The Changes Witnessed In Homeowner Loans, Mortgages And Remortgages.
by Liz Moir

Many thought that the end of the credit crisis would see homeowner loans, mortgages and remortgages returning to the position that they were in before.

Mortgage, remortgage and secured loan lending fell during the credit crunch.

However there have been changes made to these home loans over the course of the recession that should place them in a more stable position in the future.

Secured loans tumbled more than the other home loans, and between the beginning of 2007 and the start of 2010 secured loans had fallen to less than 20% of their previous level.

At the end of 2006 there were a number of secured loan lenders trading sucessfully offering these loans to homeowners at low rates of interest from about 5.9%.

There were very slack equity plans such as the old favourite 125% equity plan which enabled a borrower to obtain a homeowner loan at 25% more than their property was worth.

First Plus, the Cardiff based lender, introduced this loan plan and in fact specialised in it and other secured loan lenders such as Paragon and EPF followed their example.

It therefore may come as no surprise to learn that, partly due to the fall in house prices, none of these three firms are still granting homeowner loans with First Plus and EPF completely out of business and Paragon only grnting further advances to existing customers but not granting loans to any new customers.

The 125% homeowner loan plans have long gone as have self declarations of income for the self employed and a good thing this may very well be, as it lead to many people borrowing much more than they could comfortably repay.

One of the first homeowner secured loan lenders to cease trading was Future Mortgages who accepted self certification of income not only from the self employrd but also from the employed.

It was not unusual for certain workers to earn so much that even if they were working twenty four hours a day seven days each week, the amount of money that they claimed to earn was clearly grossly over stated.

Before the end of 2006 some homeowner loan lenders disregarded unsecured borrowings in their income calculation which again lead to many borrowers being over commited financially.

This came as a result of the fact that most lenders then, as in fact now, allow 40% of gross income to cover outgoings and the only outgoings that were taken into account in the past, although this is no longer the case, was the mortgage payment and the secured loan being arranged.

Therefore if an applicant earned say £30,000 per annum the amount taken into account monthly was £1,000. If the homeowner loan payment was £300 and the mortgage payment was £400 the income calculator would fit the lending criteria.

This was inspite of the fact that a household has many expenses for the necessities of life to pay each month such as food, heating, electricity, community charges, etc. and in the past they could also be paying out hundreds of pounds every month on credit cards and other loans, the repayments of which were in the past completely disregarded.

Now the payments for all other debt are taken into account, self declarations are no longer acceptable and this means that the borrower should now comforably be able to make repayments.

This same underwriting criteria also applies now to mortgages and remortgages, all hopefully making the finance sector of mortgages, remortgages and secured loans more secure when business returns in the future.
About the Author
Champion Finance are experts at arranging low interest secured loans and whole of the market remortgages and mortgages.They also provide professional and helpful debt advice granting debt solutions of all kinds to those in debt.

Re-Financing to Consolidate Debt

Some homeowners opt to re-finance to consolidate their existing debts. With this type of option, the homeowner can consolidate higher interest debts such as credit card debts under a lower interest home loan. The interest rates associated with home loans are traditionally lower than the rates associated with credit cards by a considerable amount. Deciding whether or not to re-finance for the purpose of debt consolidation can be a rather tricky issue. There are a number of complex factors which enter into the equation including the amount of existing debt, the difference in interest rates as well as the difference in loan terms and the current financial situation of the homeowner.

This article will attempt to make this issue less complex by providing a function definition for debt consolidation and providing answer to two key questions homeowners should ask themselves before re-financing. These questions include whether the homeowner will pay more in the long run by consolidating their debt and will the homeowners financial situation improve if they re-finance.

What is Debt Consolidation?

The term debt consolidation can be somewhat confusing because the term itself is somewhat deceptive. When a homeowner re-finances his home for the purpose of debt consolidation, he is not actually consolidating the debt in the true sense of the word. By definition to consolidate means to unite or to combine into one system. However, this is not what actually happens when debts are consolidated. The existing debts are actually repaid by the debt consolidation loan. Although the total amount of debt remains constant the individual debts are repaid by the new loan.

Prior to the debt consolidation the homeowner may have been repaying a monthly debt to one or more credit card companies, an auto lender, a student loan lender or any number of other lenders but now the homeowner is repaying one debt to the mortgage lender who provided the debt consolidation loan. This new loan will be subject to the applicable loan terms including interest rates and repayment period. Any terms associated with the individual loans are no longer valid as each of these loans has been repaid in full.

Are You Paying More in the Long Run?

When considering debt consolidation it is important to determine whether lower monthly payments or an overall increase in savings is being sought. This is an important consideration because while debt consolidation can lead to lower monthly payments when a lower interest mortgage is obtained to repay higher interest debts there is not always an overall cost savings. This is because interest rate alone does not determine the amount which will be paid in interest. The amount of debt and the loan term, or length of the loan, figure prominently into the equation as well.

As an example consider a debt with a relatively short loan term of five years and an interest only slightly higher than the rate associated with the debt consolidation loan. In this case, if the term of the debt consolidation loan, is 30 years the repayment of the original loan would be stretched out over the course of 30 years at an interest rate which is only slightly lower than the original rate. In this case it is clear the homeowner might end up paying more in the long run. However, the monthly payments will probably be drastically reduced. This type of decision forces the homeowner to decide whether an overall savings or lower monthly payments is more important.

Does Re-Financing Improve Your Financial Situation?

Homeowners who are considering re-financing for the purpose of debt consolidation should carefully consider whether or not their financial situation will be improved by re-financing. This is important because some homeowners may opt to re-finance because it increases their monthly cash flow even if it does not result in an overall cost savings. There are many mortgage calculators available on the Internet which can be used for purposes such as determining whether or not monthly cash flow will increase. Using these calculators and consulting with industry experts will help the homeowner to make a well informed decision.

5 Costly Mortgage Refinancing Mistakes to Avoid

Mortgage refinancing has several great benefits if used properly. But if you made just a lapse of judgement, you might be in for a costly mistake and may place your entire house at risk. Here are 5 costly mortgage refinancing mistakes you must avoid.

Mistake #1: Not locking in your rate

Rates are very erratic. It can change while your loan is being processed. So if you did not lock your interest rate in, you might be given a different rate from what you’ve expected. Ask your lender to lock in the rate you are satisfied with, place it into writing and confirm it when the processing of your loan is done. Take note: lenders will not lock in your rate without your request.

Mistake #2: Not shopping around

There are hundreds of mortgage companies out there. Each may provide the same service but they are unique from one another. This is why you have to shop around to get the best rates. It may sound like comparing apples to apples but the truth is, even apples are different from one another. Spend some time comparing different companies. Do not hesitate to ask for the best rates. And if you feel you are not getting what you deserve, then move on and go to another company.

Mistake #3: Refinancing too often

While refinancing is a good way to take advantage of lower rate and thus save money on monthly fees, it is not good to take it every time the rate falls down a notch. Remember that terminating your existing loan and buying a new one involve fees. Closing costs will pile up which really defeat the purpose of refinancing.

Mistake #4: Not computing your break-even point

Again, there is a price to pay to terminate your existing loan and getting a new one, but far too many occasions where homeowners fail to recognize this.

Computing your break even point is simple. For example, your monthly savings for refinancing your mortgage is $200 and your closing cost is $2000. Divide the closing cost by monthly savings and you will get the break even point ($2000/$200). In this example, it will take you 10 months to recoup the cost of refinancing. In other words, you have to wait 10 month before realizing the savings. This is also connected to #3.

Before ‘re-refinancing’ your mortgage, you should know first if you have recoup the cost of your previous loan. Determining your break-even point will also determine how long you will have to stay in your home before starting to get savings.

Mistake #5: Refinancing just for the heck of it

Many homeowners believe that when the rate is low, it is time to refinance. This is wrong! There are other conditions to determine if it is the right time to refinance your home and not just by looking that the prevailing rate. Never refinance if you don’t plan to stay at your home after a year or two or before you reach the break-even point.

Never refinance if you have been paying for your current loan for several years or if you have only a few years left to pay for your home. Never refinance if you have a bad credit score or if the current market value of your home is low. And never refinance if you have already used up all the equity of your home.

How to Get the Best Mortgage Refinance Quotes

Mortgage refinance quotes are easy to obtain online, but finding the ideal mortgage setup can be quite difficult. Use the tips below to narrow your search, enabling you to refinance your existing loan more quickly and easily.

Know What You’re After

Mortgage providers will be hard pressed to offer the best mortgage refinance quotes if you yourself are unable to specify the exact kind of mortgage you want. Refinancing, after all, can come in various forms and each has its own pros and cons. Do you prefer a fixed or adjustable interest rate for your mortgage? How much do you really need to borrow? How much can you afford to pay each month? How many years do you think you need to pay off your second mortgage? What do you intend to do with your existing mortgage? Can you afford to make a balloon payment at the due date of your loan?

Look for Instant Comparisons

There are many shopping websites today that does all the hard work and allows you to go directly to the final stage of your decision-making process. These websites are generally unbiased; they are not mortgage providers themselves and their main motivation is to help you shop for the best mortgage refinance quotes.

When you go to such websites, you’ll be presented with side-to-side comparisons not only for their quotes but for loan features as well. If you’ve found one or two to your liking, remember to double-check by asking for verification from its respective mortgage provider.

Let Them Know You’re Comparing
A little competition never hurts and a smart mortgage broker never takes any customer for granted. If you want to get the best mortgage refinance quotes, don’t hesitate to let them know that you’re actively comparing rates. This will prompt them to outdo each other by offering you the most competitive rates and the best features available for your preferred refinancing option.

Don’t Be Afraid to Ask

Don’t hold back from asking anything that confuses or bothers you. Taking out a second mortgage, after all, is no small deal and if you end up with the wrong mortgage, you could be indebted for life.

Clarify all the points in your loan brochure or contract. Asking won’t cost you or the mortgage company a dime so get as much information as you need about your refinancing options.

You Are Not Obliged to Commit

Many experienced mortgage brokers can be extremely convincing. They are especially good at making you feel guilty just by talking to them and asking about what they’re offering.

Don’t fall for their tricks, though. Asking questions and making them give you the best mortgage refinance quotes they can offer does not oblige you in any way to apply for a second mortgage with them. You are merely exploring your options. That’s not a crime, is it?

Ensure Confidentiality

In the midst of consulting with a mortgage broker, you might be required to submit sensitive information about yourself. Before disclosing anything, make sure that your mortgage provider ensures complete privacy and confidentiality for whatever data you share with them. This is just a precautionary measure against identity theft and as such, your mortgage provider shouldn’t take it personally.

Use these tips when searching for the best mortgage refinance quotes and you’re sure to come home with the ideal second mortgage and with lots of extra cash to spare!