Bi-Weekly Mortgage Myths

Retirement with a Mortgage Case Study: Biweekly Payment Plans - Myths, Misconceptions and Alternatives

Maybe you are considering or paying on a mortgage every two weeks, in most cases, the loan servicer is paying the loan monthly. A consumer who buys into a biweekly plan is actually loaning the servicer half of your mortgage payment, interest free, for at least two weeks every month.

In addition, the convenience of biweekly payment programs comes at a cost. Of the top five mortgage-servicing institutions, four charge enrollment fees that range from $295 to $379. Three also levy additional charges on every transaction. If your elect to pay biweekly , thus avoiding the hefty upfront charge, fees from the same top five servicers range from $4 to $9 a month.

The truly beneficial aspect of biweekly mortgage payments is the two additional half-payments going toward the principal each year. In other words, by making 26 biweekly payments, you are effectively making 13 monthly payments instead of the customary 12. Depending on specific loan terms, one extra payment a year may enable you to pay for your home an average of six to eight years ahead of schedule

Myth #2: Paying twice a month reduces the mortgage’s compound interest.

A true biweekly mortgage, set up at loan origination or during refinancing, is rare, and is not offered by all lenders; however, it is possible to get many of the benefits of a biweekly payment schedule without the extra costs.

Alternatives include:

• paying an additional one-twelfth of the mortgage payment each month, while specifying on the payment stub or coupon that the amount should go toward the principal.
• inquiring about the option of sending a half-payment every two weeks without enrolling in the bank’s biweekly program.
• adding the equivalent of one extra payment to the mortgage, possibly from the proceeds of a bonus or tax refund. The consumer should specify that the additional money is meant to go toward repayment of the principal.
• for borrowers who are paid biweekly, taking half of the amount of the mortgage payment from each paycheck and putting it in a savings account, then using all of the funds in the account to pay the mortgage each month. At least twice a year, the borrower will be including the equivalent of an extra half-payment.

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Things you can do!

4 Steps to Enhance Your Credit

We all know that a high credit score can help streamline life events like buying a house or landing a new job. But do you know how to boost your score? Try these four moves to give it a quick lift.

Fix Credit Errors -- Don't wait for a lender to check your credit before reviewing it yourself. Request a credit report from each of the three major bureaus every year, reviewing the accuracy of your personal info, credit limits and the open or closed status of each account. Dispute any errors immediately.

Ask for Forgiveness -- If you have blemishes on your credit, try clearing them up. Negotiate paying an old debt if the creditor will mark your account "paid as agreed." For a late payment on a long-held account, write the creditor, acknowledge your otherwise good history and ask for a goodwill adjustment that will wipe it from your credit report.

Make Strategic Repayments -- You may not be able to pay off your credit cards quickly, but you can strategically pay them down. Start by dividing each card balance by its limit. Demonstrate restraint to lenders by keeping each card balance below 30 percent. If your card debts are higher, make a plan to pay balances down to reach a more desirable ratio.

Increase Your Credit -- Another way to reduce your debt-to-income ratio is to ask for an increased limit. It's a bit of a numbers game, but if you keep future spending in check, you can end up with a lower ratio. (Experts say this ratio accounts for up to one-third of your credit score.)

Credit Scores

Fair, Isaac and Company (a.k.a. FICO) came into being in 1956 to help lenders determine the likelihood of consumers to repay loans. By issuing credit scores ranging from 350 to 900, FICO estimates that the higher the consumer's score, the more likely he is to pay back money borrowed timely and in full. 

Five factors comprise the credit score: payment history (35%); credit balances (30%); length of credit (15%); credit types (10%); and recency of inquiries (10%). 

If a borrower is required to pay a higher interest rate on money borrowed due to credit problems, his credit rating will improve once payments are made on time, creating opportunities to refinance to a lower interest rate.

Did you know...

...the Wait Periods for Derogatory Credit?

If you have filed for bankruptcy, did a short sale and lost your house, perhaps you think you’ll never be able to own a home again. Fortunately for you, you’re wrong! With bankruptcy becoming more and more common these days, mortgage loans have been developed to help finance those who want to try again. Don’t assume lenders are not willing to lend you money, you'll just have to pass the waiting periods above. 

Overall, the best strategy to getting back into a home after bankruptcy is to wait.  It won't be a walk down easy street though; you’re going to have to work harder but that easy working with the right mortgage broker. 

Find out more today with just a few clicks below.  Steve Morgan - Fairfax Mortgage Investments 302-541-5363.

Social Media - Realtor, Post, Likes & Leads

Realtors and Agents Only

I'm seeking agents that are interested in teaming up to find leads out of Facebook that I qualify and you sell. If your interest in getting results like my post 20 hours ago, 3,412 reached, 127 Likes and Shares, 393 Post Clicks -  just take a minute to fill out the form below. 

See Post on Facebook

Because of the  upfront effort and time I'm limiting it for now to 3 to 4 new agents. A baseline understanding and believe in social media is required to ensure the highest success in working together.

Affordable Housing - Locals

Is there a gap to make affordable housing that's reasonable priced for locals and within a budget similar to renting?

From my experience of doing pre approvals at Fairfax Mortgage as Mortgage Broker over the last 11 years I said "YES".

Affordable housing in Sussex County Delaware is tough;  anybody that has looked at homes in the price range of $140-$199k typical finds dated designs, places far inland and most needing capital to modernize.   Locals and new locals can see that there are tons of inventory of new construction homes and communities priced high 230's and up.

At my office we are seeking homeowners that want to own new construction, stick built homes; typically three bedroom two bath with garage similar to the picture above.  Most of these homes are located in Dagsboro where the property location qualifies 100% financing by USDA.

My office Fairfax Mortgage is seeking out homeowners who are interested in affordable homes in the price point of $199k to $229k.  Some basic information to help you determine if you should fill out the form below; stable jobs for last two years with verifiable income and living history of last two years.

We at Fairfax Mortgage ask if the builder is willing to pay for the closing costs, so the cash to close  at settlement can be $1k to 2k, in some cases less that rent and a security deposit,  payments typically for these homes are projected about $1100 -$1200.

USDA requires a borrower have a credit score of 620 or better to qualify and  one's  annual household income should  in the range of $50k to $79k .

If you know someone that is seeking an affordable home, share my blog; ask them to fill out the questionnaire below.  We work on finding solutions; we might be able to help whether it's today or for buyers who are planning a purchase within the next 18 months.

How much can I afford?

A Home Mortgage: How Much Can I Afford?


Home-owning is the American dream. If it is one of your dreams, you may be wondering how you can ever make it a reality. Home prices in many areas today are very expensive, in some areas prices have even doubled during the past five years because of the housing boom. The key to becoming a home owner is determining just how much of a house you can truly afford.

One of the most basic measures of how much you can afford to pay for a home is to choose a property that costs two to two-and-a-half times your yearly income. So for example, if you make $50,000 each year, the guideline suggests that you look for a home that costs between $100,000 and $150,000. If you live in one of the former real estate hot spots like Florida, Arizona, or California though, you may complain that even a salary twice that of the example would barely pay for a decent home. Fortunately this basic measure is not the only way you can calculate how much you can afford.

One of the ways most lenders determine your eligibility for a certain mortgage loan amount is by figuring out how much debt you have. They will plug that dollar total into a debt-to-income ratio. The ratio consists of two numbers. The first is the amount of money you plan to spend on your mortgage payments, divided by your monthly income. Lenders like to see this number under 28%, but some will accept higher percentages. To calculate how much money you can put towards a monthly mortgage, find a sum that meets the 28% ratio. The formula is to multiply your monthly income by 28% or 0.28. For example, if your monthly income is $4500, multiply that number by 0.28, and you find that the amount of money you should be able to devote to your monthly mortgage payment is $1260.

The second number in the ratio may change the real total of how much you can afford. This ratio takes into account your total debt. The basic principle is that the more debt you have, the less able you are to take on new debt, like a home mortgage. This ratio is calculated by adding your proposed monthly mortgage debt to your other total monthly debt and dividing that by your monthly income. Lenders prefer this ratio to be below 36%, although there are of course lenders who will make exceptions to this rule.

Beyond simple income qualifications and calculations, in order to determine how much mortgage you can afford you must take into account the down payment requirement. Traditionally lenders required a down payment that was 20% of the value of the loan. Contributing that much today is still preferable and will secure a great loan with a nice, low interest rate but such a sum is sometimes impossible for borrowers to scrape together today. Fortunately there are lots of lenders who will accept some lesser percentage. There are even some programs that offer a no-down payment feature. Be aware those that these types of loans will cost you in points and the interest rate. You should plan to make some sort of down payment, even if it is just 3% or 5% of the home price. This means taking money out of your savings, money you will not be able to use for further mortgage payments. Be sure to calculate how much a down payment will set you back in the home owning process.

There are many things to consider when figuring out how much home you can afford, including many personal and lifestyle preferences. Be sure to consult with a financial or mortgage professional to help answer your questions about the right house price range for you.