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Be careful when relying on the Internet for mortgage information

Posted by  on Jun 18, 2012
 

Mortgage myth #1: ARM loans are a mistake

Anyone with an ARM loan who is paying about 3 percent will probably disagree with this one. The biggest mistake in articles about ARMs is that writers often assume that ARM rates always start low and then increase. That is just not true. In fact, ARM rates have been starting low and moving lower for several years now. Homeowners who refinanced when fixed rates hit 5.5 percent, only to refinance again when they hit 4.5 percent probably wish they had selected ARMs, which move down when economic indexes do, no refinancing required.

Bottom line? For those who don't expect to keep their property for more than six or seven years, ARMs or hybrid ARMs (loans fixed for 5 years are available for about 3.5 percent right now) provide the lowest mortgage rates.

Mortgage myth #2: Bigger down payments are better

Better for whom? Bigger down payments make a loan safer for the mortgage lenders, but guess what? Safer for the lender means riskier for you. Homeowners nationwide are discovering that when financial trouble hits and you need a mortgage modification, you have a lot more leverage if you are underwater.

The NPV (net present value) test that loan servicers use to score your modification application determines if the lender is better off foreclosing or modifying. If your home can be foreclosed and sold for at least what you owe, the mortgage lenders are better off foreclosing and good luck with your loan mod. Only if your home is underwater is there a chance that modifying is better for the lender than foreclosure. FHA loans still require only 3.5 percent down -- a good deal by any standard.

Mortgage myth #3: Reverse mortgages are scams

This myth probably originated back when finance companies sold reverse mortgages and annuities in tandem -- charging one set of fees to unlock the senior's home equity, and then another to lock it up again. That was a scam, but it's no longer legal to require an annuity purchase when issuing a reverse mortgage.

Reverse mortgages come in several guises. There are single purpose, which are funded by government or community organizations for the purpose of helping low- to moderate-income seniors pay for property taxes or home maintenance and cost them little or nothing.

Then there is the Home Equity Conversion Mortgage (HECM). 90 percent of reverse mortgages are HECMs and their fees are regulated by the government. With one-third of seniors relying only on Social Security payments and the average benefit being just over $1,000 a month, reverse mortgages can provide a level of comfort and safety that would otherwise be unavailable to these folks.

Finally, there are proprietary or jumbo reverse mortgage for those who want bigger loans. The fees are not limited but the loans are also highly regulated.

The Internet can be a great source of information but it does require sifting. At Shoprate.com you can give us your mortgage questions and we will strive to provide balanced and well-researched answers.

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