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Honey, I Shrunk The Mortgage Interest Deduction Plan 1

The political landscape this year has been nothing but ugly. It promises to come to full boil with the proposed tax reform eliminating or reducing the mortgage interest deduction.

Tax Reform or Raising Taxes

There is an old saying about the two political parties. Democrats raise taxes while Republicans reform taxes. In both instances, we end up paying more money. In a very brave move, a bipartisan committee is recommending tax reform that goes after the beloved mortgage interest deduction.

The committee looking into tax reform was given a directive by President Bush to simplify a tax code that is universally agreed to be a disaster area. You may not realize it, but two additional sections are added to code every day on average. One of the particular problems is the Alternative Minimum Tax, which was originally designed to keep super wealthy people from avoiding taxes. Because it was written poorly, the AMT now affects a large percentage of people. The problem, however, is how do you get a make up for a tax that produces millions of dollars in revenue for the government?

The committees answer is to go after the mortgage interest deduction. The committee has offered two plans and well look at the first one here.

In the first plan, the mortgage interest deduction would be reduced to a figure related to the loan amount the FHA will back. The FHA was set up to help low income individuals get homes, which means the effective cap on the deduction would be very low. In San Diego, the average single-family home costs in excess of $600,00. The FHA cap for the city is around $315,000, which means homeowners would lose approximately half of their deduction. In expensive real estate areas, this will mean many people will lose the ability to make their mortgage payments, which means defaults. With borrower defaults will come the end of the housing market boom. The loss of equity will, of course, cause many people to go upside down on their loan, which will be another disaster.

If Congress pursues a cap on the mortgage interest deduction, chaos will reign. It is hard to imagine this option being adopted by the politicians.

Honey, I Shrunk The Mortgage Interest Deduction Plan 1

The political landscape this year has been nothing but ugly. It promises to come to full boil with the proposed tax reform eliminating or reducing the mortgage interest deduction.

Tax Reform or Raising Taxes

There is an old saying about the two political parties. Democrats raise taxes while Republicans reform taxes. In both instances, we end up paying more money. In a very brave move, a bipartisan committee is recommending tax reform that goes after the beloved mortgage interest deduction.

The committee looking into tax reform was given a directive by President Bush to simplify a tax code that is universally agreed to be a disaster area. You may not realize it, but two additional sections are added to code every day on average. One of the particular problems is the Alternative Minimum Tax, which was originally designed to keep super wealthy people from avoiding taxes. Because it was written poorly, the AMT now affects a large percentage of people. The problem, however, is how do you get a make up for a tax that produces millions of dollars in revenue for the government?

The committees answer is to go after the mortgage interest deduction. The committee has offered two plans and well look at the first one here.

In the first plan, the mortgage interest deduction would be reduced to a figure related to the loan amount the FHA will back. The FHA was set up to help low income individuals get homes, which means the effective cap on the deduction would be very low. In San Diego, the average single-family home costs in excess of $600,00. The FHA cap for the city is around $315,000, which means homeowners would lose approximately half of their deduction. In expensive real estate areas, this will mean many people will lose the ability to make their mortgage payments, which means defaults. With borrower defaults will come the end of the housing market boom. The loss of equity will, of course, cause many people to go upside down on their loan, which will be another disaster.

If Congress pursues a cap on the mortgage interest deduction, chaos will reign. It is hard to imagine this option being adopted by the politicians.

As the title of this article would suggest, I am going to take you on a journey through the ups and downs on fixed rate mortgages. When buying a house, especially the first one, I think that it is literally the most terrifying experience that I have been through, and I have combat experience as a military veteran. For those of you who find yourselves still anticipating the purchase of your first home, let me give you a brief rundown of what it is and what it isnt. What it isnt will be the easies to tell you about. It isnt like going to the store and buying what you want by swiping your card. It isnt even like buying a new car, although the new car buying experience is a little bit closer. It is like looking at dozens of houses that you hate in order to find one that you like, only to learn that it is $10,000 more than you wanted to spend. So you make an offer and wait to see if the seller takes the offer or sends back a counter-offer. Once the game of offer/counter-offer is through you set up a closing date. At the closing you sit down and sign enough papers to make Leo Tolstoy quake in his boots. Once that hour devouring procedure is done, the house is yours and you are in debt for 30 years. Sounds appealing doesnt it? Well, actually, it really is. But, before you get to the point where you can sign all those papers, you have to decide on what kind of loan will be best for you. There are a couple of different options and, in this first installment, I will discuss the fixed rate mortgage.
Overview of a Fixed Rate Mortgage

As the name would suggest, the fixed rate mortgage is a loan that has constant payments. By constant I dont mean that they will be due every month (although they will), rather I refer to the fact that they do not change. If you get a fixed rate mortgage and the payments are $900 per month, they will remain at $900 for the duration of your loan. Nothing changes, it is set in stone, and you can set your clock by it, $900 a month for 30 years.
Benefits of a Fixed Rate Mortgage.

There are a number of benefits to having a fixed rate mortgage. I would like to discuss two of them, the planning power that it gives, and the financial liberty that you can take from it. Lets start with the planning power.

Planning Power
To take on the responsibility of a $150,000, $200,000, or even $1million dollar debt is, as a mentioned before, very scary. But, to know that all you will ever be required to pay is $900 a month (or whatever your payments end up being. I dont in any way want to insinuate that all mortgage payments are going to be $900 if you get a fixed rate.) is a very comforting piece of knowledge. You can plan your budget around that amount and make sure that you can always afford it. It really helps things out to have that amount set in stone. The next thing that most people get out of a fixed rate mortgage is financial liberty.

Financial Liberty
What I mean by that would be best communicated in the description of a hypothetical scenario. Picture a young couple, just out of college, just married, and brand new at the jobs in their respective careers. They decide to take out a loan and buy a house. They, because of the salary restrictions that they are working with, can only comfortably afford $500 a month. They know that this wont get them the house that really want so they decide to stretch a lot financially and get a house that will run them $800 a month. After two years they both get promotions and their bills get easier to pay. After another two years they both move into management and get more promotions. Suddenly they find themselves in a position where they can actually comfortable afford to make $900 a month payments, and later on they can make $1000 a month payments, but they dont have to. All they are required to do is $800. Every amount of money that they pay over $800 in a month goes towards paying off the principle and this gets their house paid off much faster. When the house is paid off, there is $800 a month that is no longer being tied up in living expenses. You see, in a fixed rate, 30-year mortgage, it will take 22 years to pay half of the principle because so much of that money is going towards the interest. If you consistently pay more each month than the minimum payment you can pay off a 30-year mortgage in 20 years easily.

Final Synopsis
For the young, first time homebuyer with a solid income, a fixed rate mortgage is a pretty good option. It allows, as was earlier stated, predictability and the possibility for earlier financial liberation. For the older first time homebuyer this is the best option. The ability to pay off a mortgage in less than 30 years is something that becomes very important as retirement approaches. For the buyers that are on a much tighter, less predictable budget, this may not be the best option. In that case there are other mortgages that would be better suited for their needs. But, as with all mortgage and real estate decision, sit down with a professional who can assess your individual needs and come up with a plan that is right for you.

The most basic distinction between types of mortgages that are available when you’re looking to finance the purchase of a new home is how the interest rate is determined. Essentially, there are two types of mortgages – fixed rate mortgage and an adjustable rate mortgage. If you choose a fixed rate mortgage, the rate of interest that you are paying on your mortgage remains the same throughout the life of the loan no matter what general interest rates are doing. In an adjustable rate mortgage, the interest rate is periodically adjusted according to an index that rises and falls with the economic times. There are advantages and disadvantages to either, and no easy answer to ‘which is better, a fixed rate mortgage or an adjustable rate mortgage?

The main advantage to a fixed rate mortgage is stability. Since the interest rate remains the same over the entire course of the loan, your monthly payment is predictable. You can count on your monthly mortgage payment to be the same amount each month. On the minus side, because the lending institution gives up the chance to raise interest rates if the general interest rates rise, the interest on a fixed rate mortgage is likely to be higher than that of an adjustable rate mortgage.

A fixed rate mortgage loan makes the most sense for those that are going to settle into their home for many years. While the initial payments may be larger than with an adjustable rate mortgage, stretching the payments over a longer period of time can minimize the effect on your budget.

An adjustable rate is one that is adjusted periodically to take into account the rise or fall of standard interest rates. Generally, the adjustable term is annual – in other words, once a year the lending company has the right to adjust the interest rate on your mortgage in accordance with a chosen index. While adjustable rate mortgages make the most sense in a situation where interest rates are dropping, though it’s dangerous to count on a continued drop in interest rates.

Lenders often offer adjustable rate mortgages with a very low first year ‘teaser’ interest rate. After the first year, though, the interest rate on your mortgage can increase by leaps and bounds. Even so, there are limits to how much an adjustable rate can actually adjust. This is dependent on the index chosen and the terms of the loan to which you agree. You may accept a loan with a 2.3% one year adjustable rate, for instance, that becomes a 4.1% adjustable rate mortgage on the first adjustment period.

Finally, there’s a new kind of loan in town. A hybrid between adjustable rate mortgages and fixed rate mortgages, they’re known as ‘delayed adjustable’ mortgages. Essentially, you lock in a fixed rate of interest for a number of years – say 3 or 7 or 10. At the end of that period, the loan becomes a 1 year adjustable rate mortgage according to terms set out in the agreement you sign with the mortgage or financial institution.

Compare Mortgage Rates For Refinancing Choosing The Best Refinance Mortgage Option

When refinancing a mortgage loan, homeowners have several options. There are numerous reasons for refinancing an existing mortgage. The past five years have witnessed low mortgage rates. However, low rates will not remain forever.

Before interest rates begin to climb, homeowners should take advantage of their refinancing option.

Which Home Mortgage Lender to Choose?

Many financial lending institutions offer mortgage refinancing. If hoping to secure a good refi loan, it may be practical to use a refinancing specialist. Mortgage specialists are able to address all your concerns. Moreover, they can offer expert advice on which type of mortgage refinancing to choose.

Homeowners who are satisfied with their existing mortgage lender may consider obtaining a new mortgage with the same lender. However, using the same lender is not required. In fact, even if your mortgage lenders offer a good refi loan rate, it helps to obtain additional quotes and compare the different offers.

What are Your Refi Loan Options?

When refinancing a mortgage loan, homeowners have several loan options. Usually, homeowners refinance to lock in a low fixed rate. This way, mortgage payments remain predictable. Many select adjustable rate mortgages below of their low introductory rate. If homeowners choose a mortgage loan with an adjustable rate (ARM), they should anticipate changing rates. If rates falls, ARMs pose little threat. However, if rates increase, so does the mortgage payment.

Homeowners should also select an ideal term when refinancing a mortgage loan. For example, will they extend the loan term by refinancing for another 30 years, or choose a shorter term and refinance for 15 years.

Cash-out Refinancing Loan Options

Because the average consumer debt is approximately $8,000, excluding auto loans and student loans, many homeowners choose refinancing as a method of reducing their debts. Cash-out refinancing, which entails borrowing from your homes equity, is perfect for consolidating debts and financing other large expenses such as home improvements.

Before applying for a refinancing, homeowners should do their research and familiarize themselves with the refi process. For example, refinancing involves paying closing fees. Thus, homeowners ought to have a cash reserve or select a mortgage loan that includes the option of wrapping the closing fees into the principle balance.

Best Refinance Mortgage Rate – Improve Your Odds Of Getting A Low Rate

Obtaining a mortgage refinancing has several benefits. However, the only way to realize these benefits is to qualify for a low rate mortgage. Even though refinancing a home is ideal for securing a fixed rate mortgage, without acquiring a lower rate, you may not save on your monthly mortgage payment. If you are hoping to obtain a low rate mortgage, there are steps you should take.

Establish a Good Payment Record with Existing Mortgage Lender

When applying for a refinancing, the mortgage lender will carefully review your credit and assess your payment history with current mortgage lender. Individuals with a good payment record can expect a low rate on their refi especially if their credit score is high. On the other hand, if you have poor credit, and have submitted several late mortgage payments, a refinance lender may consider you a risky applicant.

Risky applicants may have their refinance application denied. If the application is approved, the lender will likely remit an offer with a high interest rate. In this instance, refinancing is not very beneficial. The ultimate goal is to save money. However, if the savings are minimal, it is not worth the costs to refinance.

If you are contemplating a refinancing, attempt to submit all mortgage payments on time. Furthermore, reduce unnecessary debts, which may boost your credit rating. Homeowners with a good credit score have a better chance of securing a low rate refi.

Compare Various Refinance Mortgage Lenders

Making a side-by-side comparison of various mortgage lenders is very effective. After requesting a mortgage quote, lenders assess an applicants situation and make them an offer. Lender offers will vary. By comparing lenders, you have the power to select the loan package with the lowest refi rate. Those who neglect comparing lenders risk accepting a bad refinancing offer.

Refinance When the Time is Right

Because of declining mortgage rates, many homeowners are jumping on the refinance bandwagon. However, now may not be the right time to create a new mortgage. Prior to applying for a new mortgage, you should consider a few factors. How long do you plan on living in the home? Will a refinancing create a noticeable savings? What is your credit standing? Do you have the funds to pay closing costs?

Refinancing while rates are low is great for obtaining a low, fixed rate mortgage or lowering monthly payments. However, if your current rate is comparably low, or you anticipate a move in the near future, refinancing may not be the wisest choice.

This is the most popular type of mortgage as the monthly payment for interest and principal remains fixed through out the mortgage term, Property Insurance and taxes may increase but the monthly repayment of the amount will be stable.

Fixed rate mortgages are available for 10 years, 15 years, 20 years and 30 years period of time, there are also fixed rate mortgages available Biweekly this helps to shorten up the loan by making the payment every two weeks.

Fixed rate mortgages have 2 distinct features, first one is that the interest rate would remain the same through out the term of your mortgage, second feature is that payment of the loan remains level for the life and are structured for the repayment of the loan at the end of the mortgage term.

The most popular fixed rate loans are 30 years mortgage and 15 years mortgage. During early payment period, a large amount is being taken for the interest and the rest goes off to the balance principal amount, for instance a 30 years of fixed rate mortgage will take 22.5 yrs of the level payment of the loan for the payment of the half of the mortgage amount. Under 30 years of mortgage, month after the month you can choose to pay only interest or you can pay off principal with interest as it is a great option available for those who have tough time for money at times, with this option of lowering the payment you can increase the cash flow for paying off interest bills, remodeling your house, financing schools or college needs or increase your retirement savings.

With Fixed rate mortgage your loan rate is fixed for the mortgage term, you can pay interest only for 10 years and pay the balance interest plus principal for the next 20 years, this helps you to refinance the loan with out any pre payment penalty.

The advantages of 30 years mortgage is, when it is compared with 15 years mortgage the monthly payments are lesser, interest rate remains the same even if the interest rate goes up, monthly payment does not increases as it remains the same for the entire 30 years, compared to 15 years mortgage you would be paying higher rate of interest and the interest rate remains the same even if the interest rate gets decreased.

If you have planned for a long-term loan and does not like to take up the risk you may opt for fixed rate mortgage.