15 or 30 Year Mortgage? – Mortgage Advice

As you move on with home purchase plans, you will discover that you have a wealth of choices when it comes to mortgages. Big bank or mortgage broker? Traditional or FHA? And finally, fifteen year or 30 year mortgage? Each has their advantages, and which will work for you will all depend on your personal financial situation.

Money Out of Pocket

A 15 year loan will mean a monthly payment that is hundreds of dollars higher than the one for a 30 year loan. But, you pay less over the life of the loan since the interest rate is lower and the term far shorter. Seems like an easy trade-off, right?

However, there is an opportunity cost that comes with those savings. A mortgage payment that high can prevent you from investing as much in other areas, such as putting money away for a child’s education or funding your retirement.

Also, depending on the interest rate on your loan, you could get a far better return on your money by investing than by paying off your mortgage as quickly as possible. Say, for instance, that you have a 3.5% mortgage rate. Historically, the stock market has grown an average of 10% a year. If a homeowner were to put those few hundred a month extra that a 15 year mortgage costs into investments instead, he or she could come out tens of thousands of dollars ahead by the time a 30 year mortgage was paid off.

Flexibility

Thirty year mortgages offer far more flexibility than 15 year loans. A 30 year loan gives you the freedom to pay it off faster, if you choose, by adding extra payments. If you have a life event such as an illness or job loss that make the higher payments unfeasible, you can simply return to your regular loan payment schedule.

With a 15 year loan, you are committed to higher payments every month. You could, theoretically, refinance the loan if you fall on hard times. But, the sorts of issues that would cause someone to need a lower mortgage payment, such as unemployment, or being financially over-extended, are red flags to lenders, and could prevent you from getting a new loan.

Interest Rate

Typically, you will find much lower interest rates on 15 year mortgages than on 30 year loans. This means that, even if you were to make extra payments on a 30 year loan, you will still spend thousands of dollars more over the life of the loan.

We advise those who are shopping for a mortgage to run many different scenarios to determine which loan is best for their needs. Do not just calculate the difference between payments on a 15 and 30 year loan. Consider your total discretionary income, and whether you have adequately prepared for college tuition and retirement. By taking your entire financial future into account when you are choosing a home loan, you can continue the healthy growth that started with the credit repair process.

For more information on how prepare your credit for a refinance or home purchase click here to request a free consultation.

Common Myths About Credit – Education

As credit scoring bureaus have become more open about what makes up your credit score, people have become more educated about maintaining good credit. However, there are still many myths that abound that can damage your score and get in the way of home purchase dreams. Don’t believe any of these dangerous myths:

Myth: You can buy a new credit identity.

Some fraudulent credit repair companies say that they can get you a brand news credit identity free from part credit mistakes. What you actually get when you deal with these companies is an Employer ID Number. It has nine digits, just like a Social Security Number, but it has a distinct purpose. Trying to use it instead of you SSN is fraud and can result in criminal charges.

Myth: You should close old accounts that you aren’t using.

Many people believe that old credit accounts can hurt their credit score because creditors fear that, with too much credit, you’ll get in over your head. Those old accounts, however, look good to potential new creditors. They show that you can be trusted with large amounts of credit without going on a spending binge. To make sure that old accounts stay open, make sure you make an occasional charge on the account. One of the best ways to do this is to put one of your monthly automatic withdrawals, such as a health club membership, on the card and sign up to have the bill automatically paid.

Myth: Reducing Your Limits Can Help Your Score

Like the old account myth above, this is an action that can actually hurt your credit. Potential creditors want to see low utilization of credit, as it signifies that you can be trusted.

Myth: You should always keep a balance on your cards.

The truth is, credit reporting companies have no way to know whether you are keeping a balance on your cards. Your credit card debt is reported once a month, usually when your statement goes out. Whether you pay in full each month or leave a bit unpaid won’t be noticed. Plus, credit scoring bureaus tend to give higher scores to those who use only a small portion of their available credit. Don’t carry a balance if you don’t have to and save yourself unnecessary interest payments.

Myth: Looking at your own credit score counts against you.

When you look at your own score, this is known as a soft pull. Credit reporting agencies are only concerned about hard pulls; that is, ones that indicate you are shopping for more credit. In reality, you should look at you scores from all three agencies at least once a year to ensure that everything is accurate. Make sure that you request the information directly from the three credit reporting bureaus. If you buy your score from a third party, this can appear to be a hard pull.

Being educated about what helps and what hurts your credit score can make you a more savvy consumer and open up new opportunities. As you work to improve your credit and accomplish dreams of owning a home, learn all you can and apply it to your financial health.

Lights, Camera, Action! – Plans that work!

Being a credit repair superstar is more than just deleting negative entries. Our clients and loan officers use our service for our expertise in understanding how the credit algorithm works and how it can be adjusted in the shortest period of time possible. When someone requests a FREE consultation with our company they will get a clearly defined

“Action Plan” that not only consists of removing negative entries but also consists of credit tips, advise on how to deal with debts, how to open up new trade lines & more. As always free to forward us any scenario/client that you think could benefit from a free credit evaluation. We would love to help them strategically rehabilitate their credit! Nik President, Key Credit Repair 617-265-7900 Main Line www.keycreditrepair.com