_mortgage/
Mortgage Rates- http://www.bankrate.com/mortgage.aspx