Mortgage Sanity

Acceleration - A provision that allows the lender to demand repayment of the entire outstanding loan balance in the event that the borrower violates one or more clauses in the note.

ARM (Adjustable Rate Mortgage) - A mortgage containing an interest rate that, after an initial period, can be changed by the lender. The majority of these contracts handle rate changes by evaluating a pre-determined interest rate index over which the lender has no control.

Amortization - The repayment of mortgage loan principal using scheduled mortgage payments that are of a high enough amount to exceed the accrued interet due. The scheduled payment minus any interest due equals amortization. The outstanding loan balance decreases by the amount of the scheduled payment, plus the amount of any extra payments.

Amortization Schedule - A table detailing the mortgage payment and the breakdown of principal and interest throughout the life of the loan. It is usually broken down by interest and amortization, the loan balance, tax and insurance payments, and the balance of the escrow account.

Annual Percentage Rate (APR) - A general measure of the cost to the borrower that includes interest rate, points, and other various charges. APR is calculated with the basic assumption that the loan will be held for the entire duration, and is therefore potentially deceptive if a borrower has intentions of refinancing.

Assumable Mortgage - A mortgage contract that allows an acceptable buyer to assume the mortgage contract from the seller. Assuming a loan could save the buyer money if the potential interest rate on the seller’s existing loan is below the current market rate. By using this technique, closing costs are avoided as well.

Automated Underwriting - The process of using pre-defined criteria entered into the lender’s computer system to inform the loan applicant almost immediately whether or not they will be approved for a mortgage loan. The computer’s decision is based on data provided by the applicant, as wll as other available electronic data such as credit history.

Balloon Mortgage - A mortgage contract that creates an outstanding balance, which is payable in full after a period that is actually shorter than the term. In most cases, the balance is refinanced because the borrower does not have a lump sum available to pay the remainder of the loan in one lump sum. Balloon mortgages are similar to ARMs in that the borrower exchanges a lower rate in the early years for the risk of a higher rate later. Balloons are riskier than ARMs because there is no limit to the potential increase at the end of the balloon period.

Bi-monthly Mortgage - A mortgage where the borrower pays half the monthly payment on the first day of the month, and the other half on the 15th. The purpose of this technique is to ease the burden of having to come up with a larger sum of money once each month.

Bi-weekly Mortgage - A mortgage where the borrower pays half the normal monthly payment every two weeks. This ultimately results in 26 payments every year instead of the normal 24, so this technique will result in amortization before term.

Bridge Loan - A short-term loan, usually from a bank, that “bridges” the period between the closing date of a home purchase and the closing date of a home sale.

Buy-down - The payment of points to the lender in exchange for a lower interest rate.

Buy-up - Paying a higher interest rate in exchange for a rebate from the lender, which ultimately reduces upfront costs.

Cash-Out refi - Refinancing for an amount in excess of the balance on the old loan. The borrower receives the loan proceeds that are above and beyond the total paid to the initial mortgage, hence the term “cash out”. This way of raising cash is usually an alternative to taking out a home equity loan.

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Closing - On a home purchase, the process of transferring ownership from the seller to the buyer, the disbursement of funds from the buyer and the lender to the seller, and the execution of all the documents associated with the sale and the loan.

Co-Borrowers - One or more persons who have signed the note, and are equally responsible for repaying the loan.

Contract knavery - Inserting provisions into a loan contract that severely disadvantage the borrower, without the borrower’s knowledge.

Co-signing - Assuming responsibility for someone else’s loan in the event that that party defaults.

Credit score - A numerical score, based on an individual’s credit history, that is designed to measure that person’s credit worthiness.

Cumulative interest - The sum of all interest payments to date or over the life of the loan.

Default - Failure of the borrower to honor the terms of the loan agreement.

Delinquency - A mortgage payment that is more than 30 days late.

Demand clause - A clause in the mortgage contract that allows the lender to demand repayment at any time for any reason.

Down payment - The amount of money a home buyer will be paying directly, rather than obtaining through a loan or mortgage.

Due-on-sale clause - A provision of a loan contract that stipulates when the property is sold any outstanding loan balance must be repaid. This prevents the seller from transferring responsibility for an existing to the home buyer.

Equity - The difference between the appraised value of a home and the outstanding balance of any mortgage or equity loans against that property.

Equity grabbing - An unethical type of predatory lending where the loan provider purposely attempts to put the borrower into a loan that will result in a relatively quick default, so that way the lender can “grab” the borrower’s equity.

Escrow - Specifically, an agreement wherein money is deposited with a third party for safe keeping, until certain criteria are met by one of the parties to the agreement. Relating to mortgages, the borrower usually escrows a specified sum for taxes and insurance by adding that amount to the regular monthly mortgage payment. The lender then pays the taxes and insurance on the borrower’s behalf.

Floating - Allowing the mortgage interest rate to vary with changes in market conditions during the application phase of the mortgage up until closing. Allowing the rate to float exposes the borrower to market risk, and also to the risk of being taken advantage of by the loan provider.

Foreclosure - The legal process by which a lender may acquire possession and ownership of the property securing a mortgage loan if the borrower defaults on the payments.

Forbearance agreement - An agreement by the lender to delay their right to foreclose in exchange for a new or amended agreement with the borrower to a payment plan that is intended to bring the borrower current on any and all outstanding monthly payments.

Equity Gift - When a property’s sale price is below market value, the difference is considered a gift from the sellers to the buyers. Such gifts are usually seen only between family members. Lenders will often permit the gift to count toward the buyer’s down payment.

Good faith estimate - The standard form from a lender that details any and all anticipated settlement charges that the borrower should expect to pay at closing. The lender is required to provide this document within three business days of their receipt of a loan application.

Graduated payment mortgage (GPM) - A mortgage contract wherein the monthly payments rise by a constant percent for a specified number of months, then after which level out for the remaining duration of the loan.

Homeowners insurance - A type of “property & casualty” insurance purchased by the borrower, and required by the lender, which is designed to protect the property against potential losses.

HUD-1 form - A form the borrower receives at settlement which details all payments between parties in a real estate transaction, including borrower, lender, seller, mortgage broker, attorneys, etc.

Interest-only mortgage - A mortgage in which, for some pre-arranged period, monthly payments will be applied to the loan’s interest only. Most of the time, this results in lower monthy payments, but during that period the principal loan balance remains unchanged.

Lien - The lender’s right to take possession of the borrower’s property in the event the borrower defaults on the monthly loan payments.

Lock commitment letter - A formal document from a mortgage lender verifying that the price, interest rate, and multiple other facets of a loan contract have been locked.

Mortgage broker - An independent loan agent who has the ability to offer loan products from multiple lenders. A mortgage broker’s responsibilities include counseling the buyer, explaining features of the loans available from different wholesalers, taking and completing the loan application.

Negative amortization - An increase in the outstanding loan balance, resulting from multiple monthly payments that are less than the interest due.

Non-conforming mortgage - A mortgage that does not meet the requirements of the two Federal agencies, Fannie Mae and Freddie Mac, because it’s either too large or the borrower has poor credit or inadequate documentation.

Origination fee - A service fee charged by lenders, usually quoted as a percentage of the loan amount. This fee is in addition to other charges from the lender, including points, so it should be added into the borrower’s calculation when comparing costs between brokers.

Piggyback mortgage - A combination of a first mortgage for 80% of the total financing needed, and a second for the remaining balance, usually between 10-20% depending on the borrower’s down payment amount. This technique is often used by borrower’s to avoid having to pay the PMI.

Points - An upfront cash payment by the borrower to the lender for the purpose of obtaining a lower interest rate on the mortgage loan. One point is equal to one percent of the loan. Essentially, buying points is the equivalent of paying some of the mortgage’s interest up front, therefore lenders are willing to decrease the rate.

Pre-approval - A commitment by a lender to give a loan to a borrower, without the borrower having chosen a property yet. The pre-approval is designed to make it easier for the borrower to shop for a house.

Prepayment penalty - A charge imposed by the lender if the borrower pays off the loan early.

Qualification - The lender’s process of determining whether or not a potential borrower has the ability to repay a mortgage loan. Qualification is less comprehensive than an approval because it does not take into account the borrower’s credit.

Rate protection - Protection for a borrower against the danger that rates will rise between the time the borrower applies for a loan and the time the loan closes.

Refinance - Paying off an old loan while simultaneously taking a new one.

Rescission - The right of the borrower to completely cancel the entire deal without fear of reprisal of repimanding. The buyer is required to submit such a request in writing within three days of closing.

Second mortgage - An additional loan against a property that is still under finance from a first lender. Usually, the maximum amount of the second
is calculated as a percentage of the existing equity in the property. The lender who holds the second mortgage gets paid only after the lender holding the first mortgage is paid.

Sub-prime borrower - A borrower with poor credit, who can borrow only from sub-prime lenders who specialize in dealing with borrowers who have poor credit. Such borrowers pay more than prime borrowers and are sometimes taken advantage of.

Title insurance - Insurance against loss arising from problems connected to the title to property.

Underwriting - The process of examining all the data about a borrower’s property and transaction to determine whether the mortgage applied for by the borrower should be issued. The person who does this is called an underwriter.

Wrap-around mortgage - A mortgage on a property that already has a mortgage, where the new lender assumes the payment obligation on the old mortgage. Wrap-around mortgages arise when the current market rate is above the rate on the existing mortgage, and home sellers are frequently the lender.

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I asked my mortgage advisors, “What are the fees that a broker might charge you that are either inflated or completely bogus?”

Here are the answers:

Processing fee -
Not only does the mortgage broker receive a fee from the lender, but the borrower is also charged a fee for “processing” the loan. This fee usually cannot be avoided, but beware of brokers who charge more than $1000.00, as this is considered very excessive.

Real estate agent’s administrative fee -
Many real estate agencies have started charging a fee, around $200, to both buyer and seller. This is in addition to any real estate commission earned by the agents.

Mortgage Origination Fee -
The origination fee is basically what the broker charges for doing the loan, normally between 1-2% of the loan amount. This is a common fee for a broker’s services, but unless you have a very complicated loan, paying 2% is too high.

Credit Report Fee -
When working with a mortgage broker, be sure that they provide you with a copy of the credit report they pulled on you. Too many times, finance companies will provide brokers access to applicant’s credit report databases for free, however the brokers will still add a charge of between $25-50 to the settlement costs. In that case, the broker is simply making an additional profit. Your charge should not be higher than the actual cost to the lender or broker, if indeed there was a charge to them at all.

Fax Fee -
The broker will very often add a “fax fee” to the settlement sheet. Usually this charge is between $20-40, but rarely do brokers explain it. In today’s age, it’s difficult to conceive how a professional brokerage can accumulate such a significant cost for simply faxing paperwork about you and your loan application.

Warehouse Fee -
This is a fee that numerous brokers and mortgage lenders will add to the settlement sheet but fail to explain in any detail. Indeed, getting a clear description is difficult since this is one of the most blatant junk fees you can imagine. During the course of your loan approval and applicatoin process, where is there a warehouse involved? Since everything is electronic nowadays, there isn’t some gigantic warehouse somewhere far away, where a loan broker will have to wander through the depths of the aisles searching for a box with your name on it… This is a ridiculous junk fee that should never be paid.

Consulting Fee -
Many brokers, moreso than lenders, will add this fee to your settlement sheet. Too often, since it indeed has a legitimate sound to it, many borrowers will not question it and will simply pay. However, this is actually a fee that you should not pay because it is vague and unnecessary. The explanation is that there is a fee the broker is passing on to the borrower for “consulting” with another professional or another company when evaluating your loan application. Most of the time, since computers make a large portion of the decisions, there is no consultation that is required. Even if there was a consultation, that is something the borrower should not be responsible for.

Endorsement Fee -
This is another legitimate-sounding fee that both mortgage brokers and mortgage lenders will add to the settlement sheet. Apparently, they are charging you to recoup the costs they incurred while getting your application and approval paperwork signed by the appropriate parties. Now, since we’ve never heard of a lender getting one of their applications signed by someone outside their own company, how can they claim that it was an expense to get your applicatoin signed?

Express Mail Fee -
Brokers and lenders will try to charge you for mailing your paperwork back and forth, usually claiming that they had no choice but to send your application overnight, or something to that effect. However, this is almost always untrue because there is rarely any actual paperwork during the application phase of a loan. Plus, mailing documents regarding your application is an ordinary expense for a loan company, therefore it should be absorbed by them. If not, these costs should be covered by your application fee or origination fee, and not an additional charge.

Document Preparation Fee -
Here’s another junk fee that brokers will usually try to sneak in on the settlement sheet. They’re trying to justify more money by claiming that they should get paid for preparing your loan application and other documents. Well then what does the application fee cover?

Miscellaneous Fee -
When lenders and brokers cannot think of any other legitimate-sounding fees to add to your settlement sheet at closing, yet they still need to pad their bottom line a little more, they’ll usually include a Misc Fee and state that this is to cover the other little thing that they couldn’t itemize or separate from everything else. Never pay this fee. The reason for itemization on your sheet is to make sure that nothing is vague or goes without explanation. Therefore, the concept of Misc Fees goes against the itemization.

Underwriting Fee -
Many brokers will try to add an Underwriting Fee to their charges at settlement, and many times this fee is a few hundred dollars. However, keep in mind that the mortgage brokers do not underwrite the loans! There is no way a broker should be paid for underwriting because their job is not to underwrite, but rather to pass your information to the lender. It is the lender who will underwrite your loan, not the broker.

Courier Fee -
Lenders will usually add a courier fee to the settlement sheet to offset their costs from shipping your closing documents to the escrow company. Many times, these charges will be in excess of $50. This is junk because part of the lender’s standard responsibility is to ensure your documents arrive at the appropriate places on time, and you should not be responsible for their procrastination. Plus, every major courier service (FedEx, UPS, DHL, etc.) charge less than $25 to ship documents overnight anywhere in the world. Keep an eye out for this fee, which is usually padded in addition to being junk to begin with.

If you find some of these fees on your mortgage fee breakdown. Talk with your mortgage broker and see if you can have some of them lowered or removed.

Take a look at this: http://www.thesimpledollar.com/2007/01/22/how-bad-of-a-deal-is-a-50-year-mortgage/

I knew that people were starting to look into 40 year mortgages, but 50??!! I understand that people want to have everything they want RIGHT NOW, but really. This is just sad. The fact that it only saves such a small amount of money but puts you in debt, pretty much for life, is sad. The only way I could see justifying that type of mortgage, would be if knew you were going to be selling or refinancing for a much better price or loan, quick. But even still, it probably wouldn’t be worth it.

1. Your home is the collateral for the loan - If you are unable to make the monthly loan payments, you could be in danger of losing your house.

2. Not all loan repayment schedules are arranged to pay off the loan by the end of the term - Many arrangements leave the borrower with thousands of dollars left on the loan, which must be repaid in a lump sum or refinanced again into a new mortgage loan.

3. You have 3 days to change your mind - When your house is collateral for a refinancing loan, federal regulations give you three days to cancel the loan for any reason. The mortgage lender is required to provide you with a form to be used for this purpose, but even if they don’t you can still cancel within the three days with a written letter.

4. Most home equity loans are adjustable-rate products, so be aware of the fact that monthly payments can increase over time - This factor surprises and hurts many homeowners later. Make sure before you commit that you can afford to pay much more than the original payment you are getting.

5. Home equity loans and lines of credit do not have the same fees and closing costs as a refinance loan - Become familiar with the different options from your lender.

6. Not all refinance loans will save you money, so be sure you crunch the numbers - Add the interest costs and payments for the rest of your current mortgage term and compare them to the interest costs of the proposed refinance loan. Make sure there is a worthwhile savings. Know your break-even point for a refinance. Calculate how many months it will take to pay off the additional costs and fees associated with obtaining a refinance loan, and determine if those costs are worth the effort in the long run.

7. Too much shopping can hurt your credit score - Remember that each time a mortgage lender queries your credit report a notation is made. Too many inquiries in a short period of time can lower your score.

8. Make sure your intentions are worthwhile - Analyze your reasons for considering a home equity loan or refinance loan and make sure that you’re doing it for the right reasons. Every time you refinance or get a home equity loan it costs money. Make sure that overall you will be saving money or doing something in the long run that will help you, not hurt you. Refinancing or getting a home equity loan to buy a luxury car or other frivolous items is not wise. If you’ve decided to get a loan because your income just isn’t enough to cover your bills, then an equity loan is a mistake. In that situation it will only delay the inevitable, and when the loan proceeds are gone you’ll find yourself in even more trouble.

9. Home equity loans have the potential to leave the borrower “upside down” on the loan - If you borrow all of the equity in your home, and experience declining real estate values, your home may not be worth enough to cover the outstanding balance on the loans. You would then be responsible for the remaining debt.

10. You may end up paying more money in the long run if you’re not careful when choosing the loan terms for a refinance - Depending on your current interest rate, how far you are into the original mortgage, and the interest rate of the new refinance loan, your total payments could result in more overall interest payments that if you had simply stayed with the initial mortgage.

11. Different lenders will offer different repayment terms, so compare terms and consider your ability to repay - Shorter terms will come with higher payments. Choose a repayment schedule that fits your allocated budget.

12. Home equity & refinance loans are usually easier to get than first mortgages - Because you already own the home, and the home is serving as collateral for a new loan, there are far fewer complications.

13. Your credit score will have a direct impact on the quality of your new loan, just as it effected your first mortgage - Evaluate your credit before applying for any new loans. Refinance and Home Equity Loans weigh heavily on your recent payment history, especially how you have paid on your current mortgage.

14. Every lender will have different fees associated with a refinance or home equity loan - Interest rates are not the only variable to compare with different lenders. The only way to adequately evaluate different lenders is to compare their fees side by side. Most companies have programs that are nearly identical as far as interest rates and loan terms, but fees vary widely from one company to another.

15. Do not try to hide the financial troubles in your past - If you neglect to provide accurate financial information to a potential lender, you run the risk of receiving a much higher interest rate if they find it on their own. By being up front about your history, the lender places added trust in you as a borrower, however if they find out you “forgot” some things about your past they may question the validity of the rest of your application.

16. Ensuring the accuracy of the information on a loan application is the responsibility of the borrower - Do not sign an incomplete application and do not allow your loan broker to fill in the gaps later. Too many loan officers will exaggerate of misstate information in hopes of getting a faster loan approval.

17. Home equity loan interest is not always tax deductible - There are numerous factors that your accountant will need to evaluate before determining whether or not your interest can be deducted on your federal or state income taxes.

18. Existing home equity loans can be consolidated with the initial mortgage loan into one larger loan - When evaluating this option, be sure that your current home equity loan does not contain any pre-payment penalties.

19. Beware of loans with “padded” fees - These are additional fees that mortgage lenders add on to the closing costs of the loan. There are countless lists of ridiculous fees that actually mean nothing. Be sure to ask your lender to explain in detail all of the extra fees they plan to charge, and don’t hesitate to dispute the validity of the ridiculous ones.

20. If you use a mortgage broker, you will be paying for their services regardless of whether or not they do a good job - The mortgage broker’s job is to find you the best loan and work with you every step of the way, but not every broker will work hard to get you the best possible loan terms. Make sure you find a reputable broker who will continuously search for better deals, as well as one willing to help you communicate with the lender.

21. Some refinance and home equity loans contain “teaser” interest rates - These are rates that start out very low but continually increase over time. Generally, this fact is not appropriately disclosed or explained to the borrower, and there can be problems when monthly payment invoices start to increase after some time. Be sure to get exact specifics from the lender about the details of the interest rates.

22. Many finance companies will try to coerce you into purchasing additional unnecessary or inappropriate insurance products - Be wary of lenders who tell you that credit insurance or similar protection products are a requirement of the loan. Products like these are often beneficial, but should be added at the discretion of the borrower and not as a mandatory addition.

23. Do not make large purchases or take on additional debts during the application phase of your refinance or home equity loan process - The added debt on your credit report could adversely effect the terms and/or approval of your loan.

24. Be careful when moving large sums of money into and/or out of your bank accounts immediately before or during the application stage of your loan - Since your assets and bank accounts are often evaluated by lenders when underwriting your loan, any noticeable changes in status could delay closing or require further explanation and investigation by the lenders.

25. Do not sign any documents or paperwork without reading them in full - Too many people find themselves in situations they are not prepared for because they signed something that was not adequately explained or disclosed. Even though you will sign significant documents, take your time and do not let lenders or brokers pressure you into signing without reading. It’s also a great idea to always have your attorney review all documents and explain them to you in detail. The money you pay an attorney could save you a hundred times more later on.

26. Do not choose a lender just because they have the lowest interest rate you could find - Most lenders will quote loan payments without disclosing all of the additional fees and discount points they’d be adding into your costs. Without a clear breakdown of these fees, it is impossible to appropriately compare multiple offers.

27. Be aware that lenders will pull another copy of your credit report the day before closing - Just because your loan has been approved and cleared to go to closing, it is not entirely set until all documents are signed. Many lenders will attempt to alter the terms of the loan at the last minute if they find “questionable” items on your credit report just prior to closing, and their intention is to improve their situation or justify interest rate increases because they believe you’ll be more agreeable under time pressure.

28. Lenders usually want to see six months of loan payments in cash reserves before they will consider approving the loan - Do not spend too much of your savings until after the loan has closed.

29. Avoid using the equity in your home to purchase assets that will decrease in value - Or assets that are worthless to begin with. A car is the perfect example of what NOT to buy with your equity, since it immediately decreases in value. This will do nothing to improve your financial situation in the future or increase your ability to repay the loan. Other examples of things to avoid are clothes, vacations, parties, and generic monthly bills.

30. Lenders have the ability to revoke a home equity line of credit if they determine that your risk to them has increased beyond an appropriate level - If you fail to make payments on time, or if their periodic credit inquiry reveals something they’re uncomfortable with, then they reserve the right to restrict access to the balance of your equity credit line.

31. Consider a professional evaluation of your overall financial situation prior to, or immediately following, a mortgage refinance or equity loan - A professional financial planner will be able to explain the potential liabilities that exist with such loans, as well as how adequately your income and assets are protected from catastrophes.

32. Nothing is free - Many banks and lenders will offer “free” refinance or home equity loans. Even though the closing costs are waived, you must analyze whether or not the increase in monthly payments is acceptable over the life of the loan.

33. Carefully evaluate the length of the proposed refinance loan - If you’re already well into the duration of your initial mortgage, and then you refinance for another 30 years, you will most likely end up paying more money as interest (depending of course on your current rate and the proposed rate of the refinance loan). You’ll experience the best savings if you refinance into a loan with a shorter term than what’s left on your initial mortgage.

34. Think twice about applying for a home equity loan that is higher than the actual equity value in the property - Lenders usually refer to this as a “High LTV Loan”. This type of loan creates a more significant risk to the borrower because if the property value has not increased enough to cover the additional principal of the loan, then the borrower will be forced to find other means of repaying the debt.

35. You have the ability to negotiate your loan terms and interest rate - Keep in mind that there are many mortgage lenders competing for your business and many of them are willing to consider your requests for better terms or lower interest rates. If they know (or believe) you’ve got a more competitive offer somewhere else, they should be much easier to deal with.

36. Consider how long you plan to stay in the home before applying for a second mortgage or refinancing, because your intentions should determine the type of loan you want - If you’re not planning on staying in the home for more than a few years, you should consider an adjustable rate loan. This allows you to take advantage of the lower payments for the first several years, and hopefully you’ll be out of the house before you’ve reached the first increase in interest rate. If you plan on staying in the house for quite awhile, then a fixed rate mortgage is probably better because it’s predictable and you’ll be better able to plan around the payment.

37. Keep in mind that even though a shorter-term loan will usually have a much higher monthly repayment amount, you will actually pay less in interest expenses because more of your payment is going toward the principal - Plus, with a short-term loan there is less likelihood that you will experience dramatic shifts in interest rates as you could with a longer-term loan arrangement.

38. Avoid entering into a Negative Amortization refinance loan - This is a concept proposed by countless lenders that sounds good on the surface but carries very significant risks. The idea is that you get an interest-only adjustable rate mortgage and pay only the interest, while setting aside the remainder of the standard monthly payment into an interest-bearing savings account. With Negative Amortization, the loan payment does not have to be high enough to cover the interest expenses, so any unpaid interest is added to the principal balance. The concept is that the compounding interest in the savings account will outweigh the cost of the additional principal. This is untrue because once the unpaid interest is turned into added principal, you will owe more interest on the total loan amount (as if you borrowed that much more in the beginning).

39. A home equity loan or mortgage refinance will usually increase your appropriate life insurance coverage amount - Consider whether or not your family will be able to continue making the additional monthly payments in the event that you die before the loan is repaid. Life insurance can be a cost-effective and attractive method of ensuring that the loan will be paid off, leaving your family in a much better financial situation.

40. Consider the tax implications of your uses for an equity loan or line of credit - Although there is no income tax due on the amount of money you borrowed from your home, there will definitely be taxes due on any additional money earned through investments you may purchase with your equity money. For example, if you borrowed $10,000 of your home’s equity and invested it into a brokerage account that grew to $12,500 over the course of the year, then you would owe tax on the earned interest of $2,500.00.

41. Make sure you understand the difference between the “payment rate” and the “interest rate” on your loan - Many lenders will constantly refer to the “payment” rate during conversations and discussions to distract you from unattractive interest rates.

42. Understand that if you refinance your home for more than 80% of its value, you will have less than the required 20% equity to avoid PMI - Most lenders will require PMI to be added into the cost of your new loan. This is often a surprise for borrowers who have never paid PMI, or have previously reached the 20% equity mark and removed the PMI.

43. Do not consider the county tax assessor’s determination of your home’s value as a basis for how much equity you have in your home - Mortgage companies do not even look twice at the tax assessor’s appraisal because it is usually very different than the market value.

44. Consider your ability to continue repayment of the home equity loan or second mortgage in the event of your disability - Should you become unable to earn an income due to disability, they you jeopardize your family’s lifestyle. Ask your financial planner to evaluate your current disability insurance benefits and recommend any alterations or implementation of a new program.

45. Only borrowers with great credit are likely to be approved for a home equity loan that is higher than the actual equity in the property - Many lenders offer home equity loans that are up to 125% of the equity value, but since that additional 25% is an unsecured loan the lender is taking a significant risk.

46. Home equity and refinance loans obtained in the Fall and Winter months usually have lower interest rates and lower fees than those loans obtained in the Spring and Summer months - If you apply for a loan in the Spring or Summer, double check to make sure the fees are not significantly inflated over other seasons.

47. The lender is required by law to provide the borrower with a Good Faith Estimate (GFE) of closing costs and a Truth In Lending (TIL) statement within three business days of having received an initial application - Hold your lender to this. It’s important that you review this and give yourself plenty of time to understand all the fees.

48. Familiarize yourself with the various types of loans available for refinancing - Each loan has its own pros and cons, so by knowing the basic features of each type you’ll be better prepared to have an educated conversation with your broker. This will also prevent you from becoming the victim of an unscrupulous broker.

49. Insist that the interest rate quoted to you by the refinancing lender is provided to you in writing as soon as possible so you may use that information as a basis for further investigation and comparison - The lender’s letter should include the interest rate, the period of the rate lock, and all other significant aspects of the loan program.

50. Do not get a home equity loan if you are considering refinancing your first mortgage any time within the next year - Most lenders will look at the combined total debt from both mortgage loans, even if you only applied to refinance the first mortgage loan. In some cases, having the second mortgage in place, especially if it’s a newer loan, can work against you. Many lenders will charge you a higher interest rate on your refinance loan, or even possibly turn down your application.