Have you qualified for a much bigger mortgage than you'll require on your home? Is your home in need of some redecorating or renovation? Perhaps you have some credit card debt that is getting bigger instead of smaller?

If you have a sizable down payment, you may want to take more on the mortgage, and put less money down as part of your down payment. This leaves you with cash in hand, ready to use as you need.

So, why take more on your mortgage? In most cases, your mortgage loan is the cheapest loan you'll ever be able to get. Interest rates on mortgages can be 5 to 10% lower than the interest on a loan, depending on where you get your mortgage and how good your credit rating is. In 2005, if you have a good credit rating and you are working with a reputable bank, many home mortgages can be had for 5% or less, while most consumer loans will be 10 % or more. Credit card debt will likely cost you in the range of 15 to 18% interest and can be costing you as much as 29% interest, if your payment history is not spotless. As a result, if you can pay off your high interest credit card debt and replace it with mortgage debt, you will usually be much farther ahead.

What if you want to spruce your new place up? If the property you bought needs some renovations, taking a bit more on your mortgage can work for you in two ways: your renovations will usually add value to your home and, you'll get the money for those renovations at the lowest possible cost to you. You'll benefit in the long run because you'll have spent less on renovation costs and you'll get more value (and enjoyment) from your home.

If you'd like to take a larger mortgage amount, just be aware that you should not take so much that your down payment becomes too small in relation to the purchase price of the home. Also, some lenders will want your mortgage plus down payment to equal the market value of the home, and will not want to give you monies in excess of the value of the home.

One caveat: if you decide to take more on your mortgage, it should be your decision. Do not be pushed into such a decision by your lender or real estate agent. This can be one of the hallmarks of predatory lending practices, and you can end up with a mortgage payment that is bigger than you can handle. Always consider your own financial situation first before deciding to increase your mortgage. If it's the right thing for you, it should put you in a position where your financial situation is completely manageable and you are the primary one to benefit.

Posted by TheBlogMachine.com at 6:50 PM EDT

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In most cases, it is best to get the shortest possible amortization coupled with the lowest interest rate possible. This is how you save money on your mortgage in the long term.

However, you have to be careful. The shorter the amortization, the higher the payment. So, while you save money over the long run because you pay less in interest charges for your loan, you have to be able to afford the payment in the short term.

One option which reduces your risk and still lets you save money is to keep your mortgage at a 25 or 30 year amortization, but increase your payment. Most mortgage lenders will let you do this without penalty. Increasing your payment by even a very small amount will let you pay off your mortgage years earlier, while leaving you the option of reducing your payment back down to the original amount in the case that you need that money.

So, let's say you get a 5 % raise this year. If you have the right mortgage you could simply increase your mortgage payment by 5%. While a very small change in the amount that you pay per payment, it will make a big difference over many years. Every penny of that extra 5% is paying off the balance (or principal) of your loan.

Then, a new baby arrives. You want the 5% back? You reduce your payments back down and away you go.

Remember that most mortgage lenders will have some restrictions on the amount that you can increase your payment and the number of times you can adjust it.

The other way to really cut the time off your mortgage is to make lump sum payments against it. Can't see your way to increasing your payments? Fine. This year, take your yearly bonus and put it directly against your mortgage. Again, every dollar will reduce the balance of your mortgage and will mean that you pay less interest in the long run. Even small amounts every year will reduce the amount of time it takes to pay your mortgage off - and who doesn't want to be mortgage-free?

Posted by TheBlogMachine.com at 6:40 PM EDT

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What the heck are mortgage points anyway? Should you buy points? What does it mean if you buy points? Buying points is a process whereby you can reduce your mortgage interest rate, which in turn reduces your monthly payment. But each "point" will cost you 1% of your mortgage balance. So, if you have a $100,000 mortgage, a mortgage point will cost you $1,000 and it will reduce the interest charged on your mortgage by one percentage point. This would mean that a 5% mortgage would become a 4% mortgage.

Fundamentally, when you pay points, you are actually paying interest in a lump sum up front to get a lower rate on your fixed rate mortgage. The more points you pay, the lower your mortgage rate.

The points system is a unique feature of the US lending environment. Most other countries do not use points, and mortgages are a bit less complex as a result. Having to consider the impact of points is another factor in deciding on the mortgage that is right for you.

With that in mind, what makes more sense for you? More points and a lower rate? Or fewer points and higher rate? To decide, you need to consider whether you can afford to make the up front payment now and whether you will hold the mortgage long enough to benefit from an up front interest rate reduction. The longer you plan to have your mortgage, the more it makes sense to pay for points now because you'll have a long time to benefit from the lower rate.

Generally, points are available on locked-in mortgages. If you really want to make this strategy work for you, you should be looking at a long-term locked in mortgage, which you won't have to renegotiate for at least 5 to 7 years.

If you are going to be cash short when you buy your home, points may not be an option. In this case, shop around for the mortgage that gives you the best interest rate without points. And keep in mind that there are a large variety of lenders in the mortgage business, and that many are willing to compete to get your business. You may be able to get the same or similar rate without points that you would have buying points at another lender.

There are lenders who offer "negative points". These can be described as cash rebates to you, for bringing your business to the lender. However, it also generally results in a higher interest rate being applied to your mortgage loan. In most cases, negative points will cost you a lot more over the long term, although you will have additional cash in hand in the short term.

Posted by TheBlogMachine.com at 6:36 PM EDT

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You've found the house of your dreams. It's within your budget! Your monthly payment is exactly what you'd like. You are ready to sign the papers and take possession.

Have you budgeted for closing costs?

A number of lenders try to help you prepare for closing costs by giving you a "Good Faith Estimate" of these costs. You may receive such a statement right away, but they are only required to mail it to you within three business days of application.

Because your mortgage lender does this, you may assume that all the closing costs are with the lender. Don't be misled by the lender's attempt to provide you with a service! The lender is only preparing an estimate of the costs you may incur when buying or refinancing. The lender isn't required to give you a comprehensive list of all the costs that you may face above and beyond the purchase price of your home. Nor does the lender actually know what all those costs might be. As a result, you should always anticipate that the actual costs are going to be more than the estimate.

For instance, are you buying a newly built home? Have you considered the costs to putting up window coverings as part of your closing costs? Having bought brand new homes more than once, it is definitely something to keep in mind if you want some privacy in your home in the first few days of moving in. This is one closing cost that no one will tell you about!

However, your lender will have to disclose all the closing costs that they normally charge, even if they can't guess the other charges that you might encounter. You can be looking at a wide range of closing costs from your lender, including:

• Loan Origination Fee: This fee is usually known as a loan origination fee but sometimes is called a "point" or "points." It covers the lender's administrative costs in processing the loan. Often expressed as a percentage of the loan, the fee will vary among lenders. Generally, the buyer pays the fee, unless otherwise negotiated.
  
• Loan Discount: Also often called "points" or "discount points," a loan discount is a one-time charge imposed by the mortgage lender or broker mortgage lender or broker to lower the rate at which the lender or broker would otherwise offer the loan to you. Each "point" is equal to one percent of the mortgage amount. For example, if a lender charges two points on an $80,000 loan this amounts to a charge of $1,600.

• Appraisal Fee: This charge pays for an appraisal report made by an appraiser.
  
• Credit Report Fee: This fee covers the cost of a credit report, which shows your credit history. The lender uses the information in a credit report to help decide whether or not to approve your loan and how much money to lend you.
  
• Lender's Inspection Fee: This charge covers inspections, often of newly constructed housing, made by employees of your lender or by an outside inspector. (Pest or other inspections made by companies other than the lender are discussed in line 1302.)
  
• Mortgage Insurance Application Fee: This fee covers the processing of an application for mortgage insurance.
  
• Assumption Fee: This is a fee that is charged when a buyer "assumes" or takes over the duty to pay the seller's existing mortgage loan.
  
  
• Mortgage Broker Fee: Fees paid to mortgage brokers would be listed here. A CLO fee would also be listed here.

While not all of these fees will apply in every situation, you should be prepared for some money to be going directly to your lender in fees. In some cases, you can have these fees included in the total amount of the mortgage, which can save you from some financial pain on closing.

In general, there are two broad categories of closing costs. Non-recurring closing costs are items that are paid once and you never pay again. Some of the fees associated with your mortgage are one-time fees for the life of the mortgage. However, recurring closing costs are items you pay time and again over the course of home ownership, such as property taxes and homeowner's insurance. You might wonder why property taxes would be part of closing costs. Well, in most regions, property taxes are actually paid in advance. This means that the previous owner will have paid some of the property tax that you will owe once you take possession. Part of your closing cost will be to refund the property taxes paid on your behalf, to the previous owner.

In addition to the closing costs charged by your mortgage lender, there are also costs associated with using a real estate agent. If you have sold a property using an agent, the agent's fees will be paid out of the proceeds of your home, and will be paid on closing.

Other fees will be associated with your lawyer. For instance, you will likely pay for a title search. You'll also pay for document preparation and other fees associated with the lawyer's involvement in your purchase or sale. In addition, the lawyer will be required to ensure that certain government fees are paid; you'll reimburse the lawyer for these fees if the lawyer pays them for you.

In general, you should be budgeting in the range of 6-7% of the value of your new home for closing costs of varying kinds.

Posted by TheBlogMachine.com at 6:28 PM EDT

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An important aspect of your home mortgage is the interest rate. This rate is negotiated for a period of time - from 6 months to as long as 10 years. This time period is the period over which you will pay the agreed interest rate.

The lower your interest rate, the less you pay in interest costs over the life of the mortgage. This can also save you thousands of dollars, especially on the mortgage you negotiate when you first buy your property.

When you first buy your property the amount of your mortgage will be the biggest it will ever be. At this point, the majority of your payments will be interest charges and a smaller amount will be used to reduce the 'principal' (which is the amount of money borrowed.) Therefore, the lower your interest rate, the less you are paying on this large sum of money - and the more money you save in the long run.

How do you get the best interest rate? Your business is the lifeblood of a lender - remember that you are going to make them money. While they may want you to think that they are doing you a favor, in reality you are doing them a favor - as long as you are paying off your debt as you should!

A final word on interest rates: mortgage lenders 'stack' the deck in their own favor. Any interest rate they are willing to charge is at a level at which they believe they will make money. This is certainly not a charity business. Now, if you 'lock in' your interest rate for 5 years you will likely pay more for your mortgage. Why? Because they want to ensure that they will make money even if rates go up. So, anything which you do to reduce your risk (like locking in payments), you can expect to pay more for because you raise risk to the lender.

However, if you are willing to accept a bit of risk at your end (particularly if you have a stable job and a good credit history) you are almost always better off with variable rate mortgage. This type of mortgage allows the interest you pay to fluctuate with the market. While this sounds risky, it actually allows you a lot of freedom and almost always saves you money, for two reasons:

1. The interest rate charged on variable rate mortgages are usually much less than any 'locked in' rate
2. If the rates look like they will go up you can generally switch to a 'locked in' interest rate at no penalty.

In other words, you can't lose with the variable rate type of mortgage (as long as you can switch without penalty).

Posted by TheBlogMachine.com at 6:25 PM EDT

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As important as amortization is the current 'term' of the mortgage. This is the amount of time for the current conditions of the mortgage, including the interest rate (whether locked in or variable) and the mortgage lender.

In most cases, while some aspects of your mortgage may be changeable during its 'term', the interest rate and mortgage lender are not. If you want to move your mortgage to another lender (for a better deal, for instance) you will likely pay a penalty.

Mortgage terms can be as short as 6 months, or as long as 10 years. In most cases, the longer the term of the contract, the more it will cost you. Most mortgage lenders will consider a longer term to be higher risk to them - after all, interest rates could go up and that means your mortgage may not be as profitable. So, longer term mortgages will usually come with the highest interest rates.

Also, mortgage lenders want to ensure that you stay with them - after all, they are making money from your business. So, the term covers them in two ways: they insure that they make their money and that their clientele is 'stable'.

Posted by TheBlogMachine.com at 6:19 PM EDT

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Your mortgage will likely be the longest loan you ever have - you could be paying it for as much as 30 years! This period is called the 'amortization' period. It indicates the amount of time it will take to pay off the mortgage loan, assuming you make all payments in full and on time.

In general, the shorter your amortization, the less you pay in interest costs over the life of your mortgage. So, if you amortize your mortgage over 15 years instead of 25 you can save thousands of dollars in interest costs.

Good deal? Usually. The only challenge is whether you can afford the larger payments. A shorter amortization will always translate as higher mortgage loan payments - because you are paying off the mortgage loan more quickly. Usually, you should attempt to pay the highest mortgage payment which is comfortable for your family, but still leaves you the ability to save for a rainy day.

Posted by TheBlogMachine.com at 6:15 PM EDT

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A mortgage loan is different than any other loan you will get in your lifetime.

Most mortgage loans are negotiated for a set time period of less than 10 years. They are negotiated for a single interest rate which will remain in place for the entire term of the mortgage loan. (The only exception to this would be a line of credit, in most cases. The interest rate on a line of credit may be changed over time.) Generally, you can pay off a loan in full at any time, although you may pay a penalty depending on the mortgage lender.

Most of us are familiar with this kind of loan through the purchase of our vehicles.

With mortgages, the length of the mortgage, the term of the mortgage and the mortgage interest rate are negotiated separately. In this case:

1. the 'amortization' of the mortgage is the length of time it will take to pay off the mortgage
2. the term refers to the time period covered by your current mortgage contract. This is normally the length of time that you are 'locked in' to a particular interest rate and payment amount.
3. the interest rate can either be fixed or variable.

Posted by TheBlogMachine.com at 6:13 PM EDT

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