Estate Planning – The Mortgage – To Pay Or Not to Pay
Where does your home mortgage fit into your financial planning and particularly into your estate planning? In the world of yesteryear, the chief goal was to pay off the mortgage and hold the property free and clear. Higher land prices, higher building costs, and fluctuating interest rates have changed the landscape of the housing market, with instruments available from flexible interest schedules to interest-only mortgages, in which the buyer never actually purchases the property.
There are advantages to paying off your mortgage as quickly as possible and there are disadvantages as well. It just depends on your needs and your aims for the future, which route you should take. Say, for example, that you had just come into a lump sum of money – from a stock market windfall, inheritance from Uncle Joe, or some other pile of cash that gave you the option to pay off your mortgage and be done with it, or not.
Some things to consider in contemplating this matter include:
- Are you still working and intend to be working for 20 more years, or are you nearing retirement age within the next few years?
- Do you intend to retire in the home, or move to another retirement location altogether?
- Do you have children who would want to inherit the family home?
- Are you in a stage where you are actively trying to build a retirement nest egg?
- Is the interest rate on your mortgage high or relatively low?
- Do you need extra tax deductions or is that immaterial?
The answers to these questions can help you determine whether you want to use the extra money you have available for paying of your mortgage or put it to other uses.
If the following statements describe you, paying off the mortgage is the best option:
- You are a person who craves personal security and don’t like the worry of having a mortgage hanging over you.
- The interest rate on your mortgage is higher than that which you are currently earning on your investments.
- You would like to have money available to begin, or contribute more heavily to, an investment or retirement program.
- You don’t intend to retire in the home, but want to buy a smaller home by the lake, mountains, river, in the tropics, etc.
- Your mortgage is near to being paid off (within 10 years) so you are now paying more principle than interest.
- You have enough money to pay off the mortgage and still have a healthy savings account.
If these statements best fit you, you may want to ignore the mortgage and use the money for other purposes.
- The interest rate on your mortgage is lower than the interest rate you are receiving on your investments.
- You have more than ten years till retirement and are able to comfortably handle the mortgage payments and don’t anticipate any change in that situation.
- Paying off higher interest credit cards would be more beneficial to your financial situation than paying off a low interest mortgage.
- You still have 20 years to pay on the mortgage so there is a significant amount of interest still to be paid before you begin to seriously impact the principle.
These are questions that your estate planner or estate planning attorney can help you resolve by listening to your plans and making suggestions.
Mortgage – Interest Only Rates
There exists a great variety of mortgages customers are eligible for. Many people are lost in the names of different types of mortgages and can’t even understand what this or that type of mortgage means what it is aimed at. Let’s try to clarify what an interest only mortgage is.
So in case one takes an interest only mortgage there is the requirement to pay only the interest in a form of monthly payment. It will be paid during a certain period of time. The term of such mortgage is usually calculated for 5 to 7 years. At the end of the term when the interests are repaid there exist three variants of repayment. A customer can pay the whole sum of the mortgage in one payment. This situation is very beneficial for a customer as during the previous years a client could use the sum of mortgage for his or her needs and pay only not essential sum of interests. Secondly there is the possibility to refinance the mortgage which is a great way to save a big amount of money reducing the interests on the mortgage. The third possibility to cope with this type of mortgage is paying off the main balance, however at the same time the sum payable rises.
Interest only mortgage is especially beneficial for those who don’t have a stable income. These are mostly people who work with the remuneration in the form of commission or bonuses. They can get their money during the period when they pay the interests only, and after the term they can pay the money they have managed to save before. Bank specialists can help you to define the best interests rates paid monthly without any damage to your family budget.
On the other hand there are categories of people who are not recommended to get the interest only mortgages. These are people with a stable income and their loans are of medium size. If you don’t intend to invest you money from your constant income specialist also don’t recommend to do it.
Mortgage Underwriter
The mortgage underwriter understands the mortgage loan qualification, approval, and pre-approval. He makes the decision if the borrower qualifies for the mortgage. If the mortgage application fails to meet the qualification level, he determines the best mortgage loan options for the borrower.
To qualify for the mortgage, the mortgage underwriter basically looks at the credit history, credit score, down payment, equity, income, and outstanding loan. So, he also understands how to repair bad credit rating, and increase the credit score.
The credit history tells how the borrower pays off loan obligation. As you pay off the mortgage, the Credit Score increases. A high score is a positive indicator. The borrower will possibly be approved for the mortgage.
The income and debt ratio helps the mortgage underwriter prove that the income is enough to cover the mortgage, and outstanding loan. To prove, the mortgage underwriter verifies all the different source of income.
First, the loan officer prepares the necessary documents for the mortgage application. Then, the loan officer enters the personal and credit information into the underwriting system. The system checks the qualification of the information. Eventually, the loan officer gets the qualified application. Then, the loan officer sends the qualified application to the mortgage underwriter. The mortgage underwriter verifies the documents including pay stubs, and bank statements. If there are missing documents and unsatisfactory documents, the mortgage underwriter asks the borrower to provide the documents. This makes sure that the borrower has enough income to pay off the mortgage. Finally, the mortgage underwriter gives the final approval.
All these steps ensure that there is absence of fraud, and meets the standards in which the mortgage are insurable, and serviceable. So, the mortgage underwriter knows the good and bad practice on mortgage application. The standards are set by the company and government.