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Are You in It for the Short Term or the Long Haul?

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

A mortgage is not a one-size-fits-all endeavor. Borrowers have varying needs and financial pictures, so home loans come with differing terms to meet these constraints. Mortgages can vary in terms of repayment length as well as whether their interest rates remain stable or fluctuate. Read on to learn more about the different types of mortgages that are available and to gain a better understanding of what choice is right for you.

Understanding long-term mortgages

A conventional 30-year mortgage designed for borrowers who are prepared to make a long-term commitment on a property, whether it is a primary residence, a vacation home or a rental property. Additionally, for borrowers who are refinancing their current mortgages, a conventional loan can be a real money-saver, depending on how interest rates are looking at the time.

Most 40-year mortgages are conventional fixed-rate loans, and while the low monthly payments may appear attractive at first, that advantage should be weighed against the fact that the lengthened repayment period translates to slower accumulation of equity as well as paying more interest over time.

The benefits of a conventional 30-year mortgage include:

  • Not having to worry about private mortgage insurance (PMI) if you are able to make a 20% or greater down payment — even those who can’t put down 20% initially can have their mortgage insurance removed upon reaching that level of equity
  • Having the ability to apply funds to various types of properties
  • Choosing between fixed or adjustable rates, depending on plans for the future
  • The possibility to qualify for a conventional loan with as little as 3% down, though this will trigger the need for PMI

Disadvantages of a conventional 30-year mortgage include:

  • Interest rates that are typically higher than shorter-term options
  • The potential for paying more interest over time, given the longer life of the loan

Understanding short-term mortgages

Short-term mortgages typically come with repayment periods of five, 10 and 15 years. Borrowers can choose between fixed-rate loans, where the interest rate stays stable throughout the life of the mortgage, or adjustable-rate loans, which fluctuate with the market.

Benefits of shorter-term mortgages include:

  • A lower interest rate than longer mortgages because lenders often see short-term loans as less risky instruments
  • Lower total interest cost because the loan is paid off more quickly
  • A quicker means of building equity in your home

Disadvantages of short-term mortgages include:

  • A higher monthly payment, given that you have a shorter repayment period — this is the flip side of paying less in interest over the life of the loan
  • The possibility of qualifying for a lower amount because your debt-to-income (DTI) ratio will be higher with a larger monthly payment
  • Less extra cash each month

What to consider when deciding on a mortgage loan term

A few things to keep in mind when comparing loan terms:

  • If you’re risk-averse, a 30-year fixed mortgage is your best bet, as it holds no surprises
  • If you’re more comfortable with the unknown — and prepared to deal with increased costs, should interest rates rise — a shorter adjustable-rate mortgage (ARM) may fit the bill
  • Generally speaking, the longer the loan term, the lower the monthly payments — but the more interest you’ll pay over the life of the mortgage
  • Conversely, shorter loan terms require higher monthly payments but carry a lighter interest load, as the debt is paid down more quickly

If savings is a major consideration when you’re making a decision on a mortgage loan term, know that a shorter-term loan will save you more money in the long run for two reasons:

  • Lower interest rates, because lenders consider shorter-term loans less risky
  • Less interest paid over the life of the loan

The length of time you plan to keep your home is a major factor in your decision among the mortgage-loan options out there. Here are a few things to consider:

  • The longer you plan on living in your home, the more a 30-year fixed loan makes sense — particularly if you see yourself being there for a decade or longer
  • However, if you plan a shorter stay in your home and wish to build equity quickly, a shorter-term loan is more likely what you’re seeking, as you’ll also pay less interest over the life of the loan
  • Whichever route you choose, remember the 28/36 rule: monthly housing payments such as mortgage, insurance and taxes should not exceed 28% of your gross monthly income and ideally should be less than that, while your DTI ratio, which compares the amount of money you owe to your income, should not exceed 36%, and ideally should be far less than that

What kind of mortgage loan is right for you?

When choosing a mortgage, you are essentially selecting between the relative safety of a more conventional loan or the risk of an adjustable-rate loan — but that is far from the only element to consider, so let’s break it down:

First-time homebuyers can choose amongst a number of grants and programs aimed at helping them meet their homeownership goals, including

  • FHA loans, which require a FICO score of at least 580 with a 3.5% down payment, debt-to-income ratio of less than 43%, steady income and proof of employment
  • USDA loans, which offer rural and suburban borrowers zero-down mortgages that are backed by the government
  • VA loans, which assist service members, veterans and eligible surviving spouses with their homebuying goals through no–down-payment loans partially backed by the government
  • Fannie Mae and Freddie Mac, which were created by Congress to offer liquidity, stability and affordability by purchasing mortgages from lenders and either holding in their portfolios or bundling them into mortgage-backed securities; meanwhile, lenders use the cash raised to offer additional mortgages.

Established homebuyers should be prepared to ask themselves the following questions:

  • Which loan will cost me the least over time?
  • How does my income affect my eligibility for a variety of mortgage products?
  • How does my credit score affect my eligibility for mortgages?
  • What loan product has the lowest monthly payment?
  • Which one requires the least amount of upfront cash?

Refinancers need to do the following in order to get the best possible rates:

  • Get their credit in great shape by paying bills on time, paying off chunks of debt, reducing DTI, not opening additional lines of credit and obtaining their free credit reports from the three major bureaus — Equifax, Experian and TransUnion
  • Considering a shorter loan term such as a 15- or 20-year mortgage to avoid dragging out repayment
  • Start local before widening the net:
    • First try your current lender
    • Then research lenders in your immediate area, including smaller banks and credit unions
    • Move on to large lenders, including online banks

And retirees are well-advised to keep a few things in mind when considering mortgages:

  • Your income will be assessed through a method called asset depletion, in which the value of all financial assets is totaled, minus the cost of a down payment, with 70% of the resulting figure divided by the number of months in the loan term to arrive at theoretical monthly income
  • Low DTI ratio — no more than 40% of monthly earnings — is desired
  • Credit score is still a large factor, as is occupancy status — primary homes get better rates than second homes

Conclusion

Your personal circumstances will dictate what you need from — and can handle in — the length of a mortgage loan. Make sure to check in with yourself and your family to understand your personal financial picture before beginning the research and application process.

This article contains links to LendingTree, our parent company.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Allison Landa
Allison Landa |

Allison Landa is a writer at MagnifyMoney. You can email Allison here

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How to Host a Successful Garage Sale

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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Whether you’re prepping for a move or finally cleaning out the basement, decluttering your home can bring you peace of mind — and extra cash. Hosting a garage sale is a great way to get rid of old or unused items. Here are a few tips to help you make your sale as profitable as possible.

When is the right time for a garage sale?

Garage sales go by many names — yard sale, moving sale, tag sale, estate sale or rummage sale — but some portion of the event will likely take place outside. If you’re hosting your sale to get rid of stuff before a move, you’ll likely be stuck to a certain date, but if you have some flexibility, consider mild seasons like spring or fall. No one likes rummaging through old items in the blazing August sun, even for good deals.

How to prepare for a yard sale

While the concept of a garage sale is fairly simple, it’s easy to mess up. Many people who host a sale see little success — often because they failed to prepare. Sure, you can just set your unwanted items out on the lawn and have passersby stop and quickly sift through everything. But when you put in a little work ahead of time, the success of your sale is much greater.

“The more preparation that you can do, the more you’ll probably make,” said Ava Seavey, New York-based garage sale expert and author of Ava’s Guide to Garage Sale Gold.

Schedule wisely. First, you’ll want to pick a day for your sale, ideally a Friday or Saturday.  Then you’ll want to take the time to sort through your belongings and carefully select the items you want to sell, choosing items that people will actually find appealing and will want to buy.

Be strategic about prices. Seavey advised that costume jewelry, furniture and collectibles have the potential to make sellers the most money. However, how you price the items is key to ensuring you will earn what these items are worth.

“A good percentage of people who go to garage sales will pay what you have written down,” Seavey said. While some people will negotiate, if your stuff is priced correctly, people will pay it, she said.

Get the word out. You will also want to focus on advertising your sale in your local newspaper and online using garage sale-specific websites and social media channels. Go ahead and describe the types of items you’ll have for sale to attract the right customers.

Be prepared. You’ll want to make sure you have all the supplies you need, including:

  1. Tables
  2. Tablecloths
  3. Pricing labels
  4. Money apron (to hold cash)
  5. Bags
  6. Paper/newspaper (to wrap fragile items)
  7. Signs (to advertise the sale throughout the neighborhood)
  8. Notebook/ledger (to keep track of items sold and money collected)

This may seem like a lot to do in order to sell a few necklaces, purses or electronics. But this preparation can make your sale more appealing and profitable. If having your own sale sounds too time consuming to prepare, you and a friend, family member or neighbor could have the sale together.

What to expect during your garage sale

On the day of the garage sale, you’ll get a variety of customers depending on what you have available for purchase. If you have advertised correctly and have the right things for sale, you could draw in a large crowd.

“I would have plenty of things for everyone. Those are the best sales, when you have a variety,” Seavey said.

Try to keep the sale going from the morning to the late afternoon. Having a sale that lasts a few hours may hinder your ability to make money because you are limiting how many people will be able to come. If your sale starts in the morning and goes until later in afternoon, you can maximize the profits from the sale because those who could not make it during the morning hours can shop in the afternoon before the sale ends.

“There is no magic time to end, but you will do most of your selling in the morning,” Seavey said. “I like to go as long as I can.”

With the money you make from your sale, you can add to or start an emergency fund, pay past-due bills, or even purchase updated items for your new home if you are moving.

What to do after the yard sale

A successful yard sale will leave a lot of money in your pocket and very few unsold items on your lawn. Consider storing your newly acquired cash in an online savings account that earns you interest. If you’re stuck with leftover items, you can always hold another sale, or you can donate them to a charity, church or secondhand store. You won’t make any money when you go this route, but there are benefits to donating.

“You have unloaded everything, you’ve made some money and you have a tax write-off,” Seavey said. “It’s a win-win-win for everybody.”

A garage sale can be the answer when you want to rid yourself of unwanted items — and even make a little money in the process.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Kristina Byas
Kristina Byas |

Kristina Byas is a writer at MagnifyMoney. You can email Kristina here

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What the End of HARP Means for Your Mortgage

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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Home values have been on the mend since the financial meltdown of just a decade ago. This has been good news for people who have struggled with negative equity in their homes, meaning the value is lower than the amount they owe on their mortgage.

The percentage of “underwater” homes has dropped significantly, decreasing 16% year over year at the end of 2018 to comprise 4.1% of all mortgaged properties, real estate research firm CoreLogic found. But that means there are still homeowners who need assistance with recovering their equity.A popular government-sponsored refinancing program aimed at helping these homeowners has recently ended, and people looking for help getting above water may not be aware of the other options they have.

In this article, we highlight and explain what the closing of HARP means for homeowners and several available alternatives.

What is HARP?

The Home Affordable Refinance Program, known as HARP for short, is an initiative that helped underwater homeowners refinance their mortgage. The program was introduced in 2009 after the housing crisis.

HARP allowed eligible homeowners to refinance their mortgages to lower their mortgage interest rate or switch from an adjustable-rate to a fixed-rate mortgage even if they were underwater. Typically, lenders will not allow a borrower to refinance if the house is worth less than what is owed.

In order to qualify, homeowners needed to meet the following requirements:

  • No late mortgage payments over the last six months that were 30-plus days behind, and no more than one late payment over the last year.
  • The mortgage you’re attempting to refinance must be for your primary residence, a one-unit second home or a one- to four-unit investment property.
  • Your mortgage must be owned by Fannie Mae or Freddie Mac.
  • Your mortgage was originated on or before May 31, 2009.
  • Your loan-to-value ratio is more than 80%.

The program had been extended a few times, but the last HARP deadline was Dec. 31, 2018.

Fannie and Freddie’s HARP replacements

Government-sponsored enterprises Fannie Mae and Freddie Mac have refinance products in place that are meant to replace HARP.

Fannie Mae’s High Loan-to-Value Refinance Option

Beginning on Nov. 1, 2018, Fannie Mae has offered a high loan-to-value refinance option to borrowers with mortgages owned by the government-sponsored entity. The product is meant to make refinancing possible for borrowers who are maintaining on-time mortgage payments but have an LTV ratio that exceeds the amount allowed for standard refinance options.

Borrowers must benefit from the refinance through a reduction in their monthly principal and interest payment, a lower mortgage interest rate, shorter loan term or by switching to a fixed-rate mortgage. There is no maximum LTV ratio for fixed-rate mortgages; however, the maximum LTV for adjustable-rate mortgages is 105%.

The eligibility requirements include:

  • The loan being refinanced must be an existing Fannie Mae-owned mortgage.
  • The loan must have been originated on or after Oct. 1, 2017.
  • At least 15 months must pass between the loan origination of the existing mortgage and the refinanced mortgage.
  • Borrowers must be current on their mortgage, have no late payments over the last six months and only one 30-day delinquency over the last 12 months. Delinquencies longer than 30 days aren’t permitted.
  • The existing mortgage can’t be a Fannie Mae DU Refi Plus or Fannie Mae Refi Plus mortgage.

Freddie Mac’s Enhanced Relief Refinance Mortgage

Freddie Mac offers the Enhanced Relief Refinance mortgage to borrowers who are current on their mortgage but can’t qualify for a standard refinance because of a high LTV ratio. The mortgage being refinanced must meet the following requirements:

  • The mortgage must be owned or securitized by Freddie Mac.
  • The mortgage can’t have any 30-day delinquencies over the past six months and only one 30-day delinquency in the last year.
  • The closing date for the mortgage was on or after Oct. 1, 2017.
  • The mortgage can’t already be a Relief Refinance mortgage.
  • There should be at least 15 months between when the original loan was closed and the refinanced loan’s origination.
  • The loan can’t be subject to an outstanding repurchase request.
  • The maximum loan-to-value ratio for adjustable-rate mortgages is 105% and there’s no max for fixed-rate mortgages.

Borrower benefits include a lower interest rate, switching from an adjustable-rate to fixed-rate mortgage, shorter mortgage term or lower monthly principal and interest payment.

Alternatives to refinancing when you’re underwater

If refinancing your mortgage doesn’t sound like the best move for you, consider one of the following alternatives.

Mortgage modification

A mortgage modification is a way to change the original terms of your loan without going through the refinancing process. In some cases, you can work with your lender to switch from an adjustable-rate to a fixed-rate mortgage, extend your loan term, lower your interest rate or add past-due amounts to your unpaid principal balance.

Modifying a mortgage could be beneficial for homeowners facing hardship who aren’t eligible to refinance and are delinquent on their mortgage payments or expect they will eventually fall behind.

Mortgage recasting

If you have a lump sum of at least $5,000 in cash, you could potentially recast your mortgage. A mortgage recasting results in lower monthly mortgage payments. You pay a lump sum of cash to your lender to reduce your outstanding loan principal amount, then your loan is reamortized based on the lower remaining principal balance. Your interest rate and loan term stay the same.

This option makes sense if you’re expecting a bonus from your employer, a large income tax refund or some other financial windfall.

The bottom line

Although HARP has come to an end, there are still options for mortgage borrowers with Fannie- or Freddie-owned loans. In order to qualify for the enterprises’ refinancing programs, it’s helpful to maintain on-time payments even when your loan amount exceeds your home’s value.

If you don’t qualify, be sure to strategize on how best to attack your mortgage balance and rebuild equity. Consider making extra mortgage payments whenever possible by freeing up room in your budget, earning extra income or dedicating unexpected money to your mission.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Crissinda Ponder
Crissinda Ponder |

Crissinda Ponder is a writer at MagnifyMoney. You can email Crissinda here

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