Q. I am 45 years old and I am in the process of refinancing my home. I don't want to be paying on my mortgage for the next 30 years. Should I get a 15-year loan?
A. This is a question that comes up often. A person paying on a loan does not want the feeling of starting all over. Each borrower should make a personal evaluation. A fifteen-year loan will be 3/8 to «% lower in interest rate and total dollar interest paid will be less than a 30-year loan. Monthly payments on a 15-year loan will be higher. If there may be any change in your employment affecting your ability to make the higher payments, you may opt for the 30-year loan with a lower payment.
You can prepay the principal on the 30-year loan to reduce the term to 15 years. If there is a change in your income, you can consider the extra 3/8-1/2% interest charge as a premium on an insurance policy, allowing you the advantage of a lower monthly payment. Your lender can give you an amortization schedule to determine the extra monthly payment needed on your 30-year loan to achieve your 15-year payoff goal. You now have the loan term that you wanted with the flexibility of increasing or decreasing your monthly payment if your finances change.
Q. I am shopping for a second mortgage. I was told that I would have a 3-year prepayment penalty. What does this mean?
A. Many lenders charge a prepayment penalty so that borrowers will not pay off their loans early. If a borrower pays off the loan before the full term of the loan, the lender cannot earn the interest charged on the loan. Lenders add a prepayment penalty to loans to (a) discourage the borrowers from making early payoffs and (b) to allow the lender to recoup some lost interest on the loan.
The prepayment penalty for most loans will be six (6) months interest. The lender may apply interest to the amount prepaid which is in excess of 20% of original principal amount of the loan (read the disclosures). Even if you have a prepayment penalty on your loan, you still can prepay up to 20% per year of your original loan amount without a penalty. If you plan to pay off your loan early, be sure to check the payoff figures so that the lender is not charging you interest on the 20% you are allowed to pay off annually without penalty.
Q. I just received a Notice of Default on my home. What happens next? What can I do?
A. When a lender and/or private party (called a beneficiary), through a trustee, files a Notice of Default (NOD) on your property, the lender is saying that you must make up the deficient payments within 90 days or they will initiate proceedings against you to sell or cause to sell the home to satisfy the debt. If after the 90 days, you do not make up the deficient payments and costs to the beneficiary and trustee, the trustee will record a Notice of Sale (NOS). You then have 21 days to pay the entire note with penalties or, if the lender permits, bring the note current. If you cannot, the home will be sold to the highest bidder. If you do not have the means to make the payments or you cannot negotiate with your lender, you should get financial and/or legal advice.
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