Choosing Your Home Loan
What is a "no cost" loan?
No cost loans are very popular for re-finances after you've already owned the home. I'll give you an example. Let's say, a year ago, we closed a loan at 6%. Today, at the market rate, I could actually get you 5.5% interest rate. However, to get you that "free loan" I'm actually going to bump your rate up to 5.75% and then use that money (which is commission that the bank is going to pay me, from 5.5% to 5.75%) to pay for all of your closing costs. So for you, it's a no closing cost deal yet you are also going to save .25% in rate on your mortgage; from 6% to 5.75%, for free.
What is a "balloon payment" provision?
A balloon payment provision is not really that prevalent nowadays. Say five years ago we met and you got a $3 mortgage, but it was a five year balloon and today it expires. You need to come up with $3, because its now due. Balloon payments are there for a period of time but then you have to make that full payment back to the bank when its due. Nowadays, we have what's called a five year fixed, but its amortized over thirty years and instead of it ballooning on you after five years it will just adjust for every year, which is called margin plus index. You won't have to all of a sudden pay all that money back. It'll turn into an adjustable instead of a five year fixed.
Which mortgage is the most risky and why?
The mortgage that is the most risky would be a one-month adjustable product. The term out there for it is a negative amortization loan. The index is your concern. The index will move every day; it's like the stock market. So, you really want to avoid those types of loans unless you really, completely understand how they're being used. It's really more of a short-term loan, so it's not something you'd want to get into unless you're a very savvy investor.
Are fixed rate loans always at a higher interest rate?
Yes fixed rate loans always are at a higher interest rate, because you're not participating in the bank's risk of the volatility of interest rates over the years on the money that they gave you. So, for example, you got a $500,000 loan today at 6%, it's a 30-year fixed, the rate is never going to change; but that's $500,000 of that bank's money that now could be out there for 30 years at 6%. Well, if rates go back to double-digits again, say 10%, 15%; they're losing a lot of money on that $500,000 they lent you today.
How many mortgages can I have?
You can have as many mortgages as you can afford; as many as the number of properties of Real Estate you own. I've done loans where on the loan application section for "Real Estate owned" there are 35 properties that individual owned, so it's unlimited.
Are "bi-monthly payment plans" offered by my lender worth it?
My whole philosophy with mortgages is "Sure, if you put a decent amount down as down payment when you originally bought the house." So, if you buy a million dollar home, you put $300,000 down for down payment, your new loan amount is now $700,000. My whole philosophy is let's not put any more money into the home. Let's use the additional money for other investments that you can stick your money into with a better rate of return. So, yes, it is out there, but I wouldn't recommend to most of my clients to do the bi-weekly or bi-monthly payments.
Is it possible to pay off my mortgage loan early?
Yes, it is possible to pay off your mortgage loan early. If you were one of my clients, I would try to talk you out of it. The reason is: why would you? Let's say you have a house that's worth $500,000 and you owe $300,000. If you want to pay the whole thing off and the rate that I gave you is at 5%, why don't you go use that $300,000 (that you were going to use just to pay off the mortgage) for investment opportunities; lend private money, make development deals, buy stock, buy bonds, and make a much higher rate of return on your money?
Is there a penalty for paying off my mortgage loan early?
You'll know if there's a penalty for paying off your mortgage early before you close on your home loan. It'll tell you whether you have a pre-payment penalty or not. For 95 percent of my clients, there are no pre-payment penalties. Most pre-payment penalties now occur for subprime borrowers; borrowers that don't have A-paper credit.
Can my mortgage loan be assigned to a new lender?
Yes, your mortgage can be assigned to a new lender. It happens quite frequently, and there will be documentation in your mortgage to support that when you're signing your final loan documents. It will say that at any point in time your loan can be serviced by another institution. That's actually a very big market out there; it's called the mortgage-backed security market, being done by Wall Street. It's a major market where loans are being packaged and sold all the time.
What is an assignable or assumable mortgage?
A majority of lending institutions out there will not allow you to assign your loan over to somebody else. A person who wants to purchase your home will have to get a new home loan. There's one lending institution that actually tried assignable or assumable mortgages a while ago. Let's say you live at this property now with this low rate at 4% with your loan, and you want to take that rate with you to purchase another house. A bank tried that for a while, but it will never work. The reason is, all these mortgage loans that are closed are all being sold on the secondary market. It's a major investment vehicle that's out there and they constantly need to see these things churning over and over.
When does my loan fund?
Your loan will fund at the very end of the process obviously. Once we have we have your loan approved, once conditions have been met, once you have actually signed the final legal documents. Those legal documents need to go back to the lending institution.The lending institution then will review those loan documents, make sure everything is accurate, and once that's done. They will then disperse a wire out to the escrow company and the seller, and the buyer, you, all that money will exchange hands at once. And that's called funding and usually the following day it will officially record down at the county as a legal document and that's when you get to pick up your keys.The only thing to pick up your keys to your new home is when it funds. It has to record down at the county office.
