A mortgage is the single largest loan that you will take in your life. A mortgage extends for a minimum of 15 years and a maximum of 30 years. To take on such a large debt you must be aware of your financial capability and future liabilities.

Why should you want to know your annual earning to afford your house payment?

If you take a mortgage, you need to make monthly repayments for the next 15 or 30 years. In that case, your monthly earning must have provision for the mortgage installment and other monthly expenses. Therefore, you must estimate your annual earning and then take a mortgage that fits within your budget.

How can this information help me in arriving at the amount I can take as mortgage for my home?

Simple economic theory states that your monthly mortgage repayment, including the principal and interest must not exceed 25% of your gross monthly income. Add to this real estate taxes and property insurance that adds another 3 to 6 percent. Besides this, you have your food and other monthly expenses and federal taxes that you pay.

Example

We assume that you will make at least 20% down payment for the mortgage in addition to 2 to 5% as closing costs. Visit any home finance website and they will give you indicative cost per thousand dollars for a 15 year or a 30 year mortgage at varying rates of interest. So, if you finalize a house for $150,000 and make a down payment of $30,000, then at 9% for a 30 year mortgage, the monthly payment using figures from the table provided works out to $8.05 per thousand. This means a monthly installment of $ 966 or $11592 per annum. Since we assume this is 25% of your gross income, you need to earn at least $46,368 per annum to service this mortgage. Similarly, if you feel you can take a bigger house then you can go for a 15-year mortgage with a higher monthly installment. Moreover, the equity on a 15-year mortgage builds up faster so you can go for a refinance or move to a bigger house.

How to calculate your annual income to get an affordable mortgage

You can generally qualify for a mortgage that is twice your annual income. However, lenders assess your net worth, your liabilities, and costs of owning the new house before sanctioning the mortgage.

Let us now consider that your monthly expenses include mortgage payments, property taxes, insurance, and maintenance costs. You may need private mortgage insurance if your down payment is less than 20% of the mortgage amount. This is usually 0.5 to 1% of the mortgage amount and a monthly deduction. This insurance amount may increase marginally over the years. Next, calculate your assets including income, savings, pensions, and equity in real estate. Your liabilities include car loans, monthly expenses, and credit card loans. Your emergency funds should include savings that can provide for six months living without any income. Your net worth is the net of your assets minus liabilities. Subtract emergency funds from net worth to get a sum that is available for losing costs and down payment. Next, get the sum of annual expenses and operating costs, minus them from your income. Then add the cost for rent and insurance to get an amount that you can spend on your house in a year. Therefore, your annual income must be almost double of this amount.

Advantage of using a mortgage calculator

As explained above the calculations are detailed and you must not make any errors. It is therefore better to use affordability calculators available at most financial websites to estimate your annual income.

Disadvantage of not using a mortgage calculator

You will end up buying a bigger house and then take a huge mortgage loan that you cannot afford. You may default on your repayments, severely affecting your credit rating. This will hamper your future chances of credit and affect your credibility among lenders

Refinancing your mortgage can save you money, get your hands on cash, and help you take control of your finances, if done correctly. There are a number of common mistakes homeowners make when refinancing their mortgages that cost them thousands of dollars. Here are the basics of refinancing your home loan to help you avoid costly mistakes.

Refinancing to Save Money

If your financial situation has improved and you qualify for a better interest rate than you did when you purchased your home, you could save money by qualifying for a lower interest rate. This lower interest rate could also reduce your monthly payment amount; however, there are ways to lower your payment even you cannot qualify for a lower interest rate. If you purchased your home with a risky Adjustable Rate Mortgage (ARM) or have Private Mortgage Insurance, refinancing to a fixed rate loan could ease your peace of mind and help you lose the Private Mortgage Insurance.

Refinance and Get Cash

Refinancing your primary mortgage and taking cash back is generally more affordable than other home equity options. You will qualify for a better interest rate refinancing than you will with a second mortgage or home equity line of credit. To borrow against equity when refinancing, you simply borrow more than you owe on your existing mortgage and will receive the cash back at closing.

Consolidate Your Debt

Mortgage refinancing is a convenient way to consolidate your higher interest debts into one payment. By taking cash back when refinancing you can pay off your other debts and have just one payment. When you refinance to consolidate your bills it is important to understand that refinancing does not eliminate your debt; consolidating only restructures your debts, making them easier to pay back.

You can learn more about refinancing your mortgage while avoiding costly mistakes by registering for a free mortgage guidebook.

To get your free mortgage guidebook visit RefiAdvisor.com using the link below.

With the condo market apparently showing signs of slowing down, a systematic strategy for reviving activity is having affordable condo mortgage financing available to prospective buyers. An issue for many homeowners is in managing monthly income and expenses, or “cash flow” in general. Income fluctuates every month and unforeseen expenses come up when least anticipated. For many people, mortgage payment comprises the largest monthly expense, and also the least flexible. Most buyers desire for luxury and they want it with an affordable monthly mortgage payment.

A specific type of condo mortgage financing—option adjustable-rate mortgage (option ARM)—has been devised as an alternative condo mortgage product which, if fully understood can serve as a valuable tool to acquire a property that otherwise would be very difficult to acquire. The product has been designed to give condo owners greater control over the mortgage payment.

Recently there has been a substantial transaction activity from buyers who wish to buy condo properties in Miami within the $200,000 price range. Unfortunately spending $200,000 in most cases will not produce a property which meets even the most basic standards of a select group of buyers.

Benefits of Option ARM

The benefits of option ARM condo mortgage financing is discussed here in a general manner. Option ARM, if understood, is considered to be a viable solution for buyers to obtain the condo properties through condo mortgage financing. In particular, the particular type of option ARM elaborated here is also called “short term option ARM mortgage.” Do not confuse “short term” with high payment, as it normally does for mortgage. “Short Term” here implies lowest interest rate, as the prevailing introductory rate on a one month option ARM is 1.75%.

Let us show a sample calculation using the said condo mortgage financing scheme. If a buyer considers about purchasing, say a $350,000 Miami condo and were to opt for a one month option ARM Mortgage, and place a $25,000 down payment, the monthly mortgage payment would turn out to be $1156. A $200,000 condo mortgage payment would turn out to be a mere $710 per month.

Indeed, with the simple example above, it appears that this mode of condo mortgage financing has the potential of making one’s condo acquisition an affordable investment.

Risks Involved With Option ARM

Simply, the risk of selecting option ARM for condo mortgage financing is the possibility that a negative amortization could occur. This implies that if borrowers opt to only make minimum payments for an extended period of time, they may encounter the chance that they will owe more at the end of the second or third year than they did on the first year of amortization.

Why would you want to know the size of your loan?

It is simple. You earn a fixed amount every month and you have fixed monthly living, food, and other expenses. If you take a mortgage, you have to make a monthly repayment from your monthly income. Therefore, it is imperative to calculate your monthly outgo towards the mortgage. This is precisely why you must know how big a loan you can afford.

How to find out the size of your mortgage

Find a simple affordable mortgage calculator available at most finance websites that you can use to determine the size of your mortgage. You must enter the details of the annual interest rate, the tenure of the loan, the yearly real estate taxes, and annual homeowner’s insurance. Also, enter your gross annual income and your monthly debt outgo. Based on the information you provide, the mortgage calculator will quickly calculate the maximum monthly mortgage payment you can afford and the maximum loan amount that you can take.

Illustration

* First, compute your net monthly income after deducting taxes, social security, and retirement contributions. Let us say it is $5000.
* Next, add up all your debt including car loan, student loan, and credit card loan, not including rent or mortgage payments. Assume it is $1000. This amount must not exceed 25% of your net monthly income. Before proceeding, you must take steps to reduce debt below 25% of your net monthly income.
* Take stock of all your expenditure over the past year including holidays, travel costs, food and entertainment, gifts, and tally them with your cash expenses, credit card spending and checks issued. Add all these expenses and divide by 12 to get your monthly living expenses. Let this amount be $1500.
* Add your monthly expenses and debt to get your total monthly expenditure, $2500.Deduct this from your monthly income and $2500 is the maximum monthly mortgage payment you can afford.
* You must deduct 30% of this value for taxes and home insurance. Therefore, $ 1750 is the maximum monthly mortgage payment that you can afford.
* Other factors that determine the affordability of a mortgage include the tenure of the mortgage, the interest rates, and whether the mortgage is fixed or variable interest.

Advantage of using a mortgage loan calculator to find the size of your mortgage

As you have seen, you need the calculator to make the detailed computations. Moreover using a calculator can give you results quickly and you can compare mortgage offers from several lenders. These mortgage calculators help you control costs so that principal, interest, taxes, and homeowner's insurance do not exceed more than 28% of your gross monthly income. It also ensures that your debt payments do not cross 36% of your gross income. From the above discussion, it is evident that a mortgage calculator is a useful tool to decide the affordability of a mortgage. It enables you to take quick and accurate decisions with help from your lenders.

A recent survey indicates that homeowners are worried about rising interest rates, but they plan to refinance if necessary.

In the third annual homeowners study by Wells Fargo, one in seven respondents was holding an adjustable-rate mortgage (ARM).

Eighty percent of these homeowners were concerned on varying levels about future rate increases.

Over half of the ARM borrowers said that they could refinance their loans if necessary. Only 20% said that they were prepared for rising rates and had no plans to change their loan products.

Well's Fargo found that homeowners are looking forward to rising home price appreciation, despite the slowing of price increases across the country.

Ten percent said that they believe their homes will increase significantly in value over the next few years. Fifty-three percent said they will see "a little" appreciation, while 27% expect no change.

Over 70% of the respondents said that they consider the equity in their homes as their most important investment.

According to Freddie Mac's latest mortgage rate report, the interest rate on a 30-year, fixed rate mortgage averaged 6.40% last week. That is an increase of 0.25% year-over-year.

Doreen Woo Ho, president of Wells Fargo's consumer credit group, said that "while rates are higher than a year ago, they are still low by historical standards.

Mortgage lenders and brokers use interest rate lock guarantees to insure you have time to close on the mortgage without the interest rate changing. How do you know the guarantee the loan originator gives you is the same the interest rate quoted by the wholesale lender? Loan originators commonly inflate their interest rates to receive an additional commission from the wholesale lender. Here are several tips to help you understand the interest rate guarantee provided by your loan originator.

There are two types of rate lock guarantees when you take out a mortgage loan. There is the written guarantee your mortgage company provides you and the guarantee the wholesale lender provides your mortgage company. These two guarantees may not be for the same interest rate. Your mortgage company may be adding a premium to the interest rate they are quoting you; mortgage companies commonly do this because they are paid a bonus for overcharging you on this rate.

When you receive a written rate lock from your mortgage company there are a several things to look for on this document. Make sure the interest rate, loan amount, lock date, expiration of the lock, and any points are all what you agreed. This rate lock means that your interest rate is only guaranteed with the mortgage company originating your loan. How do you know if the interest rate quoted by the wholesale lender has been marked up by the mortgage company? Ask them for a copy of the guarantee from the wholesale lender. Some loan originators stall or even refuse when you ask them for this guarantee; they are afraid you might find out they have marked up the interest rate. You can learn more about refinancing your mortgage without overpaying by registering for a free mortgage guidebook.

Comparison shopping when refinancing your mortgage can save you thousands of dollars in finance charges. When you compare mortgage loans it is important to compare all aspects of the offers, not just the mortgage interest rate. The Good Faith Estimate makes it easy to compare mortgage loan offers line for line. Here are tips to help make sense of Good Faith Estimates to ensure you choose the best mortgage loan available.

Mortgage lenders are required to provide Good Faith Estimates upon receiving your application; however, most will give you this document if you simply ask for one. Asking for the Good Faith Estimate before applying for the mortgage enables you to make an informed decision as to which loan is best.

There are a number of items listed on the Good Faith Estimate you need to focus on for the purposes of comparison shopping. These items include the origination fee and who it is paid to, and the processing fee and who it is paid to. The loan origination fee should not be higher than 1-.5% for a home you will occupy, and 2-2.5% for an investment property; if the fees are higher the lender is overcharging you. The loan processing fee should not be higher than $400, period. Any more and the lender is marking up fees unnecessarily.

Look for anything on the Good Faith Estimate that resembles a “broker administration fee,” “broker courier fee,” “application fee,” or “lock fee.” These are junk fees that you should simply refuse to pay. If the lender or broker insists on charging these fees, find another mortgage company. Mortgage lenders and brokers often invent clever names to disguise these fees in their loan documents; if you are unsure of any fee, question the lender or broker about that fee. To learn more about reading the Good Faith Estimate when shopping for the best mortgage loan register for a free mortgage guidebook

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If you are a homeowner in need of cash and refinancing is not a possibility, using a second mortgage to access equity in your home can save you money. Home equity lines of credit are expensive and you might be tempted to spend more than you want. Here are several advantages of second mortgage loans to help you determine if this type of loan is right for you.

Interest rates have been on the rise; if you have no desire to refinance your primary mortgage but need an equity loan, a second mortgage could be your best option. There are a number of advantages second mortgages have over the equity line of credit. One of the main advantages in this economy is that your second mortgage can come with a fixed interest rate, allowing you to budget for a predictable payment. Equity lines of credit come with variable interest rates that change every time your lender adjusts the interest rate.

Taking out a second mortgage allows you to borrow a specific amount at a specific rate. With an equity line of credit, borrowers have access to the equity in their homes using a debit card or checkbook. This ease of access to cash causes many homeowners to overspend, squandering their equity on purchases they would not have otherwise made. With a second mortgage you will not have the temptation to overspend. Remember the equity loan you choose is secured by your home just like your primary mortgage. If you fall behind on the payments your lender will foreclose and take your home.

You can learn more about your mortgage options by registering for a free mortgage guidebook.

To get your free mortgage guidebook visit RefiAdvisor.com using the link below.

ffMortgage loans are one of the largest investments people make. Choosing the right mortgage for your situation will save you thousands of dollars and many future headaches. There are a number of options available when refinancing you home loan; here are the basic types of mortgages to help you choose the right loan for your financial situation.

Fixed Interest Rate Mortgage Loans

The most popular variety of home loan is the traditional 30 year fixed interest rate mortgage loan. This interest rate for this mortgage is fixed, meaning the rate and the payment amount will not change for the duration of the loan. There are many advantages to this for homeowners that need a mortgage payment they can plan their budget around. Fixed interest rate mortgage loans have the least risk of all mortgage products on the market; however, the fixed interest rate you receive will be higher than other types of mortgage loans.

Adjustable Interest Rate Mortgage Loans

Adjustable rate mortgages (ARM loans) come with a variable rate that your lender will adjust to prevailing interest rates and regular intervals specified in your loan contract. The loan you choose will be tied to some financial index, like the prime rate for example, and the lender will add their markup on top of this. Adjustable rate mortgages usually come with an introductory period where the interest rate will be significantly lower than the actual rate. Lenders do this to entice homebuyers into choosing their loan products; if you see a mortgage with a 2-3% interest rate this is only the introductory interest rate. When the introductory period ends the lender will adjust your loan to the actual interest rate and your payment amount will go up significantly.

Balloon Payment Loans

A balloon payment loan is a short term mortgage loan where the entire loan balance is due at the end of the mortgage term. These loans typically have term lengths of five to seven years and come with lower interest rates than longer term loans. These mortgages are useful for real estate investors and other homeowners that need a mortgage for a short term financial need. You can learn more about mortgage refinancing basics, including common homeowner mistakes to avoid by registering for a free mortgage guidebook.

An analysis conducted recently in the UK prompted the article, as it identified that fee-free UK mortgage offers are more expensive than deals with an application fee for consumers with a mortgage of £57,000 or more. This is because the interest rate is usually higher. With the average new mortgage loan now at just below £140,000, opting for a fee-free mortgage deal could cost many borrowers dear.

Fee-free UK Mortgages Comparison

Example 1a: - Based on a mortgage of £56,000 and someone taking out a two year fixed rate of 4.47%, they would end up paying £5,005 in interest in the first two years. Add the lenders fees of £1,499 and the overall cost is £6,505

Example 1b: - Again, based on a mortgage of £56,000 and someone taking out a two year fixed rate of 5.35% but fee free, they would end up paying £5,992 in interest in the first two years.

Using the same situation as above but based on the average new UK mortgage of £138,000, the figures work out as follows:

Example 2a: - A borrower taking out a two-year fix at 4.47% and paying fees would pay £13,838 over the two years.

Example 2b: - The same borrower taking out a 5.35% two-year fix and not paying fees, would cost £14,766.

It all goes to show that the bigger the mortgage, the more money you will save by choosing the low-interest option mortgage with a fee, rather than a fee-free UK mortgage deal. From this comparison, you should be aware that fee-free mortgage deals are not what they are cracked up to be. Using the services of a whole of market UK mortgage broker can pay dividends here as they will do their homework and expose any pitfalls of such mortgage deals.

If you are a homeowner that purchased your home with an Option Adjustable Rate Mortgage, you might be feeling the waters rising when it comes to your monthly payments. If you have one of these risky “payment plan” mortgages and have only paid the minimum payment amount, you could be in trouble and don’t even know it. Here are several tips to help you stay afloat with your option ARM and avoid losing your home to foreclosure.

Option Adjustable Rate Mortgages or so called “payment plan” loans are especially troublesome for many homeowners. These loans allow the borrower to choose their payment amount each month from four options, the lowest being a minimum payment amount that does not cover all the interest due that month. The unpaid interest is added on to your loan balance which results in a phenomenon called “negative amortization.” Negative amortization means that your loan is actually growing over time instead of being paid down the way a mortgage is supposed to be paid. When your growing loan balance reaches 125% of what you originally borrowed, the mortgage blows up in your face and the payments skyrocket.

The popularity of these risky loans has soared over the past several years, partly because homeowners don’t understand what they are getting themselves into when borrowing with an option ARM. According to a recent survey of national mortgage lenders over 12% of all mortgages taken out this year are option loans. This is up from .05% of loans in 2003. According to the same survey nearly 80% of homeowners with option ARM loans only make the minimum payment each month; 1 in 5 of these homeowners making the minimum payment will lose their homes at foreclosure.

Refinance Now If You Can

These risky option ARM loans are popular because it’s very easy to qualify for these loans. If you are a homeowner with poor credit refinancing might not be an option; however; if you are able to refinance you should get out of this loan immediately. Choosing a mortgage with a fixed interest rate will give you predictable mortgage payments that you can plan your budget around. You will begin paying down the balance the way a mortgage was intended.

If Refinancing is Not Possible

If refinancing is not an option for you, there are steps you can take to protect your home. The first thing you should do is stop making the minimum payment. Carefully review your loan contract to find out when your mortgage will be re-cast, resulting in a higher payment amount. Option arms come with adjustable interest rates; once the option period ends the mortgage lender will adjust your loan’s interest rate at regular intervals which could raise your payment amount.

If you know trouble is coming with your payments, call your lender before you fall behind. If you don’t know when the lender will re-cast your mortgage or when interest rate adjusts, call and ask. Never wait until you’re behind on the payments to ask for help. Mortgage lenders want to keep their loans out of foreclosure as much as you do and will work with you to keep the loan current. You can learn more about keeping your mortgage afloat by registering for a free mortgage guidebook.

If mortgage payments are suddenly higher, the most probable aspect to blame would be the ever-rising mortgage interest rates. The reason is that since 2004 the Federal Reserve Board has raised the fed-funds rate, which influences mortgage interest rates, 17 times.

In recent years, many people have taken advantage of near-record-low interest rates while scooping for real estate properties. In order to make mortgage payments even lower, many signed up for variable-rate home mortgage refinancing options.

One of the benefits of variable is that you get an extra-low interest rate for the first few years of the loan, and then, often every year, it gets reset to reflect the actual market movements in interest rates. For a “5-1” variable-rate mortgage scheme, the loan is fixed at a low introductory rate for five years and then begins floating in relation to interest rates each year after that. However, if the market interest rates surge up, the rate of your own will consequently rise, albeit caps for regulating rates from rising too much are in place.

The risk is that one could end up paying 10% or more on a home mortgage refinancing in later years. This is not quite apparent in fixed-rate home mortgage refinancing wherein one’s loan will be locked at a rate, say 6.25%, until the whole loan is paid. The risk is not at all senseless—that is if you plan to leave the home after a few years, variable-rate home mortgage refinancing can make a lot of sense. You get an extra-low rate initially, and you are not likely to be around if and when rates escalate.

Not everyone is fortunate enough to figure out such a trick. Some are blinded by the chase of the cheapest rates out there, grabbing variable-rate mortgages for the really low introductory rates that these offer despite planning to stay in their new home. So now that the tide seems to be turning, and rates are rising, the potential heartache for a lot of people is looming. According to a report from ACORN, the national community advocacy group, about 75% of subprime home loans were variable-rate mortgages.

Many people have opted for even riskier home loans than ordinary variable-rate mortgages. Some signed up for interest-only loans and negative-amortization loans, and according to a Los Angeles Times article, "substantial numbers of borrowers using interest-only and payment-option loans have modest incomes and could already be stretched financially."

There are some suggestions that can mitigate such risks. The most reasonable would be to switch to risk-averse options such as 15-year or 30-year standard amortization schemes. Another practical tip suggests switching to an interest-only mortgage option if full payments are currently not feasible. The positive feature about interest-only payments is that these would not result in still-higher principal debt balances to pay off later.

Sandra Block offered some beneficial advice to potential borrowers in a USA Today article. She explains, "Look for lenders that have raised their borrowing limits for conforming loans. Rates on conforming loans, which are loans that lenders can sell to Fannie Mae and Freddie Mac, are a quarter to three-quarters of a percentage point lower than those for jumbo loans."

With the condo market apparently showing signs of slowing down, a systematic strategy for reviving activity is having affordable condo mortgage financing available to prospective buyers. An issue for many homeowners is in managing monthly income and expenses, or “cash flow” in general. Income fluctuates every month and unforeseen expenses come up when least anticipated. For many people, mortgage payment comprises the largest monthly expense, and also the least flexible. Most buyers desire for luxury and they want it with an affordable monthly mortgage payment.

A specific type of condo mortgage financing—option adjustable-rate mortgage (option ARM)—has been devised as an alternative condo mortgage product which, if fully understood can serve as a valuable tool to acquire a property that otherwise would be very difficult to acquire. The product has been designed to give condo owners greater control over the mortgage payment.

Recently there has been a substantial transaction activity from buyers who wish to buy condo properties in Miami within the $200,000 price range. Unfortunately spending $200,000 in most cases will not produce a property which meets even the most basic standards of a select group of buyers.

Benefits of Option ARM

The benefits of option ARM condo mortgage financing is discussed here in a general manner. Option ARM, if understood, is considered to be a viable solution for buyers to obtain the condo properties through condo mortgage financing. In particular, the particular type of option ARM elaborated here is also called “short term option ARM mortgage.” Do not confuse “short term” with high payment, as it normally does for mortgage. “Short Term” here implies lowest interest rate, as the prevailing introductory rate on a one month option ARM is 1.75%.

Let us show a sample calculation using the said condo mortgage financing scheme. If a buyer considers about purchasing, say a $350,000 Miami condo and were to opt for a one month option ARM Mortgage, and place a $25,000 down payment, the monthly mortgage payment would turn out to be $1156. A $200,000 condo mortgage payment would turn out to be a mere $710 per month.

Indeed, with the simple example above, it appears that this mode of condo mortgage financing has the potential of making one’s condo acquisition an affordable investment.

Risks Involved With Option ARM

Simply, the risk of selecting option ARM for condo mortgage financing is the possibility that a negative amortization could occur. This implies that if borrowers opt to only make minimum payments for an extended period of time, they may encounter the chance that they will owe more at the end of the second or third year than they did on the first year of amortization.

Another risk, albeit of a lesser extent than the one mentioned above, is the probability that interest rates escalate. Even though the minimum payment remains affordable, the amount of negative amortization may be substantial. Usually, lenders hedge such risk potential by requiring borrowers to “re-cast” the mortgage should they owe 25% or more than the original mortgage amount at any point in time.