Comments on: Financing for a Second-Time Homebuyer http://pantsinacan.com/2008/04/11/financing-for-a-second-time-homebuyer/ A Personal Finance Blog with a Silly Name Fri, 10 Feb 2012 11:02:13 +0000 hourly 1 http://wordpress.org/?v=3.0 By: Anne http://pantsinacan.com/2008/04/11/financing-for-a-second-time-homebuyer/#comment-5290 Anne Fri, 11 Apr 2008 20:44:46 +0000 http://pantsinacan.com/2008/04/11/financing-for-a-second-time-homebuyer/#comment-5290 The reason that the bank gives a good interest rate on mortgages is because the loan is secured. No matter how good a credit risk you are, a bank will always charge you a higher rate for an unsecured loan. In this case, you are essentially talking about a $200,000 secured loan and $40,000 unsecured loan, only you are telling the bank that the loan is fully secured. Re: "higher payments" - you can get a 20-year loan if the 15-year is too high. In your example, the $240,000 mortgage is paid off in almost exactly 20 years if you make an immediate payment of $40,000 and then regular monthly mortgage payments of $1438. If you take out a 20-year loan for $200,000 at the same 6% interest rate, your monthly payment will be $1432. It's the exact same thing because you always pay interest based on the current principal amount owed. If you can get a 5.75% interest rate on the shorter-term loan, your payment is only $1404. The reason that the bank gives a good interest rate on mortgages is because the loan is secured. No matter how good a credit risk you are, a bank will always charge you a higher rate for an unsecured loan. In this case, you are essentially talking about a $200,000 secured loan and $40,000 unsecured loan, only you are telling the bank that the loan is fully secured.

Re: “higher payments” – you can get a 20-year loan if the 15-year is too high. In your example, the $240,000 mortgage is paid off in almost exactly 20 years if you make an immediate payment of $40,000 and then regular monthly mortgage payments of $1438. If you take out a 20-year loan for $200,000 at the same 6% interest rate, your monthly payment will be $1432. It’s the exact same thing because you always pay interest based on the current principal amount owed. If you can get a 5.75% interest rate on the shorter-term loan, your payment is only $1404.

]]> By: Brainy Smurf http://pantsinacan.com/2008/04/11/financing-for-a-second-time-homebuyer/#comment-5279 Brainy Smurf Fri, 11 Apr 2008 20:11:07 +0000 http://pantsinacan.com/2008/04/11/financing-for-a-second-time-homebuyer/#comment-5279 Hi Anne! I disagree that things like this are what has caused the apparent mortgage crisis. That is due entirely to people borrowing more than they could afford, many through cash-out refi's, and then not paying their bills. I'm not advocating that. It's not a bad loan or a high risk to the bank if the recipient can afford it without any strain. True about the 15-year loans having lower rates, but they also have higher payments. The real purpose of my example was to show how to maintain a high cash flow (through a lower minimum payment) but still pay off early. Hi Anne!
I disagree that things like this are what has caused the apparent mortgage crisis. That is due entirely to people borrowing more than they could afford, many through cash-out refi’s, and then not paying their bills. I’m not advocating that.

It’s not a bad loan or a high risk to the bank if the recipient can afford it without any strain.

True about the 15-year loans having lower rates, but they also have higher payments. The real purpose of my example was to show how to maintain a high cash flow (through a lower minimum payment) but still pay off early.

]]> By: Anne http://pantsinacan.com/2008/04/11/financing-for-a-second-time-homebuyer/#comment-5243 Anne Fri, 11 Apr 2008 18:03:43 +0000 http://pantsinacan.com/2008/04/11/financing-for-a-second-time-homebuyer/#comment-5243 Mortgage fraud alert! If the house is worth $200,000 and you get an appraisal for $240,000, something fishy is going on. Bad loans like what you're describing are a big part of the current mortgage crisis. Luckily, you can do this without defrauding the bank. If you want to pay your mortgage off faster, get a 15-year loan. A side benefit is that 15-year loans usually have a lower interest rate than 30-year loans. Mortgage fraud alert! If the house is worth $200,000 and you get an appraisal for $240,000, something fishy is going on. Bad loans like what you’re describing are a big part of the current mortgage crisis.

Luckily, you can do this without defrauding the bank. If you want to pay your mortgage off faster, get a 15-year loan. A side benefit is that 15-year loans usually have a lower interest rate than 30-year loans.

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