Download
1 / 18
180 likes | 188 Views
All things related to real estate in the USA and Canada: searching, buying, obtaining a mortgage, refinancing, real estate investment, obtaining rent-to-own, real estate investing, property flipping and many more...<br><br>Know more: https://www.mysmartrealestate.com/
E N D
In today’s market, there are many features that lenders offer borrowers to suit their financing needs. Increasing competition among lenders resulted in lenders adapting their mortgages to the needs of borrowers. It is important to know your options before you sign a mortgage contract. Depending on the options, you can get additional flexibility in terms of repaying, exiting, and otherwise changing the terms of your mortgage. The features and options of a mortgage can be broken down into the following categories: Prepayment Options Repayment Options Cash Back Options Bundled Options Portability Options Assumability Options Let's deep dive into each of the above to see how they can benefit us by adding flexibility.
Lenders offer different options to pay the mortgage off sooner than was agreed to in the original mortgage contract. With mortgage prepayment options, the borrower has options to enhance the repayment plan by determining the type of prepayment features. A) Fully Open Mortgage Prepayment Option A fully open mortgage allows the borrower to repay the mortgage, in whole or in part, at any time without penalty or notice. This option is especially beneficial to borrowers who expect to receive large cash amounts in the near future, such as from property sales or inheritance. The fully open mortgage prepayment plan can also benefit a borrower in times of declining interest rates. The borrower can switch to another lender and refinance at a lower rate with no penalty.
B)Partially Open Mortgage Prepayment Option A partially open mortgage allows the borrower to repay the mortgage in whole with a penalty of either 3 months’ worth of interest or the interest rate differential (the difference between the mortgage’s rate and the lender’s current mortgage rate).
C) Closed Mortgage Prepayment Option The main characteristic of this feature is that it does not allow for full prepayment at any time during the term of the mortgage except by the sale of the property. It also has to be an arm’s length sale, meaning that a borrower cannot sell the property to a family member simply to repay the mortgage. Although this type of mortgage prepayment is less common, several lenders do offer it. It is important to read the contract to ensure you fully understand the terms.
A) Periodic Payment Increase This option allows the borrower to increase monthly payment, in many cases up to 100% of the original payment amount, during the term of the mortgage. This can be an extremely important feature when it comes to paying a mortgage off more quickly and saving money in the process. On another positive note, if the lender realizes the increased payment is too much for the budget, most lenders will allow the borrower to lower the monthly payment to an amount no less than the original payment amount.
B) Accelerated Mortgage Payment An accelerated mortgage payment option is simply an option that provides for an increased periodic mortgage payment using a certain approach that is commonly used by lenders. It has to do with the number of payments in a year. Let's look at an example to explain: Let's say you have a mortgage and are paying $1264 every month, which amounts to $15,168 per year. If you use an accelerated bi-weekly payment plan, you would be paying $1264 every 4 weeks (or $632 every 2 weeks). Thus, you would pay $15,168 in just 46 weeks of the year and then an additional $1264 for the final 4 weeks of the year. This means you are technically paying more per year and repaying your mortgage faster, ultimately reducing the amortization period and interest. With this option, you are not locked into having your payments made every 2 weeks. You can still choose to pay monthly or 2 times or month, but your amounts would be adjusted to account for the higher annual payment.
C) Lump Sum Payment This option allows the borrower to make a lump sum payment which is applied directly to the principal amount of the mortgage. This, in addition to the payment increase discussed previously, can significantly decrease the amortization period of the mortgage and increase the savings over time by decreasing the amount of interest payable. As is the case with periodic payment increases, the effect of making a lump sum payment will be most significant the earlier it is made. For example, making lump-sum payments during the last few years of the mortgage amortization period will have very little impact on savings vs. a lump-sum payment in the first few years of the mortgage.
Inthis type of option, the borrower receives an amount of cash on closing (the time that the mortgage funds), which represents a percentage of the total loan amount. The amount of the Cash Back option can range from 1% to 7%, depending on the lender and the product.
The combined and bundles options are the different names for the same option. Offered by some lenders, this option provides the borrower with 2 products at the same time: the mortgage itself and a line of credit. If, for example, a borrower were to take out a $200,000 mortgage, this amount would be split into a standard mortgage and a line of credit. The mortgage amount would start at $200,000, and the line of credit balance would start at $0. Then every payment against the mortgage loan, as the principal on the mortgage would be reduced, and the line of credit room would increase. Over time, as the mortgage amount owed decreases, the available line of credit increases. The borrower can then use this available line of credit for other needs, if needed and when needed.
The Portability Option allows the current homeowner to effectively take his or her current mortgage to his or her new home. Under a typical scenario, the borrower would be selling the current home and purchasing a new one.
An Assumable Option allows a purchaser to assume or take over the current homeowner’s debt on the property being purchased. For the current borrower to be released from their covenant with the lender, the purchaser must be approved by the lender and complete an Assumption Agreement.
Contact Us: www.mysmartrealestate.com info@mysmartrealestate.com https://www.facebook.com/MySmartRealEstate/ https://twitter.com/MySmartRealEst
