Here are a few of the topics covered on this week’s radio show.
Caller question: I’m moving to a new city for five years—should I buy a new house in cash or take out a mortgage? [3:22]
Consider a 10-year mortgage. The interest rates are so low that you can borrow money cheaply, while keeping some of your savings for yourself.
Caller question: I have a foreclosure on my credit report. Will I be able to buy a house? [7:03]
Not right now. If your foreclosure is recent, lenders will very likely refuse to approve you for a mortgage. If you really want to buy, find a home that’s for sale by owner and offer the seller a higher-than-usual interest rate. If you offer the seller six or seven percent, they may accept because that’s far better than they’d get for their money in the bank. But be sure you have a system for reporting your mortgage payments to the credit reporting agencies so that the payments will start to impact your credit history.
Segment: Mortgage interest rates are still low, so refinance now. [16:18]
Mortgage rates are still below 4 percent. As a result, mortgage applications jumped 12 percent, mostly in refinance agreements. If you haven’t refinanced yet, what are you waiting for? Here are my four rules to a home-run refinance.
1. Lower your monthly payment. That means more cash flow for savings, or paying off your mortgage earlier by paying more than required.
2. Lower your interest rate. If your interest rate is over 6 or 7 percent, see if you can’t get a lower rate. Lowering your interest rate will largely depend on your credit score so be sure to check your credit report.
3. Shorten the loan term. Every month you don’t pay for a mortgage saves you that payment. Don’t add on another seven years to your loan if you can help it.
4. Watch out for the refinance costs. S ome refinance agreements come with great terms but high costs. Be sure you read everything you sign and look out for costly refinancing fees.
Caller question: I have a five-year loan modification on a rental property but it is about to run out. What do I do? [29:15]
The bank cut this caller a break by giving her a loan modification, but it expires this year and she doesn’t know what her loan terms are. Just because you are given some reprieve doesn’t mean you can stick your head in the sand and ignore the problem. Get organized, read your loan terms and figure out a strategy to rent the property—or sell it as soon as possible. At the very least, you should know what your interest rate is currently and what it will change to. A step in any direction is a step forward at this point.
Caller question: I’m 70 years old. Should I refinance with a 30-year mortgage? [13:40]
Trish is being solicited by banks who want to refinance her $250,000 mortgage for a 30-year loan. But that makes no sense because of her age. She could probably easily refinance for a 10-year mortgage and pay it off by the time she is 80.
Your refinance arrangement will depend entirely on your personal situation but make sure you stick with my rules. In this case number three applies: shorten your loan term, don’t lengthen it.
If you missed this week’s show, you can click the audio link below to listen to the full show or download the podcast via iTunes.
Thanks for listening.