Will your debt stop you from getting a mortgage? By Terence Loose

Do you carry debt and worry that it may stop you from buying a home someday? Well, you’re not alone.

“An alarming 35 percent of people with credit files have debt in collections,” according to a July 2014 report by the Urban Institute, a nonprofit organization that conducts research on social and economic policy.

If you’re in that group, it’s important to know how that will affect your ability to get a mortgage and even more importantly, what you can do to lessen the impact.

And even if you don’t find yourself behind in your debt payments, keep reading to find out how exactly your credit and payment history affect your ability to qualify for a mortgage.

If I Have a Delinquency or Bankruptcy, Can I Still Get a Mortgage?

It’s not news that being in poor standing with creditors or having the B-word associated with your finances will hurt your ability to get a mortgage. But the details do matter.

First, being behind on payments and placed in collections for anything from credit card debt to medical bills or having a bankruptcy will hurt your chances at qualifying for a mortgage.

“Simply put, banks are trying to determine whether or not you will pay them back. If your credit history shows evidence of irresponsibility or an inability to manage your finances, you aren’t a good bet for a bank,” says Ken Lin, CEO of CreditKarma.com, a site where consumers can access their free credit reports.

In addition to looking bad, a delinquency or bankruptcy can lower your credit score, which lenders use to determine your eligibility and the interest rate they’ll offer you, Lin says. That’s because a delinquency is when you are behind in your credit card or other loan payments – exactly what lenders are trying to make sure you avoid with them.

A bankruptcy is much more serious and a little more complicated, says Lin. Basically, it is a legal proceeding in which you declare that you are unable to pay your debts and need a “fresh start,” he explains.

However, your creditors do get a portion of what you owe them from any assets you may have, says Lin. Obviously, that will worry potential future lenders, he adds.

According to Lin, most lenders use your FICO score, which runs from 300 to 850, and the higher the better.

To get the best interest rates on a mortgage, you’ll want a score of 760 or above, according to FICO’s website. To qualify for a mortgage, even at a higher interest rate, you’ll want at least a score of 620 to 640, says Lin.

A bankruptcy and the delinquencies that lead to it can really take a toll on your score, says Lin. A delinquency and bankruptcy will stay on your credit report and hurt your score for seven years, he says.

“The amount will seem diminutive, though, because the actual bankruptcy itself only lowers your score by about 50 to 150 points, which might not seem like that much,” says Lin.

But don’t let that fool you. Bankruptcy is merely the final blow to your credit report after what was surely a long and damaging road, says Lin.

On the road to bankruptcy, you’ll have gone through being 30 days delinquent on payments, then 60 days, then 90, and so on, explains Lin. As that happens, your score gets hammered down for months or years. Hence, by the time you file for bankruptcy, you’re not going from 800 to 700 – likely you’re going from 600 to 500 and now can’t qualify for any mortgage, he says.

“There may be opportunities out there to get a mortgage without good credit, however potential buyers need to be careful. Those mortgage structures and rates may defeat the purpose of the mortgage, and you may end up paying a lot more for your house than you should,” he says.

Does My Credit Limit Matter?

According to Lin, there’s a commonly spread myth that if you have too high a credit limit – even if your outstanding balance is low – lenders don’t like it.

“The convention was if you’ve got all of this available credit it’s a little bit like a loaded shotgun, right? You might go off at any point in time and buy a whole bunch of stuff [and get into debt]. But what the statistics show and what the credit scoring companies have disclosed is that is not the case,” says Lin.

In fact, he says having a high limit can be a good thing, if you’ve handled it well.

“Say you’ve had $30,000 worth of credit for the last 20 years, and you’ve never abused that. How else could you attest to a better credit situation than someone who knows how to manage that much money for that period of time?” says Lin.

And mortgage lenders see that logic, he says. So Lin says don’t worry too much about your limit – worry instead about how well you’re managing it.

How Much Credit Card Debt Can I Have and Still Qualify?

This is actually a tricky question since the answer might vary greatly from person to person, depending on other factors, such as the home you want to buy, other types of debt, and your payment history, says Lin.

However, there are some general rules you may want to live by, such as the rule of 30 percent. In a nutshell, Lin says data shows that once your outstanding balance goes above 30 percent of your available credit, it can start to adversely affect your credit score, and therefore your ability to get a mortgage.

“If you go over [30 percent] for a short time – a month or so – a few times, that’s okay as long as you pay your balance down,” says Lin. But you shouldn’t go over 30 percent regularly, and especially when a lender is about to check your credit, he says.

So, for example, if you have a $1,000 credit limit, try to keep your outstanding balance below $300. For a $2,000 limit, the target number is $600, and so on.

But as we all know, life has a funny way of making us use credit – for everything from medical emergencies and car repairs to big screen TVs and big nights out. But fret not, because if you do go over 30 percent and can’t pay your balance down, there is an alternative: increase your credit limit.

There is one caveat to this “solution,” however, says Lin. The larger outstanding balance will likely result in a higher monthly credit card payment, which could adversely affect your chances at securing a mortgage by contributing to your overall debt.

How Do Student Loans, Car Loans, and Other Debt Factor In?

The short answer is that they factor in heavily. But there is actually a way to figure out how much – your debt-to-income ratio (DTI). It is simply the percentage of your gross monthly income that goes toward paying for your debt (credit card, car, and student loan payments, etc.). Food, gas, and incidentals are not included, but the monthly payment and taxes on your potential mortgage are. Ideally, your DTI should be 40 percent or lower, says Lin.

Every mortgage lender has a keen eye on your DTI, says Ellen Davis, a senior mortgage banker with Corridor Mortgage Group in Columbia, Maryland. In fact, Davis says your DTI is usually much more important than the type of debt you carry.

So, say your total debt obligations for credit cards, car and personal loans, and the mortgage for which you’re applying came to $1,500 a month. Your gross monthly income would have to be at least $3,750, making your DTI an acceptable 40 percent.

Your DTI is one important number that lenders use to decide not only if you qualify for a mortgage, but for other things such as how much they can safely lend you and at what interest rate, says Davis. Additionally, they use your DTI to determine how large your monthly payment can be.

It’s also an important number for you, says Lin, because, like the bank, you want to know that you can afford your dream house without it becoming a huge financial burden on you.

A Few Final Tips

Courtesy of Lin, here are some useful tips on credit, whether you land on the higher or lower end of the credit score range.

• Know your credit score and credit record, and if there are errors, dispute them. According to Lin, one in four credit reports have a meaningful error.

• If you’re not happy with your score, identify why it’s low. It could be due to any combination of the following: your payment history, your credit utilization, new credit cards (and applications), and the length of your credit history.

• Keep credit card balances to 30 percent or less of your available credit.

• Avoid applying for new credit cards more than once a year – credit checks can negatively affect your score.

• Keep and responsibly use up to three credit cards by paying on time and avoiding maxing out your cards. This establishes your credit and shows that you can manage credit responsibly.

• If your score is lower because you are younger and haven’t established credit, consider opening a secured credit card to start building credit. This is a credit card that has a limit that is a percentage of or equal to an amount of cash you place in an account, such as an interest-bearing savings account.

https://homes.yahoo.com/news/mortgage-with-debt-201625199.html

Three ways to qualify for the cheapest mortgage possible By Terence Loose

https://homes.yahoo.com/news/Things-to-qualify-for-cheapest-mortgage-173655653.html

Do you want to buy a home now or in the future, but fear that it’s too expensive? Well, there may be ways to make it more affordable.

And while you may not be able to do much more than haggle over the asking price of your dream home, there are things you can do to make your mortgage cheaper.

“It’s all about showing the lender that you are financially solvent and a low risk to loan a large amount of money,” says Ellen Davis, a senior mortgage banker with Corridor Mortgage Group in Columbia, MD. In short, your lender wants to feel confident that you’ll pay them back.

So, keep reading for three things you’ll need to get the best deal on your mortgage.

1. A High Credit Score

You may feel that you are more than just a number, but according to Davis, your credit score is one of the first things a potential lender checks when going over your loan application. Most lenders use the FICO credit score, she says which ranges from a low of 300 to a high of 850.

To qualify for a mortgage at all you’ll probably need a credit score of at least 620, maybe even 640, says Ken Lin, CEO of CreditKarma.com, a site where consumers can access their free credit reports.

But to qualify for those great rates that are splashed all over lenders’ ads, in addition to other requirements, you’ll probably need a score somewhere above 720 and possibly as high as 740, says Davis.

In other words, the higher your score is the lower your interest rate and the cheaper your mortgage.

And the difference between a poor and strong credit score and your resulting interest rate could mean a lot over the course of your mortgage. In fact, according to an example provided by Credit.com, a website that educates people about credit, it could be enough to pay for your kid’s education or a nice new car.

Their example looked at the difference between interest rates offered to borrowers in three different credit ranges for a 30-year, fixed-rate mortgage of $200,000 in May 2014. Here’s what they found:

Credit Score	Interest Rate	Monthly Payment (Principal & Interest)	Lifetime Cost	Total Savings with Great Credit
740 and above	4.025%	$958	$344,778
680-699	4.974%	$1,070	$385,368	$40,591
620-639	5.481%	$1,133	$407,950	$63,173

As you can see, having good or excellent credit could save you tens of thousands of dollars over the life of your mortgage.

To attain that great credit score, Lin says you’ll want a few things. One is to have a few credit cards.

“You are not born with good credit – you have to earn it,” says Lin. People sometimes believe that because they don’t have any debt or have never used credit that they must have great credit. Not true, says Lin. “You have to use credit to get good credit,” he says.

Next, in addition to never being late on your payments, keep your outstanding balance to 30 percent or less of your available credit limit, he says. So, if you have two credit cards with an available credit limit of $5,000 each, keep the outstanding balance on each below $1,500.

Finally, check your credit and correct any mistakes. Lin says 25 percent of all credit reports have a meaningful error on them, which could range from inaccurate late payment records to identity theft.

Lin also suggests checking your score at least six months before you apply for a mortgage, so you have time to work on improving it by doing a few of the things listed above.

He says that while a few late payments or a delinquency can lower your credit score fast, it takes time to raise your score more than a few points. He adds that six months before applying for a mortgage is not the time to close cards or get new ones – both can lower your score.

2. A Big Down Payment

A big down payment may sound like the opposite of “saving money,” but putting a lot of money down on your home could save you a bunch in interest and reduce your monthly costs.

First, it’s merely a math equation to see that a bigger down payment – and therefore, borrowing less – saves money. That’s because you will pay 30 years of interest on every dollar you borrow.

A larger down payment also helps with the interest rate you’ll be offered, says Jim Duffy, a senior loan officer with Primary Residential Mortgage, Inc. Just like with credit scores, the percentage you put down could affect the amount of risk the lender sees in you, he says.

The numbers are not as straightforward as with FICO scores, but a good rule of thumb for most loans is to shoot for 20 percent down. If your other factors hold up – good credit report and score, good income, etc. – Duffy says this is the magic number to get the best rates.

That’s because your down payment is the lender’s “cushion” against you defaulting on your mortgage, says Duffy.

Finally, putting 20 percent down gets you out of having to pay private mortgage insurance (PMI), for exactly the same reasons as outlined above: under 20 percent down and lenders begin to get nervous about you defaulting on your mortgage.

Calculating PMI is complicated and varies widely based on the amount you borrow, the amount you put down, as well as other factors, says Duffy, but it can really add up. In fact, it can range from .5 percent to 1 percent of the amount of the mortgage per year, he says.

Run those numbers for a $300,000 mortgage, and PMI could ding you for $1,500 to $3,000 a year, or $125 to $250 per month.

To see how much all this could cost, let’s look at a simple example of two 30-year mortgages. We’ll keep the sales price of the home ($300,000) and the interest rate the same (4.20 percent*), but change the amount of down payment.

	Mortgage A	Mortgage B
Down Payment Percentage:	20	10
Down Payment Amount:	$60,000	$30,000
Total PMI (@.75 percent/year):*	$0	$11,981 ($168.75 for 71 months)
Monthly Mortgage Payment:	$1,174	$1,320
Total Cost of Interest and PMI:	$182,511	$217,306
Total Cost of Home:	$482,511	$517,306

Bottom Line: As this example clearly shows, that 10 percent extra in down payment pays off overtime to the tune of savings of nearly $35,000.

3. A Low Debt-to-Income Ratio

The amount of debt you have compared to the amount of income you have is another key area of interest for any lender. Remember, the thinner you are stretched financially, the more risky you are perceived to be by lenders.

One way lenders assess this is by calculating your debt-to-income ratio (DTI), which is simply the percentage of your gross monthly income that goes toward paying your debt.

“Any monthly payments on credit cards, student loans, car loans, personal loans, etcetera, is used in the underwriting process to help calculate the debt-to-income ratio,” says Davis. In addition, the mortgage payments, taxes, and PMI on the home you are trying to buy will also factor in.

When all that is calculated, you’ll want your DTI to be 40 to 43 percent or lower to qualify for a mortgage, depending on the institution, says Davis.

However, for the best rates, you’ll want your DTI to be in the mid 30s or below, all else being equal, says Duffy.

So, say your total debt obligations for credit cards, car and personal loans, and the mortgage for which you’re applying came to $1,500 a month. Your gross monthly income would have to be at least $4,286 to be considered for the best rates. That would be a DTI of 35 percent. Again, it’s not exact, but it’s a good start.

*According to Freddie Mac, one of the nation’s largest mortgage holders, for the week of September 25, 2014. In the PMI example, this figure is based on the fact that with most mortgages, you can stop paying PMI once you reach 20 percent equity in your home. Make all scheduled payments in the above example, and that happens after 71 payments.

Borrowers with adjustable rate mortgages could lose big – By Terence Loose

https://homes.yahoo.com/news/ARMs-lose-money-223146070.html

As you probably know, adjustable rate mortgages have lured aspiring homeowners with their attractively low interest rates. How low? Well, for the initial period of often five to seven years, they usually fall below the interest rate of a 30-year, fixed-rate mortgage. As a result, you would likely have a low monthly payment.

However, after that honeymoon period, ARMs adjust according to a predetermined index. In short, if interest rates go down, so does the rate on your ARM. But if they go up, your interest rate – and typically your monthly payment – rises, too, which is cause for concern.

Of course, ARMs do make sense for a lot of people. So read on for information that will help you decide whether to hold onto your ARM or look for new money-saving opportunities.

Interest Rates Will Likely Go Up

Since the interest rates on ARMs adjust after a set period of time, knowing where interest rates are headed would be helpful. But how can you tell where rates are going?

Well, in July 2014, the Federal Reserve confirmed that it would end what’s known as quantitative easing (QE4) in October. This decision will most likely increase interest rates. Here’s the simple version of why:

Beginning in January of 2013, in the QE4 program the Federal Reserve bought $85 billion worth of U.S. Treasury notes from U.S. banks every month, tapering off that amount beginning late last year. By buying these notes, QE4 increased the money that banks had to lend, increasing their competition for borrowers and therefore lowering interest rates.

Hence, when QE4 ends, rates will rise, says Jim Duffy, a senior loan officer with Primary Residential Mortgage, Inc.

“There’s absolutely no doubt that rates will rise once [the Fed] ends the stimulus. Rates only have one way to go when the Fed stops buying altogether, and that’s up,” Duffy says.

So how high will rates go? The Mortgage Bankers Association (MBA) projects rates reaching 5 percent for 30-year fixed rate mortgages by the second quarter of 2015. For comparison, as of September 11, 2014, the average interest rate for a 30-year, fixed-rate mortgage stood at 4.12 percent, according to Freddie Mac, one of the nation’s largest mortgage lenders.

But even a small jump in rates can have a huge affect on your ARM – and your wallet. Now, every situation is unique, but consider that a typical adjustment rate cap (the most your rate can adjust every adjusting period, usually each year) is 2 percent, according to HSH.com, the nation’s largest publisher of mortgage and consumer loan information.

We’ll assume that rates won’t rocket up by 2 percent a year and use half of a percent instead, along with a lifetime cap of 12 percent. This example shows how the monthly payment changes over the life of a $200,000 5/1 ARM that adjusts annually after year five, starting at a 3 percent interest rate.

Year       Interest Rate                     Monthly Payment

1 – 5        3 percent                             $843

6              3.5 percent                         $890

10           6 percent                             $1,119

15           8.5 percent                         $1,327

20           11 percent                          $1,499

22           12 percent                          $1,553

Again, every situation is unique, so if you have an ARM, you should check the terms of your contract, but as you can see, things can get expensive fast.

Fixed Rates are Still Historically Low

The big attraction of ARMs, of course, is the very low initial interest rate. But that can blind many to the fact that even after the past year or so of rising rates, 30-year fixed-rate mortgage rates are still extremely low, historically speaking, says Ellen Davis, a senior mortgage banker for Corridor Mortgage Group in Columbia, Maryland.

She says that while every case is unique, this is a very good reason to lock in a rate for 30 years by refinancing an ARM. It provides peace of mind that if rates do go up higher and faster than expected, you’re still okay, Davis explains.

“Right now fixed rate loans are amazingly low, so refinancing might make [homeowners’] current payment a bit higher [than an ARM] but give them the security of knowing that the mortgage payment will not change,” she says.

And history does show that anything can happen. If you need proof, check out the average 30-year fixed-rate mortgage interest rate for July 1 of every decade from 1974 till now, according to the Federal Reserve’s historic data.:

July 1, 1974: 9.28 percent

July 1, 1984: 14.67 percent

July 1, 1994: 8.61 percent

July 1, 2004: 6.06 percent

July 1, 2014: 4.13 percent

How does that 30-year, fixed-rate mortgage look now? We thought so. And that’s without even showing you the 17.6 percent interest rate from 1982.

Fixed Rates Insulate You Against Inflation

A certain amount of inflation can be a good thing, which is why the Fed made one of its goals to stimulate it. For instance, slight inflation increases the value of things like your house. Of course, inflation also means the price of everything in your house, from the beer in the fridge to the couch you enjoy it on, also goes up.

But when you buy or refinance your home with a 30-year fixed-rate mortgage, you are essentially hedging against inflation, says Ian Aronovich, co-founder and CEO of GovernmentAuctions.org, a company that gives home buying and mortgage advice.

“As money loses it purchasing power, as has been the case for a while, it makes sense to take out a 30-year mortgage since you will be repaying it with dollars that are in all likelihood going to be worth less than they are when you bought the home,” he says.

Duffy says this helps offset other home and life expenses, too. If inflation does take hold, then as other things around the household eat up more and more income, it’s going to be very helpful to have a fixed rate and a fixed payment for housing, he says. As a result, people can control expenses, still put money away, and save for retirement.

“So you’re insulating your mortgage payment from inflation,” he says.

With an ARM, that insulation is not guaranteed, since your interest rate can rise along with everything else, notes Duffy.

ARMs Do Make Sense for Some

There’s a reason ARMs exist: They are a good product for some. In fact, our experts have identified three common situations in which an ARM might make a lot of sense.

The first is if you believe interest rates will go down in the future. Then, your rate will adjust down, not up. But we’ve already outlined why that’s unlikely.

The second situation when an ARM makes sense, says Davis, is if you plan to sell your home before the initial fixed-rate period of your ARM expires, or even soon after.

“Not all ARM holders should refinance. If their current ARM payment is low and they know that they will be moving within a certain period of time, that is a big part of the decision making,” she says.

The third scenario where an ARM may make sense is if you plan to refinance a home after you do some improvements, says mortgage broker Gloria Shulman, founder of Centek Capital in Beverly Hills. In that case, an ARM’s extremely low initial interest rate could save you a lot of cash, which you can use to fix up the home.

“For example, if you are buying a house you plan to renovate, it makes sense to apply for an ARM that can be refinanced when the house is worth exponentially more after you finish the work,” she says.

 

Can Space Tourists Get Life Insurance? by Aaron Crowe

The Oct. 31 crash of a Virgin Galactic rocket that killed a pilot hasn’t stopped the company from continuing its quest to offer space tourists a chance to see the Earth from above, giving potential riders a chance to reconsider their life insurance options.

While life insurance might be the furthest thing from any space tourist’s mind, a loophole that allows current life insurance policyholders to retain such coverage if they fly into space remains, though the insurance industry may look to close it.

Skydivers, pilots and people with other high-risk jobs or hobbies must buy extra coverage on their life insurance policies. Space tourists, however, who either already have life insurance or are applying for a policy don’t have to mention their upcoming trip to space because insurers either don’t ask about space tourism or don’t exclude it from coverage.

The loophole means they’d likely have to pay if the policyholder died on a space trip.

There are little or no established life underwriting guidelines specifically for space flight, and such activity would probably be covered under common aviation clauses and exclusions, says Rob Drury, executive director of the Association of Christian Financial Advisors.

“For a life insurance company to deny coverage for space travel would require a specific exclusion of such activity,” Drury says. “If the current treatment of aviation activities is an indication, the greater likelihood is that a proposed insured would be underwritten at a higher risk class.”

Once a policy is issued, death benefits must be paid for any death regardless of cause, unless there is a finding of fraud, misrepresentation, or suicide within the policy’s contestability period of the first two policy years in most states, he says.

Coverage is provided by omission, meaning the underwriter doesn’t ask about an applicant’s plans to fly into space.

“If someone wants to run the bulls at Pamplona, his insurer might not like it, but they must pay in the event of death if the activity isn’t specifically excluded,” Drury says.

Astronauts are rated at $10 per $1,000 of coverage in addition to their approved rate based on amount of coverage, age and other factors, says Ellen Davis, president of Life Health Home Insurance Group. Space tourists can’t buy coverage yet, Davis says.

However, if the insurer doesn’t ask an applicant about space travel, then it would be covered under travel outside of the United States, she says.

Virgin Galactic’s SpaceShipTwo crashed during a test flight. The craft is designed to carry six passengers on two-hour suborbital flights that offer a few minutes of weightlessness. The company announced after the crash that it plans to continuing selling tickets at up to $250,000 per seat.

The good news is that while flying in a rocket sounds risky, even for insurers, not many people have died riding into space. No one has died in suborbital manned flights. There have been three fatal orbital space shots, including the space shuttles Challenger and Columbia with 14 deaths, and a Soyuz flight that killed one person.

Mention that to your underwriter next time you’re applying for insurance as a space tourist.

Aaron Crowe is a freelance journalist who specializes in content about personal finance and insurance.

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What Is A VA Loan?

The VA Loan became known in 1944 through the original Servicemen’s Readjustment Act also known as the GI Bill of Rights. The GI Bill was signed into law by President Franklin D. Roosevelt and provided veterans with a federally guaranteed home with no down payment. This feature was designed to provide housing and assistance for veterans and their families, and the dream of home ownership became a reality for millions of veterans. The GI Bill contributed more than any other program in history to the welfare of veterans and their families, and to the growth of the nation’s economy.With more than 25.5 million veterans and service personnel eligible for VA financing, this loan is attractive and has many advantages. Eligibility for the VA loan is defined as Veterans who served on active duty and have a discharge other than dishonorable after a minimum of 90 days of service during wartime or a minimum of 181 continuous days during peacetime. There is a two-year requirement if the veteran enlisted and began service after September 7, 1980 or was an officer and began service after October 16, 1981. There is a six-year requirement for National guards and reservists with certain criteria and there are specific rules concerning the eligibility of surviving spouses.

VA will guarantee a maximum of 25 percent of a home loan amount up to $104,250, which limits the maximum loan amount to $417,000. Generally, the reasonable value of the property or the purchase price, whichever is less, plus the funding fee may be borrowed. All veterans must qualify, for they are not automatically eligible for the program.

VA guaranteed loans are made by private lenders, such as banks, savings & loans, or mortgage companies to eligible veterans for the purchase of a home, which must be for their own personal occupancy. The guaranty means the lender is protected against loss if you or a later owner fails to repay the loan. The guaranty replaces the protection the lender normally receives by requiring a down payment allowing you to obtain favorable financing terms.

Why Do Mortgage Interest Rates Change? Part II

If the demand for credit reduces, then so do interest rates. This is because there are more people who are ready to lend, sellers, than people who want to borrow, buyers. This means that borrowers, buyers, can command a lower price, i.e. lower interest rates.

When the economy is expanding there is a higher demand for credit so interest rates go up. When the economy is slowing the demand for credit decreases and thus interest rates go down.

 This leads to a fundamental concept:

	Bad news (i.e. a slowing economy) is good news for borrowers as it means lower interest rates.
	Good news (i.e. a growing economy) is bad news for borrowers as it means higher interest rates.

Another major factor driving interest rates is inflation. Higher inflation is associated with a growing economy. When the economy grows too strongly the Federal Reserve increases interest rates to slow the economy down and reduce inflation.

Inflation results from prices of goods and services increasing. When the economy is strong there is more demand for goods and services, so the sellers and producers of those goods and services can increase prices. A strong economy therefore results in higher real-estate prices, higher rents on apartments and higher mortgage rates.

Also lenders naturally want to see a positive return on their money as their reward for lending it. This leads to the concept of the “real” rate of return. This is typically 3% per year. If inflation is 4 % per year, lenders will want to earn 7% per year on their money.

Likewise, if prices are rising rapidly, people are inclined to borrow “today’s” money so as to repay it with “tomorrow’s” money, which will be worth less.

Mortgage rates tend to move in the same direction as interest rates. However, actual mortgage rates are also based on supply and demand for mortgages.

 There is usually an almost fixed spread between A credit mortgage rates and treasury rates. This is not always the case. For example, bank failures in the Far East in the late 90s caused mortgage rates to move up while treasury rates moved down as fearful investors fled to the safety of the treasury bonds and notes.

Bonds Rates

There is an inverse relationship between bond prices and bond rates. This can be confusing. When interest rates move up, bond prices move down and vice versa. This is because bonds usually have a fixed price at maturity––typically $1000. The bond will start off being sold for the face value, $1000 and at a set interest rate. If interest rates go down, then this bond will go up in price so that these bonds will remain fairly priced compared with current bond offerings. Obviously the longer before the bond matures for the face value, $1000, the greater the price premium will be to enjoy that higher than current yield for the rest of the bond’s term.

The inverse also applies. If interest rates move up, the bond seller will have to reduce his price to offer a similar yield to current bond offerings.

Questions? Contact us at info@mortgagelinkhome.com or visit our web site at www.mortgagelinkhome.com

Why Do Mortgage Interest Rates Change? Part I

To understand why mortgage rates change we need to know why do interest rates change and there is not one interest rate, but many interest rates!

	Prime rate: The rate offered to a bank’s best customers.
	Treasury bill rates: Treasury bills are short-term debt instruments used by the U.S. Government to finance their debt. Commonly called T-bills they come in denominations of 3 months, 6 months and 1 year. Each treasury bill has a corresponding interest rate (i.e. 3-month T-bill rate, 1-year T-bill rate).
	Treasury Notes: Intermediate-term debt instruments used by the U.S. Government to finance their debt. They come in denominations of 2 years, 5 years and 10 years.
	Treasury Bonds: Long debt instruments used by the U.S. Government to finance its debt. Treasury bonds come in 30-year denominations.
	Federal Funds Rate: Rates banks charge each other for overnight loans.
	Federal Discount Rate: Rate New York Fed charges to member banks.
	Libor: : London Interbank Offered Rates. Average London Eurodollar rates.
	6-month CD rate: The average rate that you get when you invest in a 6-month CD.
	11th District Cost of Funds: Rate determined by averaging a composite of other rates.
	Fannie Mae Backed Security rates: Fannie Mae, a quasi-government agency, pools large quantities of mortgages, creates securities with them, and sells them as Fannie Mae backed securities. The rates on these securities influence mortgage rates very strongly.
	Ginnie Mae-Backed Security rates: Ginnie Mae, a quasi-government agency, pools large quantities of mortgages, securitizes them and sells them as Ginnie Mae-backed securities. The rates on these securities affect mortgage rates on FHA and VA loans.

Interest-rates move because of the laws of supply and demand. If the demand for credit (loans) increases, so do interest rates. This is because there are more people who want money, buyers, so people who are willing to lend it, sellers, can command a better price, i.e. higher interest rates. If you have questions about your mortgage please contact me or visit my web site at www.mortgagelinkhome.com.

What Makes Up Your Credit Scores?

Is your credit behind the 8 ball and what can you do about it?From mortgages to credit cards to auto loans, your credit score, commonly called a FICO which stands for Fair Isaac Corporation, is the most important factor that a lender or credit issuer will use in making a decision about you.

Until recently, the factors that made up your score were a closely guarded secret, but recent legislation has opened up the credit scoring industry. Your credit score is generated from a mathematical algorithm, a formula, based on information in your credit file.

Numerous factors are weighted across five categories to calculate your individual score. Your payment history makes up 35 percent of the score. The more late payments in your file, the lower your credit score will be. Debts that are sent to collections significantly reduce your score. Another 30 percent of your score is based on your current and available debt.

The score does not take into account income; rather it looks at the ratio of available debt to current balances. If you consistency “max out” the credit extended to you, your score will tend to be lower than if you carry some debt, but keep it manageable.

The length of your credit history and length of time you have credit will credit issuers comprises 15 percent of your score. The variety of credit that you have makes up 10 percent of your score. Generally, if you have experience with multiple types of debt, your credit score will be higher.

The final 10 percent of your credit score is based on applications for new credit. The model accounts for people shopping for credit and does not lower their scores, but it does reduce scores of those who may be in trouble and are heading toward bankruptcy.

To have a great FICO score, you should carry a manageable amount of debt, have experience with a variety of credit types, maintain long-term relationships with your creditors and lenders, and most importantly – pay your bills on time.

As of September 2005 every U.S. citizen has the right to a free annual report from each f the three major credit bureaus – Equifax, Experian and TransUnion. You can order your free report from www.annualcreditreport.com fill out the questionnaire, and indicate where you would like to receive the reports. You can order your credit report from the credit bureaus directly instead of www.annualcreditreport.com but you’ll pay for the report and they will try and sell you a protection plan that can cost anywhere from $4.95 – $14.95 per month.

If you have questions about your credit please contact me or visit my web site at www.mortgagelinkhome.com.

Junk Mail and Identity Theft

How many times a week do you say; “Why are these people sending me this”? “Where did they get my information”? “How do I stop getting all of this unwanted junk mail”? There are several ways to reduce your junk mail and at the same time protect your identity.

What Can You Do To Stop Receiving Pre-Screened Offers?

1. Register with the Do-Not-Call Registry.

Call 1-888-382-1222 (for TTY, call 1-866-290-4236) or visit the Registry’s website at http://www.donotcall.gov . If you receive an unsolicited call after you have been registered for more than 31 days you can file a complaint. Make sure you have the caller’s company name, the telephone number of the company and the date and the time the company called you.

2. Opt-Out of Pre-Approved/Pre-Screened Offers.

Opting-out allows you to remove your name from lists supplied by the Consumer Credit Reporting Companies (the credit bureaus), Equifax, Experian, Innovis and TransUnion, to be used for pre-approved or prescreened offers for credit or insurance. You are allowed to Opt-out for 5 years or permanently under the Fair Credit Reporting Act.

How to Opt-Out: Visit http://www.optoutprescreen.com or call 1-888-5-OPT-OUT (1-888-567-8688) you will be asked to provide personal information, including your home telephone number, name, Social Security number, and date of birth. The information you provide is confidential and will be used only process your request to opt-out.

Here Are 10 Steps to Avoid Identity Theft

1. Take your name off of trigger lists – Opt-out of pre-approved/pre-screened offers of credit and insurance – see section on Opting Out
2. When you are presented with a pre-approved/pre-screened offer over the phone, exercise caution. Ask how they got your information, what company they are with, ask them to forward the information to you in writing
3. Avoid being rushed or pressured into a decision.
4. Shred financial documents and paperwork with personal information before you recycle or discard them.
5. Watch out for the “bait-and-switch” game. This game is run by companies who get business by offering low rates and then switching products.
6. Never click on links sent in unsolicited emails, do not respond to: You’ve Won the Euro Lottery, do not respond to emails from foreign countries telling you they have $50 Billion Dollars to give you.
7. When you receive mail or a phone call that appears to be from your current mortgage company, car insurance company, etc. always confirm who you are speaking with and the company they represent.
8. Protect your pin numbers, passwords, date of birth or mother’s maiden name. Do not leave this information lying around your home or office.
9. Most importantly protect your Social Security Number (SSN). Your SSN is the key to your identity. Do not carry your SS card in your wallet or write you SSN on a check. Give it out only if absolutely necessary. Most health insurance companies have moved away from using your SSN as your insurance ID number, if your company has not done so contact them and request that they do.
10. Don’t use obvious passwords like your mother’s maiden name, your birth date, your child’s name, or your address.

A few small steps to protect yourself can save you hundreds of hours trying to fix, explain, and get documentation to prove that you were a victim of a crime. Don’t be a victim of identity theft, stop the process before it starts!

Donating Stock to Charity

By: Joseph Kapp

In conjunction with Lincoln Financial Advisors, a registered investment advisor

If you are thinking about making a donation to a charity, you might want to consider making a gift of appreciated stock or mutual fund shares rather than a cash donation. A gift of appreciated property often provides increased tax benefits, along with the satisfaction of contributing to a cause you believe can make a difference.

Tax Benefits

Charitable contributions of appreciated securities provide two potential income-tax advantages. The first is a charitable deduction – generally for the fair market value of the securities at the time of the contribution, subject to certain tax law limits. The second benefit is that you are not taxed on the capital gain that would result if you sold the property.

For example, let’s say you own publicly traded stock currently worth $20,000. You bought the stock over a year ago for $15,000. If you sell the stock, you will have long-term capital gain income of $5,000 which will be taxed. However, if you donate the stock to charity, you may claim a $20,000 charitable contribution deduction and avoid paying capital gains tax on the $5,000 of appreciation in the stock. The charity will be glad to receive the stock and can sell it immediately for $20,000, generally with no capital gains consequences because of the charity’s tax-exempt status.

To gain these benefits, the stock must be long-term capital gain property ¾ stock you’ve owned for more than one year or stock you inherited. If the stock would generate a short-term capital gain if sold, your charitable deduction is limited to your cost basis rather than the stock’s fair market value. Also of importance is the type of charity to which the gift is made. While a gift of appreciated stock to a public charity generally allows the donor to take a deduction for fair market value, a similar gift to a private foundation may result in a charitable deduction that is limited to your cost basis.

Other Considerations

While donating appreciated stock can give you tax advantages, you might want to think twice about giving stock that has lost value since you bought it. A better plan may be to sell stock that has lost value and donate the proceeds of the sale to the charity. For example, if you were to sell stock for less than you paid for it and donate the cash, you’d have a capital loss that you may be able to deduct as well as your charitable contribution. But, if you simply donated the stock, you couldn’t deduct the loss.

In addition, before you donate stock or mutual fund shares, you should consider whether you may need the income from these securities in the future. If you think you might, you may want to contribute fewer shares. You can always donate more later on.

Making the Transfer

Most brokers and mutual fund companies will directly transfer shares to a charity for you. However, they generally require the charity to have a brokerage or fund account with their organization. Check with the charity before you initiate the transfer. If the charity doesn’t have an account with your mutual fund or broker, you should explain your gift and ask the charity to open an account to receive it.

For gifts of stock, if you have a stock certificate for the amount you want to donate, you can sign the back of the certificate and deliver it to the charity. If your stock certificate is for more shares than you want to donate, you can ask your broker to have the stock certificate reissued in two or more smaller certificates. You can transfer one of these new certificates to the charity.

What if it’s inconvenient to hand deliver the stock certificate? You can make your gift by mail. But take these precautions to protect yourself. Have your broker execute a letter of authorization describing the stock certificate and the donation you are making. Then, you can send the unsigned stock certificate to the charity in one envelope and the letter in another.

Before you make a gift of stock or mutual funds ¾ particularly a significant gift ¾ be sure to talk with your professional financial advisor to determine how such a gift may affect your overall financial plan.

Joseph Kapp is a registered representative and investment advisor representative of Lincoln Financial Advisors Corp., 4600 East West Highway Suite 620 Bethesda, MD 20814 offering insurance through Lincoln affiliates and other fine companies. This information should not be construed as legal or tax advice. You may want to consult a tax advisor regarding this information as it relates to your personal circumstances.