Mortgage Tips.

Shop around. Get quotes from 4 lenders. You may be able to save yourself thousands of pounds by avoiding loans with high rates and/or high fees. A 0.5% lower rate on a £100,000 loan for 5 years will save you over £1,300 in payments. Try your local bank or credit union, mortgage brokers and internet resources. Don't choose lenders just because they have the lowest rate. Consider the overall cost of your loan.

A mortgage or loan varies according to:

The amount borrowed;
The interest rate;
The type of rate (fixed or variable);
The term (length in years) of the loan;
Discount rate for X number of years;
Deposit (downpayment);
Associated fees (broker, origination, prepayment etc.);
Local or national taxes;
Insurance required by the lender.

Consider the following advice from the U.S. Department of Housing and Urban Development when applying for a loan:

• Be sure to read and understand everything before you sign.
• Refuse to sign any blank documents.
• Do not buy property for someone else.
• Do not overstate your income.
• Do not overstate how long you have been employed.
• Do not overstate your assets.
• Accurately report your debts.
• Do not change your income tax returns for any reason.
• Tell the whole truth about gifts.
• Do not list fake co-borrowers on your loan application.
• Be truthful about your credit problems, past and present.
• Be honest about your intention to occupy the house.
• Do not provide false supporting documents.
  

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Do you really need a mortgage this size? Go for a walk. Have a long bath. Have a chat with yourself. Buying a mortgage is like buying a second-hand car; it's just another consumer item. A bargain may be had by exploring ways of cutting your outgoings; spending less, trying different vendors, or deciding you don't need such a big house.

People today expect to live in the home of their dreams immediately. They get a fat mortgage to do so, and loans for furniture on top of that. In the old days, a couple would move into a shack, make the best of it, and work and save to get a better life. An old stool or a leather-upholstered armchair do the same job; they prop up your ass.

Sadly, there are brokers who'll happily lend you six times your annual income so you can keep up with the Joneses. What you may not realise is that the Joneses are in hock up to their eyeballs, and their marriage is breaking down.

It cracks me up that people with 0-2 kids want a mansion, when two generations ago their grandparents were sleeping six to a cottage, and they managed just fine.

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Start Saving. Every pound saved is a pound towards your deposit. A pound towards your deposit is a pound you'll not be paying interest on. If you're not in a hurry to get your bit of real estate, trying saving up, and maybe selling off something you don't need. You'll reduce the size of your repayments dramatically, and breathe a little easier.

People think they're being clever if they get a 95-100% mortgage. It's their lender who's smiling.

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Avoid Insurance. You don't need this if you're reasonably sure you can pay back the loan without too much trouble. The insurance is for the benefit of the lender, not you. Adding insurance adds a fat wad to the cost of your loan. If you have a good credit rating, you can refuse to take it on. It's a massive extra expense. Just save up a fat deposit, and your lender should waive it.

It's a bit like when you buy a DVD player in Dixons; the salesboy asks you if you want insurance with that, when he knows a) you're already covered by a warranty, and b) The item is unlikely to break down in the first two years. It's just a way of scr*wing more money out of you.

People with bad credit may have no option but to take it on, but you can always refuse it initially, and see what happens.

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Keep your mortgage as small as possible. Aim for comfortable affordability.

You will find mortgage lenders who will stretch your qualification ratios. They aren't doing you a favour. The qualification ratio is the ratio of your total mortgage payment to your total income.

The traditional ratios are:

• The mortgage payment as 28% of your income;
• The total of your mortgage payment plus your monthly debt payments as 36% of your income.

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Improve your credit-rating.

Find out what it is at Equifax, Experian, CallCredit and Trans Union. The last two are UK and US only, respectively. Lenders may access them all. Then do the following:

Make sure you are on the electoral register.

Satisfy liens and public judgements, such as in the County Court (CCJs).

Correct errors, including erasing judgements older than seven years. Paid-off debts can be legitimately recorded up to seven years after settlement.

Add information showing stability:
- Current employment, employer's name and address and your job title.
- Previous employment, if you've had your current job less than two years.
- Current residence, and if you own it.
- Previous residence if you've been at your current place under two years.
- Date of birth.

Close unneeded accounts. Close them off slowly, not all at once. Keep only two credit cards, one of which should be your oldest; it will have the longest credit history attached to it.

Pay off credit cards. Keep balances low, and paid off on time.

Keep your debt low; below 75% of available credit.

Build a good payment history. Pay your bills on time!

Open a savings account at your bank.

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When interest rates fall: Try and leave your repayments the same as prior to the rate drop. This means you will actually be paying more than the minimum each month. You'll repay your loan years sooner.

The more rates fall, the sooner you will repay your loan. You will have been paying at the higher rate, so if rates rise again later you may not have to change your repayment.

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Don' t churn your mortgage loan. Each time you refinance you'll likely incur closing costs and non-refundable fees. Don't let a lender talk you into rewriting your mortgage just to get a little cash back. Many people find that they have added £6,500 or more to their debt in order to obtain £3,500 in cash. An example of this is second mortgage loans.

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Don't buy a home without full, professional survey(s). Human beings can be perverse; happy to spend £150,000 on a house after a half-hour viewing, but be-grudge spending £500 finding out whether it's worth buying in the first place!

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Don't take the vendors's word that repairs have been made. If the vendor agrees to make repairs, have your inspector verify the work's been done before closing.

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Get a written (emailed of faxed) Good-Faith Estimate. Allow for a reasonable time; 1-2 hours.   If they can't do that you may want to question using them.  The market can change in minutes. Get a written good-faith estimate of closing costs. A Good-Faith Estimate should show you all of the costs of your loan, including the rate. The cost of a mortgage, however, cannot be your only criterion. Is your lender a bank or just a broker? Do they fund the loan for you, or do they rely on others to fund your closing? This can be a very important distinction.

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Make sure you understand and are willing to pay all of the fees listed.

Origination fees are usually about about 1% of the loan amount. Some consumers have paid (in ignorance) as high as 17% for origination/broker fees. For a £100,000 loan, that means paying £17,000, versus £1,000 to another company would have provided the same loan with the same terms. If you have poor credit, you will likely have to pay higher rates and fees, but shop around.

Beware of statements such as "No cost to you". Some mortgage companies will add closing costs to your loan balance rather than require you to provide cash upfront at closing. Make sure you understand all the fees you are paying.

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Taxes. Does your state or country charge 'property transfer taxes', 'mortgage taxes', 'mortgage recording fees' etc? These can add as much as 2% of the mortgage amount to your closing costs.

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Get cheaper household insurance - Reduce your household expenses by shopping around for your buildings and contents insurance. It's convenien to buy from your lender, but search the market and you could save a packet.

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Private Mortgage Insurance (PMI): By taking an 80 percent first mortgage and a 10 or 15 percent second mortgage, you can avoid paying private mortgage insurance. PMI is usually required if you have less than a 20% deposit i.e. your mortgage is 80% or more.

If your original mortgage required PMI because you put less than 20% down on the property, and your new mortgage will be 80% or less than the appraised value, you can probably drop your PMI coverage. If you reach 20% equity in your home, you can save a lot of money by asking your lender to drop PMI.

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Don't take out a Mortgage Indemnity Guarantee (MIG) - MIGs are now usually only charged on loans of 90% to value. A MIG is a one-off payment made to the lender that protects them if you fail to keep up your repayments and your home is repossessed. If you can avoid paying for one, do, it will save you money.

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Locking your rate. Get a written statement which details the interest rate, the length of the rate lock, and the details about the program.

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Pay fortnightly instead of monthly. Many people get paid weekly or fortnightly, so have the loan payment come out of your account around the same time you get paid.

You'll be less likely to miss the money. You will actually save money and pay your loan off sooner. Divide the monthly payment by two or four and pay that each week or fortnight.

For example, on a £100,000 loan over 25 years at 7.5% and paying weekly or fortnightly you will save 5 years and £30,000(!) in interest. BUT, this only works if your outstanding mortgage is calculated week to week. Many lenders calculate your repayments as yearly totals, thereby increasing their profits.

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Put money into your home loan instead of a savings account. Provided your loan has a withdrawal facility, then, instead of using a normal savings account paying negligible interest, put the money on your home loan.

Then when you need it, just redraw it back from the loan. The benefit is that whilst that money is on your loan it is saving you interest, as loan interest is calculated daily on the outstanding balance.

Beware that most lenders have a minimum redraw amount, and possibly a small redraw fee. However, provided you only put medium-to-long-term savings into the loan, and therefore only redraw infrequently, then you should do well.

Make sure your loan, or at least part of it, is at a variable interest rate, as most lenders will not allow redraw whilst on a fixed interest rate.

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Consider a split loan. This is where you have part variable and part fixed. It gives you stability with the fixed rate, whilst giving you flexibility with the variable part.

Many lenders will do a split loan for a small additional fee at the time of application.

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Do a budget. Make sure you use realistic figures. Keep all of your receipts, or keep a record, for all of the money that you spend for a month. Use that to help you compile the first draft.

Be prepared to review and update it regularly. A coordinated budget allows you to get the most home for your money without beggaring yourself, while getting rid of wasteful spending.

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Avoid 'quicksand' loans. These contain combinations of the following attributes: short-term, high up-front-fees, high rates, balloon payments, excessively high late fees, prepayment penalties. Quicksand loans can swallow up any equity you may have, and ruin your financial position.

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Beware of prepayment penalties. Many 'no fee' credit lines have a pre-payment penalty. This can be very expensive if you are planning to refinance or sell your house in a few years time.

There is no need to sign a loan which contains any significant prepayment penalty, if you have good credit. One of the smartest things someone can do with a mortgage is to prepay on the loan.

All you need to do is contact your lender and ask for its prepayment procedure. Then, once a year, check the loan balance the lender sends you, to make sure the additional payments have been accounted properly.

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Be wary of promises of getting a loan quickly.  Many borrowers are told that their loans will close within a particular time.  They don't make payments on existing debts, in anticipation of the new loan.

After several delays, they become delinquent, with no money from the new loan.  Some mortgage companies then order new credit reports, and charge the borrowers higher fees, and a higher rate, because of the delinquent loans, which resulted from delays caused by the mortgage company!

Don't look for a home without being pre-approved. You will have much more negotiating power with the vendor, and may be able to save thousands of pounds.

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Verbal (oral) agreements are worthless. When buying or selling property, always get it in writing.

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Don't use a dual agent (one representing both buyer and seller). Since the seller usually pays the commission, the dual agent may negotiate harder for the seller than for the buyer (you). If you're a buyer, it is usually better to have your own agent. Find a lender who will look out for you, not the estate agent, with whom he may have a 'mutually beneficial relationship' i.e. kickbacks. 

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Shop for home insurance well before you are ready to close. If you wait until the last minute to get insurance, you may have no time left to shop around for the best policy. A paid homeowner's insurance policy (or a paid receipt for one) is required at closing.

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Don't sign documents without reading them. As soon as possible, before you close the deal, review the documents you'll be signing, and make sure you understand them, so you won't have to sign them in a hurry.

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Do a break-even analysis before refinancing. To determine the number of months you'll have to stay in the property to recoup your costs, divide the total refinancing costs by the monthly savings,

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Find out the true value of your home. Get more than one independent appraisal. Compare it with the prices of similar-sized houses for sale in the same area. Be like mortgage companies and estate agents, and use the sales (or market data) comparison approach.

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Refinance your first mortgage before you draw against your home equity credit line. Many lenders will consider your first mortgage refinance transaction a "cash-out" refinance, if you draw against your credit line for anything other than home improvements. This creates stricter lending criteria, and can sometimes act as a deal-breaker.

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Refinance your first mortgage before you get a second mortgage. When you are refinancing only your first loan, many mortgage companies look at the combined loan amounts (i.e. the sum of the first and second loans). Check with your mortgage company to see if having a second loan will cause your refinance to be turned down.

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If you plan to refinance your first mortgage in the near future, don't get a home equity credit line. Check with your mortgage company to determine if getting a second line will cause your refinance to be turned down. Even though they are refinancing only the first mortgage, many mortgage companies look at the combined loan amounts (i.e. the first loan plus the equity line).

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A home equity line of credit may not always be cheaper than a car loan, or a credit card. Compare the effective rate of your credit line (i.e., after the tax deduction) with the rate on a credit card or car loan.

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If your spending is out of control, don't get a home equity credit line to pay off your credit cards. Don't put your home at risk by spending large amounts on your credit cards, after paying them off with your credit line.

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Pay off small debts before the due date. Cancel credit-cards you are not using. Loan officers tend to count the total line of credit - even if you owe nothing - as a liability. They will only cloud the picture. Close credit lines that you have no intention of using in the near future. Also look closely at the interest rates and fees, when deciding which cards to keep.

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Start gathering documents. Provide your mortgage company with documents in a timely manner. If you let your rate lock expire, you could end up paying higher rates.

There are a number of documents you will need, and the approval process will go much smoother if you begin to gather them now. Examples: Tax returns from the last few years (especially if you are self-employed), copies of pay slips, and bank statements for all accounts (current and saving) for the past three to six months.

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Remember closing costs. In addition to your deposit/downpayment, you will need to reserve funds for closing costs. Depending on the type of loan and your location, these costs can range from 2-5% of the mortgage amount, which will be paid in cash at the closing, and cannot be borrowed funds.

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Consider a 15 or 20 year term. Many purchasers assume that a shorter term will make their payments impossible. Unless you make the comparison, 'though, you may never know if a 15 or 20 year term could have been affordable. Try to pay off your mortgage as quickly as possible. Use a loan or mortgage calculator with an amortization function.

Choose a lender with a clean record with the industry watchdogs in your country.  The mortgage industry receives a great number of complaints against it. In the UK, credit brokers of any kind must have a licence from the OFT, and if they lose it, the OFT publishes this on their website.

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Avoid giving your application to a clerk over the phone. This is a sign of a clearing-house, and cost-cutting measures.  It takes at least two years to become a 'pro' loan officer.  Work with someone with the skill and experience to advise you, and make sure they aren't new to the business.   Look for stability, because when a loan officer quits, their loans often are dropped.

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Shop for rates when the market is calm.  Rates change from day to day, so compare lenders. The quotes you get should all be from the same time period.   

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Change your interest calculation. Daily interest calculation has been established for a while in some parts of the world. The advantage of switching to this calculation is that, if you make a repayment, it immediately impacts on the interest accruing on your mortgage.

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Remortgage for a smaller loan to value (LTV) - Your property has probably increased in value since you took out your original loan. Therefore,the LTV will have decreased as well. See whether you can get a better deal; many lenders offer better terms for people borrowing less than 75% LTV. Make sure you have your property valued properly, and shop around for a lender that will cover your valuation fee.

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Check your mortgage payments are correct - Do the mathematics. There's a one in ten chance you could be paying more than you should.

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Ensure you review your mortgage regularly - Regular reviews, and possibly remortgaging, will ensure you pay as little as possible in interest.

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If you find yourself in a dispute with a lender about a payment or another issue, don't send correspondence to the same address you send your payment.