How to Give the Ultimate Christmas Gift: Paying Off a Family Member’s Mortgage

How to Give the Ultimate Christmas Gift: Paying Off a Family Member's MortgageChristmas is just around the corner, and if you’re in a position to do it, paying off a family member’s mortgage is one of the biggest gifts you could give this holiday season. A mortgage can be a heavy burden on a young homeowner, which is why paying it off is the ultimate act of charity. But when it comes to paying for someone else’s mortgage, the process isn’t entirely straightforward.

So how do you pay off a family member’s mortgage? Here’s what you need to know.

Be Wary Of The Gift Tax

Under US law, you can provide a cash gift to someone else – entirely tax-free – as long as it doesn’t exceed the annual limit for that calendar year (for 2015, the annual limit is $14,000). If the gift amount exceeds the annual limit, you’ll need to pay tax on the difference or tap into your lifetime exclusion.

The IRS gives all citizens a unified credit/lifetime exclusion, which allows the transfer of up to $5.43 million – tax-free – over the course of your lifetime. If you exhaust this amount, you’ll need to pay taxes on all financial gifts you give thereafter.

Make Sure You Write A Gift Letter

If you plan on paying off a family member’s mortgage, you’ll want to include a gift letter with the payment – otherwise, the bank and the government may believe the money is a loan. A gift letter clearly states that you are giving money to a relative to assist them with a mortgage. In your gift letter, you will need to plainly state that you have no intention of ever seeking repayment and that you claim no ownership stake in the property in question.

Remember: You Don’t Get To Claim Mortgage Interest

Mortgage interest payments are usually a tax-deductible expense – if you’re the homeowner. But if you’re paying someone else’s mortgage, you’re not eligible to deduct the interest on your taxes – only the homeowner can do that. Even if you feel a personal obligation to assist the homeowner in paying the mortgage, it’s not your debt to pay – and that means you can’t claim interest on your taxes.

Paying off a relative’s mortgage is a fantastic gift that will help your relatives to get out of debt and pursue their life goals. And although it’s a fairly straightforward process, you still need to take the time and care to ensure you process the gift properly. Contact your local mortgage professional to learn how you can give the gift of a mortgage.

The Pros and Cons of Paying Your Mortgage off Biweekly Versus Monthly

The Pros and Cons of Paying Your Mortgage off Biweekly Versus MonthlyIf you have a mortgage, you’re probably looking for the best option to pay it off. Monthly mortgage payments are an easy-to-manage way to pay for your house – in fact, they’re the most common form of mortgage payment  but now, many homeowners are discovering that biweekly payments offer them better results.

So is a biweekly payment the better option for you? Which payment strategy best fits your individual circumstances? Here’s what you need to know.

Biweekly Payments: Pay Off Your Mortgage Faster and Save on Interest

Biweekly payments are becoming increasingly popular for a variety of reasons. With a biweekly payment, you’ll pay less money in total interest payments over the course of the whole mortgage, and you’ll pay your mortgage off faster. Biweekly payments also make it easier to budget for your mortgage because they coincide with your paycheck, and the biweekly payment system forces you to make extra payments toward your principal.

That said, biweekly payments also have some disadvantages. If you’ve bought a home at the very top tier of what you can afford, you might not have the budget flexibility for extra payments. Your lender may also force you to pay a $300 setup fee or a processing fee for each payment.

Monthly Payments: Easier to Afford for Large Homes

Paying your mortgage off on a monthly basis has long been the standard, for a variety of reasons – for instance, most homeowners are typically more comfortable with monthly payments as they were the norm during the owner’s years as a renter. It may also be easier to manage monthly payments if you work as an independent contractor and don’t always get paid every two weeks.

Monthly mortgage payments are more affordable for owners of larger homes, which typically come with larger mortgages. A monthly payment schedule also means you make one less payment per year, and for those on a strict budget, this can help to make the daily necessities of life more affordable.

Monthly mortgage payments were once the expected norm, but now, a lot of homeowners are choosing to make biweekly payments in order to pay off their mortgages faster and better budget their money. Monthly payments still remain popular, though, for a variety of reasons.

So which one is better for you? A qualified mortgage advisor can help you determine your best course of action. Call your local mortgage professional to learn more about your mortgage payment options.

First-Time Home Buyer? 3 Budgeting Tips to Help Make Your Mortgage Payments Easier

First-Time Home Buyer? 3 Budgeting Tips to Help Make Your Mortgage Payments EasierBuying a new home is an exciting time, but excitement can easily turn to stress if there isn’t enough money to pay the monthly mortgage bill. The added expense can take some time to get used to, but there are ways to make the payments easier, especially in those first few months when money is the tightest.

Prioritize The Mortgage Bill And Pay It Immediately

This may seem like a counterintuitive tip for anybody looking for help making mortgage payments, but it is easily the best one and the one that provides the most trouble for homeowners.

Late mortgage payments come with hefty fees that make it harder and harder to pay the next mortgage bill in full and on time. It’s a slippery slope that can end in foreclosure if the mortgage bills go unpaid for too long.

Don’t Get Carried Away With Household Spending

What’s the first thing most couples do after finally purchasing their first home? If they moved in from a smaller apartment then filling in the empty space will probably be at the top of their list.

Spending sprees are all too common after moving into a new home. There are extra rooms that need to be furnished and extra space that needs to be filled in with a larger television or another sofa.

These purchases will severely limit the mortgage budget and could lead to late payments right from the start for anybody who gets carried away. Put a budget in place for new furniture and stick to it so that there is always money for the mortgage.

Limit Spending In The First Few Months

The biggest change for anybody moving into a new home is the extra expenses they aren’t used to paying. Water, power, heat, air conditioning, internet and cable are all things that could be included when renting and once those bills start coming in it can be alarming.

It doesn’t matter how careful they are, budgeting can take a huge hit if new homeowners are expecting to pay the same as they were in their previous home. Always wait the first few months before making any purchases to get used to the new monthly bills that will be waiting.

Making mortgage payments starts with getting a mortgage you can actually afford. Make sure you consult with a professional who will be able to help you find the best deal and get a mortgage that won’t break the bank each month.

Understanding the “Adjustable Rate Mortgage” (ARM) and How This Type of Mortgage Works

Understanding the Adjustable Rate Mortgage (ARM)When applying for a new home loan, there are several different types of mortgage programs available to most applicants. While there are various home loan programs to choose from, the most significant difference between the various options relates to a fixed rate mortgage or an adjustment rate mortgage. Understanding what an adjustable rate mortgage, or ARM, is in comparison to a fixed rate mortgage can help applicants make a more informed decision about their mortgage plans.

What is an Adjustable Rate Mortgage?

A fixed rate mortgage is one with an interest rate fixed for the entire term length. This means that a home loan with a 30-year term has an interest rate that will remain the same for the full 30 years, and this also means that the mortgage payments will remain the same over 30 years. On the other hand, an ARM will have an adjustable rate that will fluctuate periodically over the life of the loan, and the mortgage payment will also fluctuate as a result.

How is an ARM Beneficial?

There are several benefits associated with an ARM. For example, the initial interest rate and related mortgage payment are typically lower than with a fixed rate mortgage. In addition, if rates decrease over the life of the loan, the mortgage payment will lower as a result without the need to refinance to take advantage of the lower rate.

Before Applying for an ARM

Before applying for an adjustable rate mortgage, there are a few points that the applicant should keep in mind. Just as the interest rate may go down over the life of the loan, the rate and the mortgage payment may increase. The loan applicant should ensure that the upper limit for the interest rate and mortgage payment will be affordable for their personal budget before applying for this type of loan.

Each loan program available to a mortgage applicant has its pros and cons, and this holds true for an adjustable rate mortgage as well. Understanding how each loan program works and what the benefits and drawbacks for each are can help an applicant make an informed decision when applying for a mortgage. Those who are interested in applying for a new mortgage for a purchase or a refinance in the coming days or weeks may reach out to a mortgage broker to inquire about the different loan programs available.

The Pros and Cons of Paying Your Mortgage Bi-weekly Vs. Monthly

The Pros and Cons of Paying Your Mortgage Bi-weekly Vs. Monthly When applying for a new mortgage or after closing, many may have the option to choose between a single monthly mortgage payment or smaller bi-weekly payments. There are benefits and drawbacks associated with both options, and some personal financial considerations may need to be reviewed in order to make a decision that is best for the individual. With a closer look at the pros and cons of both options, homeowners or home mortgage applicants can make a more informed decision.

Easy Budget Management For Some

With a single monthly mortgage payment, there is often a need for those who get paid two or more times per month to properly budget so that they can comfortably manage the large mortgage payment with all of their other expenses throughout the month. With bi-weekly payments, the two smaller payments may be easier for some who are paid multiple times per month to manage and budget for. When an individual gets paid one time per month, the individual pay prefer to make the single payment each month.

Faster Debt Reduction

With a monthly payment schedule, 12 full payments will be made per year, and this is in contrast to a bi-weekly schedule which will result in the equivalent of 13 full payments being made per year. Essentially, the extra full payment that will be made with a bi-weekly payment schedule will result in faster debt reduction and in greater accumulation of equity over time. This can improve the homeowner’s financial standing over time.

Lower Interest Charges Over The Life Of The Loan

Because the principal balance will be reduced at a faster rate over time with bi-weekly mortgage payments, the total interest that is assessed on the loan will be reduced in comparison to monthly payments. Depending on the size of the loan and the interest rate on the loan, this may equate to a savings of tens of thousands of dollars or more in some cases.

Each homeowner’s or home applicant’s financial situation will be unique, and factors related to income, payment schedule, the desire to increase equity quickly and more should all be carefully considered. Bi-weekly payments often can be established during the loan application process, but they may also be set up after closing. Those who are interested in establishing affordable mortgage payments can speak with a mortgage representative about some of the different options available.

Start with the Basics: How to Create a Budget to Determine How Much Mortgage You Can Afford

Start with the Basics: How to Create a Budget to Determine How Much Mortgage You Can AffordA mortgage is typically one of the biggest monthly payments and financial responsibilities that a person is responsible for. Mortgage payments usually impact the person’s budget significantly for several decades or longer.

While there are mortgage calculators online that can be used to estimate an affordable mortgage payment, it is important to start with a basic budget. A budget will allow you to more accurately determine how large of a mortgage payment is truly affordable before applying for a new mortgage.

List Income From All Sources

The first step to take to prepare a budget is to list all sources of income that is received regularly. This may include regular paychecks from both spouses, dividends, annuities, and any other sources of income that the individual or the family receives on a regular basis. Most budgets are prepared on a monthly basis, so ensure that the total amount of take-home income for a typical month is included in the budget.

List Recurring Expenses

Create a list of all expenses for the month to complete the next step in the budget-making process, and this should include utilities, minimum credit card payments, car loans, monthly food and gas expenses, and more. Ideally, it will include an allotment for savings, home maintenance expenses, and other expenses that the individual or the family may have. The more accurate the list of expenses is for the budget, the easier it will be to estimate a new mortgage payment amount that is actually affordable.

Think About Irregular Income and Expenses

It is important to think about irregular sources of income and irregular expenses. This may include seasonal income from a part-time or temporary job that is expected to continue into the future, as well as quarterly payments for homeowners’ insurance or annual property insurance premiums. While these are not monthly income sources or expenses, they nonetheless should be accounted for.

When a person takes on a larger mortgage payment than the budget allows for, it can quickly become unaffordable for the individual to continue to pay over time. A high mortgage payment also increases the risk of a default in the event of unforeseeable circumstances.

It is best to set up a monthly mortgage payment that is affordable for the individual’s or family’s budget, and these steps provide basic guidance for establishing a budget. A trusted mortgage professional can assist with setting up a mortgage payment that is affordable based on the budget that is created.

Four Surefire Ways to Ensure That You Get the Best Possible Deal on Your Mortgage

Four Surefire Ways to Ensure That You Get the Best Possible Deal on Your Mortgage Taking time to set up your home mortgage is one of the best steps that you can take to promote financial health and security. The best home mortgage is one with an affordable payment, that does not empty your bank accounts of necessary financial reserves and that will help you to establish equity at a fast pace. If you want to ensure that you get the best deal on your mortgage focus on these tips.

Consider the Loan Term Carefully

The most common loan term options are a 15, 20 and 30 year term. There will be a slight interest rate difference between these options, but the term itself will play a critical role in how quickly your equity increases as well as what your mortgage payment is. The payment should be affordable, and you do not want to set up a payment that is so high that you run the risk of defaulting. However, a shorter term with a higher monthly payment can result in less interest charges and faster debt reduction.

Think About the Pros and Cons of a Larger Down Payment

The amount of your down payment is also critical to setting up the right mortgage. When you make a larger down payment, you will have lower payments and may even qualify for a better rate. However, you also may be tying up your extra funds that could be used for investments or for debt reduction into your mortgage.

Shop For the Best Interest Rate

The interest rate variation from lender to lender may be fairly minimal when factors like the down payment, the term and your credit rating are constant. However, even a quarter or a half-percent difference in the interest rate will impact your payment amount and equity growth significantly. It can also impact your interest charge for your annual tax deduction.

Review the Closing Costs

A final point to consider is the closing costs. Some lenders may take on a higher fee with closing costs in exchange for a lower interest rate. It is important that you consider the difference in the mortgage payment and equity growth over time. Think about how long it will take you to recoup the up-front cost differential with the monthly payment differential. This can help you to determine which loan option is the most affordable overall.

Many will pay attention to the interest rate and loan term when shopping for a new mortgage. These are important factors to consider, but they are not the only ones that are important and relevant. Keep each of these points in mind if you want to set up the best overall mortgage.