Question: Due to my credit history I just got a high rate mortgage. It is a 2/28 with a two year pre-payment penalty. I would like to be able to refinance in two years when the pre-payment penalty expires. Can you give me any advice?
Answer: Yes. The 2/28 mortgage program was designed for people with credit issues. Our hope is that every customer thinks the way you are thinking. Two years is enough time to build and repair your credit. Here are some thoughts for your consideration...
What is a 2/28 Mortgage?
A 2/28 program has a fixed rate for the first two years. At the end of the two year fixed period it becomes adjustable. Typically it can adjust every six months after the first 24 months. Although there are caps (or limits) on the amount of each adjustment these programs are highly likely to increase significantly at the first adjustment. Ask your mortgage broker for the details of your particular loan.
Plan to Refinance
Given the premium rate that you received on your 2/28 and the almost inevitable rate increase that you face at the end of 24 months you have every incentive to make sure that you are in a favorable position at the end of 24 months to refinance into a better, lower rate mortgage. In our experience, if you make an informed and disciplined effort, you should be able to refinance into a regular Fannie Mae low rate mortgage regardless of your current credit profile.
Rebuilding Your Credit
Having a mortgage on your credit report is a fantastic first step towards building or re-building your credit. Obviously, it is essential that you make all of your payments on time over the next two years. You have had some credit issues in the past, so you know that events may occur that can strain your budget. No one is immune! So think seriously about building a savings account for potential reserves.
Develop Your Savings
Put money into your saving account anytime that you can. Think seriously about making your savings account a priority in your life. The time may come when you need the savings account to insure that payment are made on time. From this point forward don't risk making a late payment.
Maintain Your Budget
You might consider making some sacrifices over the next 24 months to make sure that you continue to remain comfortably within your budget. It is tempting when you have just bought a new home to go shopping! And some shopping may be necessary and appropriate, but not at the expense of your future financial well being. It doesn't hurt to think about the benefit of keeping your credit on track.
Good Credit Equals Big Savings
What will it mean to you in two years when you have rebuilt your credit? Your future mortgage refinance may save you hundreds of dollars each month. But refinancing your mortgage is just part of the picture. Your credit effect the rates on everything from your car loan to your credit cards. Lower rates mean lower monthly bills. Lower monthly bills means more money in your pocket.
Credit Repair Can Help
Your credit report deserves some attention. You should give yourself every advantage when it comes to your financial life. You may very well have serious errors on your credit report that will continue to linger and cost you money unless you do something about it. For credit repair help visit us at www.skybluecredit.com.
Questions? Feel free to contact us. We will be happy to discuss your situation with you.
Contact Jim Kemish at Power Mortgage Corp. for permission to reproduce this article electronically. Copyright © 2007 James W. Kemish. All Content. All Rights Reserved. Power Mortgage Corp. is a Florida Mortgage Broker Business licensed in Florida, Georgia, Massachusetts, and Virginia.
Tuesday, January 23, 2007
Wednesday, January 17, 2007
Florida Property Taxes Can Be a Nasty Surprise
Florida Property Taxes Can be a Surprise
We are a Florida mortgage company. Property taxes factor into our job in many ways. When you apply for a mortgage to purchase a home we have to qualify you based on your estimated future taxes. As property values in Florida have rocketed upwards in the last decade property taxes have become a very significant part of our customers’ monthly mortgage payment.
Your New Florida Taxes
Florida is a great place to live. Whether you are moving here for the first time or relocating within the state property taxes can take you by surprise. After you purchase your new home it will be reassessed for tax purposes. We suggest that you speak to your realtor or make a visit to the local city hall to get a reasonable estimate of your future property taxes. If you would like to know what your mortgage payment will be you will need to include a reasonable estimate of your property taxes in your calculation.
What to Expect
As a Florida mortgage company we believe that we have the responsibility to make sure that you have the knowledge that you need to make the most informed decision possible. If you go to city hall to get an estimate of your future property taxes you will likely be told to expect an annual tax bill of between 1.5% and 2.0% of your purchase price. But Florida counties are allowed to tax property for as much as 3% of the value. Ask questions. Know what to expect.
Florida Homestead Exemption Rules
The Florida property tax homestead exemption reduces the taxable value of your homesteaded property by $25,000 for property tax calculations. These days the Florida homestead exemption is less likely to have a significant impact on your tax bill as property values have surged over the recent decade. If you pay $500,000 for your home and get a $25,000 homestead exemption your savings do not add up to a significant percentage of your potential tax bill. But that does not mean that you should not bother filing for your homestead exemption!
Florida Tax Increase Caps
More importantly, the Florida homestead exemption limits the rate at which your property taxes can be increased. The millage rates can be changed - which would represent an across the board adjustment effecting everyone. But once your home is homesteaded the amount that your assessed value can be increased is limited. This rule was enacted in the “Save Our Homes” Amendment to the Florida Constitution and went into effect in 1995. The amendment caps the increase of the assessed value of a home with a homestead exemption to the lesser of 3% or the rate of inflation. So file for your homestead exemption. Contact City Hall for the filing dates and document requirements.
Primary Home Only
The Florida Homestead exemption is only for your primary home. This exemption does not apply to rental properties or vacation homes. At this time the homestead is not transportable. This means that you do not get to carry your current assessed value with you to your next home. When you buy a new home you "restart the clock" and will have to pay taxes on the full value of our new home.
The Future
There is an open dialog in process that may change the substance of the homestead exemption rules in the coming years. This dialog has been triggered by the surge in Florida real estate values in recent years which has simultaneously reduced the liquidity of real estate by creating barriers to home purchases, and made it nearly inconceivable for many people to move from their current home into a new home where they would face dramatically higher and unaffordable taxes.
Would you like to discuss your situation? We will be happy to speak with you.
Contact Jim Kemish at Power Mortgage Corp. for permission to reproduce this article electronically. Copyright © 2007 James W. Kemish. All Content. All Rights Reserved. Power Mortgage Corp. is licensed in Florida, Georgia, Massachusetts, and Virginia.
We are a Florida mortgage company. Property taxes factor into our job in many ways. When you apply for a mortgage to purchase a home we have to qualify you based on your estimated future taxes. As property values in Florida have rocketed upwards in the last decade property taxes have become a very significant part of our customers’ monthly mortgage payment.
Your New Florida Taxes
Florida is a great place to live. Whether you are moving here for the first time or relocating within the state property taxes can take you by surprise. After you purchase your new home it will be reassessed for tax purposes. We suggest that you speak to your realtor or make a visit to the local city hall to get a reasonable estimate of your future property taxes. If you would like to know what your mortgage payment will be you will need to include a reasonable estimate of your property taxes in your calculation.
What to Expect
As a Florida mortgage company we believe that we have the responsibility to make sure that you have the knowledge that you need to make the most informed decision possible. If you go to city hall to get an estimate of your future property taxes you will likely be told to expect an annual tax bill of between 1.5% and 2.0% of your purchase price. But Florida counties are allowed to tax property for as much as 3% of the value. Ask questions. Know what to expect.
Florida Homestead Exemption Rules
The Florida property tax homestead exemption reduces the taxable value of your homesteaded property by $25,000 for property tax calculations. These days the Florida homestead exemption is less likely to have a significant impact on your tax bill as property values have surged over the recent decade. If you pay $500,000 for your home and get a $25,000 homestead exemption your savings do not add up to a significant percentage of your potential tax bill. But that does not mean that you should not bother filing for your homestead exemption!
Florida Tax Increase Caps
More importantly, the Florida homestead exemption limits the rate at which your property taxes can be increased. The millage rates can be changed - which would represent an across the board adjustment effecting everyone. But once your home is homesteaded the amount that your assessed value can be increased is limited. This rule was enacted in the “Save Our Homes” Amendment to the Florida Constitution and went into effect in 1995. The amendment caps the increase of the assessed value of a home with a homestead exemption to the lesser of 3% or the rate of inflation. So file for your homestead exemption. Contact City Hall for the filing dates and document requirements.
Primary Home Only
The Florida Homestead exemption is only for your primary home. This exemption does not apply to rental properties or vacation homes. At this time the homestead is not transportable. This means that you do not get to carry your current assessed value with you to your next home. When you buy a new home you "restart the clock" and will have to pay taxes on the full value of our new home.
The Future
There is an open dialog in process that may change the substance of the homestead exemption rules in the coming years. This dialog has been triggered by the surge in Florida real estate values in recent years which has simultaneously reduced the liquidity of real estate by creating barriers to home purchases, and made it nearly inconceivable for many people to move from their current home into a new home where they would face dramatically higher and unaffordable taxes.
Would you like to discuss your situation? We will be happy to speak with you.
Contact Jim Kemish at Power Mortgage Corp. for permission to reproduce this article electronically. Copyright © 2007 James W. Kemish. All Content. All Rights Reserved. Power Mortgage Corp. is licensed in Florida, Georgia, Massachusetts, and Virginia.
Saturday, January 13, 2007
Trouble Ahead for Many Borrowers
Negative Amortization Mortgages
Negative amortization mortgages are sold as "Option ARMS", "Pay Option ARMS", "Pick-a-Pay" programs, and a under a variety of other euphemistic names. The characteristic they share in common is a low payment rate, usually between 1% and 1.95%. This rate is not the true note rate; it is the rate that your payment is based on. The true note rate is a market rate, or "fully indexed rate", and may be 5% or more above the payment rate.
The difference between your payment based on the low "payment rate" and the amount that you would have paid based on the "fully indexed rate" is added to your balance. The term "negative amortization" refers to the potential increase in the loan size over time. A normally amortizing home loan shrinks in size as you make payments. A typical negative amortization loan has the potential of growing to 125% of its original amount.
This type of loan is not all bad. A responsible borrower that understands the program can enjoy and benefit from the reduced payment that normally lasts for a five year period. Servicers of these loans usually provide a very clear monthly bill showing you exactly what is happening to your balance.
On the other hand, this type of mortgage presents a major risk for borrowers that cannot afford more than the minimum monthly payment. Many borrowers have used these loans to purchase homes in price ranges that would otherwise be out of reach. When the five year “minimum payment” period is over these borrowers will find that they cannot afford to live in the home anymore. They may also discover that they owe more than the home is worth. And in today’s weak real estate market this is a real possibility.
Florida mortgage borrowers applied for negative amortization mortgages in droves as home prices soared between 2001 and 2005. During this period of time property values generally kept up with any negative amortization that might have accrued. This is no longer the case. Many Florida mortgage borrowers, along with those in many other states, are finding that their home value is shrinking while their loan balances are increasing.
Does this describe you? Don't panic. Plan. Consider your options. It's always best to know the facts.
Interest Only Mortgages
Interest only loans allow you to pay only the interest due. The period of time that the interest only payment is allowed is typically limited to 5, 7, or 10 years. At the end of the interest only period the loan is amortized over the remaining years.
Unlike negative amortization mortgages, these loans do not increase in balance. For the interest only period you will enjoy a smaller payment than you would make on a normally amortizing loan. But it is important to keep in mind that when the interest only period is over your mortgage will be recast and your payments will be calculated based on the remaining term of the loan. A 30 year loan with a 10 year interest only period would become a 20 year amortizing loan at the end of the 10 year period. This can mean a big increase in your monthly payment. Will you be able to afford it?
Need Help?
Would you like to discuss your situation? We will be happy to speak with you about the possible benefits of refinancing. Or if you are getting ready to purchase a new home we will be happy to review your choices and help you determine the program that works best for your needs and desires.
Contact Jim Kemish at Power Mortgage Corp. for permission to reproduce this article electronically. Copyright © 2007 James W. Kemish. All Content. All Rights Reserved. Power Mortgage Corp. is a Florida Mortgage Company and is licensed in Florida, Georgia, Massachusetts, and Virginia.
Negative amortization mortgages are sold as "Option ARMS", "Pay Option ARMS", "Pick-a-Pay" programs, and a under a variety of other euphemistic names. The characteristic they share in common is a low payment rate, usually between 1% and 1.95%. This rate is not the true note rate; it is the rate that your payment is based on. The true note rate is a market rate, or "fully indexed rate", and may be 5% or more above the payment rate.
The difference between your payment based on the low "payment rate" and the amount that you would have paid based on the "fully indexed rate" is added to your balance. The term "negative amortization" refers to the potential increase in the loan size over time. A normally amortizing home loan shrinks in size as you make payments. A typical negative amortization loan has the potential of growing to 125% of its original amount.
This type of loan is not all bad. A responsible borrower that understands the program can enjoy and benefit from the reduced payment that normally lasts for a five year period. Servicers of these loans usually provide a very clear monthly bill showing you exactly what is happening to your balance.
On the other hand, this type of mortgage presents a major risk for borrowers that cannot afford more than the minimum monthly payment. Many borrowers have used these loans to purchase homes in price ranges that would otherwise be out of reach. When the five year “minimum payment” period is over these borrowers will find that they cannot afford to live in the home anymore. They may also discover that they owe more than the home is worth. And in today’s weak real estate market this is a real possibility.
Florida mortgage borrowers applied for negative amortization mortgages in droves as home prices soared between 2001 and 2005. During this period of time property values generally kept up with any negative amortization that might have accrued. This is no longer the case. Many Florida mortgage borrowers, along with those in many other states, are finding that their home value is shrinking while their loan balances are increasing.
Does this describe you? Don't panic. Plan. Consider your options. It's always best to know the facts.
Interest Only Mortgages
Interest only loans allow you to pay only the interest due. The period of time that the interest only payment is allowed is typically limited to 5, 7, or 10 years. At the end of the interest only period the loan is amortized over the remaining years.
Unlike negative amortization mortgages, these loans do not increase in balance. For the interest only period you will enjoy a smaller payment than you would make on a normally amortizing loan. But it is important to keep in mind that when the interest only period is over your mortgage will be recast and your payments will be calculated based on the remaining term of the loan. A 30 year loan with a 10 year interest only period would become a 20 year amortizing loan at the end of the 10 year period. This can mean a big increase in your monthly payment. Will you be able to afford it?
Need Help?
Would you like to discuss your situation? We will be happy to speak with you about the possible benefits of refinancing. Or if you are getting ready to purchase a new home we will be happy to review your choices and help you determine the program that works best for your needs and desires.
Contact Jim Kemish at Power Mortgage Corp. for permission to reproduce this article electronically. Copyright © 2007 James W. Kemish. All Content. All Rights Reserved. Power Mortgage Corp. is a Florida Mortgage Company and is licensed in Florida, Georgia, Massachusetts, and Virginia.
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