Beware the HELOC

Does this rapidly-inflating real estate market look suspiciously familiar?

With many communities in our country still feeling less than financially recovered from the recession, we have to wonder if the more fortunate (i.e. prosperous) communities have learned any lessons from the bust.

Some financial analysts insist that we are NOT headed for another bubble because banks are no longer giving away money as feely as they were in the early 2000’s. However, another reason that we (collectively) got in trouble is because homeowners used their property as ATM’s by borrowing against their equity from an inflated market. It seems as if that part of the equation might repeat itself.

Because interest rates have remained so low for so long, most homeowners who want to refinance to a lower loan rate, have already done so. That means that financial institutions need to find a way to replace the income they were making from refi’s. Some of the large banks have begun encouraging homeowners to once again tap into their equity by applying for a HELOC — Home Equity Line of Credit — to finance things like second homes, vacations, college tuition, etc.  The beauty of a HELOC is that it can be used for any purpose you wish, or simply left as an open line of credit. Much like a credit card, there are no payments to make until you access that credit. Unlike a credit card, your home is used as collateral.

Bankers know that most people who apply for a HELOC, even if they don’t intend to access the credit, will eventually do so. It’s simply human nature. Make no mistake, a HELOC is the equivalent of a second mortgage.  When home prices stop their drastic rise, or perhaps even go down, those who have added a HELOC to their first mortgage could find themselves underwater. I.e. the total of the loans against the property could be more than the property is worth. Or, at the very least, the lack of remaining equity could thwart plans to purchase another home.

I’m not saying that it is never a good idea to utilize a HELOC — it may very well make financial sense for you — but I am cautioning homeowners to consider how it might impact you if home prices don’t continue their current meteoric rise.

If you’d like to know more, give me a call at 206-708-9800, or talk to a trusted lender.

If you know of anyone who is thinking of selling their home, I would appreciate the opportunity to tell them about my services!

Posted 4/1/16

How to shave years and dollars off your existing home loan

Did you know that by making one extra mortgage payment per year — either in one lump sum or divided into twelve months — you can reduce a 30-yr. loan term by up to 7 years and save thousands (maybe tens of thousands) of dollars in interest over the life of the loan? It’s true.

To find out how much you could save, go to www.BankRate.com and choose  the Amortization Schedule Calculator. If you can’t afford to make a whole extra payment, you can still save big by adding just a few extra dollars per month or by splitting your payment in half and paying twice a month. Call your lender to ask for details and other options.

 

Posted by Alice Kuder on 2/24/14

 

The first step in buying a home

Are you thinking about buying a home? Wondering about how to get started with the whole process?

The first thing you should do is talk to an experienced, trustworthy lender (aka loan officer) to get an accurate assessment of your credit status and financial fitness. A loan officer will help you determine the amount of money you can qualify to borrow, i.e. how much house you can afford.

How and where do you find a trustworthy lender? I recommend you devote a little time to this task because your choice can either save or cost you a lot of money when buying a home!

If you don’t already have a lender you trust, ask friends and family for recommendations. Real estate agents are also a great source for referrals as we work with lenders all the time and can easily identify and recommend several loan officers who have a good track record for helping our clients successfully buy a home.

Next, spend a little more time interviewing two or three lenders until you find one who fills you with confidence in his/her skills and ethics.

Here are 10 Questions to Ask when interviewing a loan officer.

  1. What are the most popular mortgage loans you offer?
  2. Which type of mortgage plan do you think would be best for us? Why?
  3. Are your rates, terms, fees, and closing costs negotiable? How do you get paid?
  4. Will I have to buy private mortgage insurance? If so how much will it cost and how long will it be required? NOTE: Private mortgage insurance usually is required if you make less than a 20 percent downpayment, but most lenders will let you discontinue the policy when you’ve acquired a certain amount of equity by paying down the loan.
  5. Who will service the loan? Your bank or another company?
  6. What escrow requirements do you have?
  7. How long is your loan lock-in period (the time that the quoted interest rate will be honored)? Will I be able to obtain a lower rate if they drop during this period?
  8. How long will the loan approval process take?
  9. How long will it take to close the loan?
  10. Are there any charges or penalties for prepaying the loan?

Used with permission from Real Estate Checklists & Systems (http://www.realestatechecklists.com)

In my next post, I will discuss step 2 in the home buying process. If you can’t wait, give me a call for a personal consultation. 206-708-9800