Mortgage cycling is a repayment strategy that promises to cut years of repayment off your mortgage and save you thousands of dollars. Payoff your mortgage in 10 years without refinancing your current mortgage. How does it work and is it worth the risk?
Amortization is the process by which part of your payment goes towards the principal loan balance and part goes to interest. Mortgage loans are front loaded with interest; this means in the early years nearly all of your monthly payment is made to interest. The interest portion of your monthly payment is calculated monthly based on the outstanding balance of the loan. By making large equity payments you are reducing the amount of interest you pay faster.
The Mortgage Cycling repayment strategy involves make lump sum payments of the mortgage principal twice each year. This strategy only works if you can come up with the cash to do this every six months. By making large equity payments of $5,000 or more every six months, you reduce the amount of your regular monthly payment that goes towards interest and build equity in your home faster.
If you are unable to save up the cash to make large payments of $5,000 or more every six months, some people use a home equity loan to access the cash. This allows them to repay the $5,000 over a six month period.
Home equity loans, also called home equity lines of credit, can be expensive to establish; you may be required to pay fees similar to refinancing your mortgage. These fees could include property survey, appraisal, title search, points, administrative fees, and legal fees.
The risk involved with using a home equity loan to make equity payments involves rising interest rates. As short term interest rates rise the interest rate you pay on your home equity line rises with them. If your cash flow dries up and you are not able to make the payments on your home equity loan you could lose your home. If you have to sell the home for some reason the home equity loan would have to be paid off prior to selling.
Mortgage cycling requires paying your regular monthly payment and the home equity loan payments for a ten year period. This is a risky way of robbing from Peter to pay Paul; however, it could save a lot of money in interest and quickly reduce your principal balance.
By: Louie Latour
Fri 30 Apr 2010
Mortgage Cycling: Pay Down Your Mortgage Quickly
Posted by admin under Mortgage Second
No Comments
Thu 29 Apr 2010
Survey Ranks Mortgage Customer Satisfaction
Posted by admin under Mortgage Second
No Comments
J.D. Power and Associates released a new study of customer satisfaction for primary mortgage borrowers in the U.S. The study revealed some interesting reasons for satisfaction or non-satisfaction with a mortgage originator.
Homeowners ranked USAA Federal Savings Bank the highest in customer satisfaction when it comes to the service of a primary mortgage, according to the survey.
The customer satisfaction was calculated in four areas: the administration of the account, the billing process, the payment process and the process of contacting the mortgage servicer.
“USAA Federal Savings Bank is simply doing things right and doing them right the first time,” said Rocky Clancy, the executive director of the mortgage practice for J.D. Power and Associates. “When USAA makes commitments to their customers, they meet those commitments. Customers will forgive mistakes, but they tend not to forgive broken promises. Problems are inevitable, but having a proper approach to those issues can speak volumes.”
The study revealed that around 45% of mortgages do not remain with the originator for servicing after the mortgage is closed. Those consumers with outsourced mortgages on average have satisfaction score of 32 index points lower.
“While this is a common practice in the industry, removing the homeowner from the decision to sell the mortgage to a different company for servicing can create confusion and a sense of betrayal among customers,” explained Clancy.
“Customers want stability and consistency with their home loans, and lenders who can deliver those are rewarded with customers who are not only more satisfied and loyal, but also have twice as many additional products with the lender.”
Fifty percent of customers pay their mortgage bill electronically, a surge from the 34% in 2004. The study revealed that electronic payments result in a higher customer satisfaction level overall.
“The more billing and payment of mortgages is automated or conducted online, the more consistent and accurate loan servicing becomes, ultimately leading to higher levels of customer satisfaction,” said Clancy.
“The bottom line is that satisfied customers require less contact with their servicer’s customer service department, resulting in lower servicing costs for the lender.
“In addition, mortgage servicers who are successful in satisfying their customers can expect greater revenue as a result of customers recommending the company to others more often, and obtaining additional non-mortgage services from the lender.”
The study was based on responses from 12,799 homeowners between March and April of 2006. The top ten mortgage servicers according to satisfaction ranking were:
USAA Federal Savings Bank BB&T Citizens Bank GMAC Mortgage Wells Fargo Bank of America First Horizon Home Loans CitiMortgage SunTrust Mortgage Fifth Third Bank
By: Martin Lukac