Thursday, September 27, 2007
Should I use my equity in my home to pay off credit cards?
Is it a smart idea? Probably not. Tapping into your home equity to
pay off credit card debt could mean financial disaster for you! David Bach, the author of the book Smart Women Finish
Rich says that if you use your HELOC to pay off credit card debt, you may not learn from your money-managing mistakes.
Yes, HELOC's do offer the benefit of consolidating your high-interest rate for a smaller interest rate. The interest is
tax-deductible and the HELOC's are easy to get. However, most HELOC's come with an adjustable rate that adjusts monthly
with the going (usually LIBOR) rate plus a margin. If you like a fixed payment, this may not be for you. The biggest
problem with using your equity to pay off debt is that if you default on the loan, the bank can take your home! Are you willing
risk that? The bottom line is that your home is the largest asset you own. It's your security for the future. Use your
equity wisely! You can always renegotiate your rates on your credit cards. Use cash until you pay them off. Put yourself
on a budget. Eventually your balances will go down, and you won't have jeopardized your interest in your home.
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Thursday, September 20, 2007
Choosing a Mortgage Broker
The right mortgage broker is key! This person can put you into the
best mortgage at the best rate. The wrong broker will cost you hundreds, maybe even thousands of dollars. How do you know
you've chosen the right one?
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First of all, if you're financially savvy and keep abreast of the rates and
products, you may not even need a broker. Lots of mortgage products are advertised and available online. Brokers have the
time to shop for you. It's their job! However, if you are not confident on hunting down your own loan, you should have
If you can, get someone who is recommended and someone who is not new to the field. The number of mortgage
brokers in the United States has increased in the last decade exponentially. You can also research your potential brokers
at the National Association of Mortgage Brokers website (NAMB.org). The site will give you the broker's names and many
times, the rates and fees that they are quoting.
When you call, ask how much your broker will make on your loan.
How upfront the person is may tell you everyting that you need to know. Choose someone who is reachable, who you feel comfortable
with, and who will provide everything in writing. Most brokers make money in two ways: collecting part of your closing fees
(origination, document prep, processing, application, etc.) and on a yield spread premium. The yield spread premium is
an amount of money the bank give to the broker for selling, among other things, a higher interest rate. The yield spread
premium gives the broker an incentive to sell a higher rate, a prepayment penalty and in other words, to act in the bank's
favor, not yours. Ask your broker to set his fee up front (you can find up-front brokers, who, by the way, are rare to find)
Here are a few tips when shopping around:
1) Don't pay an application
fee or rate lock fee (for rate locks less than 60 days). The only fees you should pay in advance are appraisal and credit
2) Know what the worst case scenario is if you are choosing an adjustable rate loan. Know when and how much it
3) Negotiate fees. (Origination, processing and document preparation fees are usually negotiable).
Tolerate no changes. Once your rate is locked and they have given you an estimate of fees, make your broker stick to that
estimate. Request right before closing a final Good Faith Estimate.