LondonKings: Mortgage

6 Worst Mortgage Mistakes You Can Make

11:26 AM

Is your house your castle or an albatross around your neck?
Your answer might depend a lot on your mortgage. Getting an affordable property at a great rate can make you feel as if life couldn’t be any sweeter. But ask anyone who bought a house with a mortgage they didn’t understand and couldn’t afford, and they will likely tell you their house has brought them nothing but frustration and tears.
If you’ll be in the market for a new place soon, Money Talks News finance expert Stacy Johnson can tell you all about the all-time worst mortgage mistakes. Watch the video below, and then keep scrolling for more details.

Mistake No. 1: Not reviewing your credit first

Before you go to your first open house, you need to go to AnnualCreditReport.com if you haven’t already. That’s the official site to get the credit reports issued by the big three reporting agencies: Experian, Equifax and TransUnion. You’re entitled to one free credit report from each agency each year.
In addition to your credit reports, it might also be helpful to know your credit score. You used to have to pay for it, but now certain banks and credit cards, such as Discover and Barclaycard, offer it as a perk for their customers. You can also get your score for free at CreditKarma.com.
You’ll need your credit score to be in tiptop shape if you want the best rates. A 2013 study from the Federal Trade Commission found 5 percent of consumers had errors on their report that could result in less favorable loan terms. If you’re among that 5 percent, you want to the find the error and correct it before applying.
And if your credit score simply stinks, you can try these tips for raising it fast.

Mistake No. 2: Failing to get pre-approved

The next mistake you can make when applying for a mortgage is failing to get pre-approved.
Getting pre-approved by a bank is one way to avoid the heartbreak that comes from falling in love with a house you can never buy. It may also give you an edge if there are multiple offers for the same property. A seller may feel more confident selecting a bid from someone with a mortgage pre-approval rather than a person who hasn’t even begun the process.
However, don’t get carried away by whatever pre-approval amount you receive from the bank. Remember, what the bank thinks you can afford and what you can actually afford may be two different things. A lot of people lost their homes in the Great Recession because they were given loans they couldn’t pay back. Don’t make the same mistake.

Mistake No. 3: Not shopping around for the best rate

The Consumer Financial Protection Bureau says nearly half of mortgage borrowers don’t shop around and that’s a big mistake. Even seasoned comparison shoppers may search for the best deals on their soap, their furniture and their car, but then don’t look for a better mortgage rate.
It may be convenient to use your primary bank for a mortgage, but that could also be expensive if its rates aren’t competitive. According to Bank of America, for every 0.25 percent you can reduce your loan on a $200,000 mortgage, you’ll save $30.55 per month. Over a 30 year period that can add up to a lot of extra cash.
To review current mortgage rates, visit the Money Talks News Solutions Center.

Mistake No. 4: Ignoring mortgage fees

While you’re investigating rates, check out the fees on available mortgages, too. Most mortgages come packed with fees of all kinds, and while some, such as your county recording fee, are likely fixed, others are completely negotiable.
Before your closing, you should be provided with a good faith estimate of the fees. Ask your lender to review what they are for and then see if you can negotiate a lower price. These are a few of the fees likely to have the most wiggle room:

Loan origination fee
Application fee
Broker fee
Underwriting fee

Mistake No. 5: Not having cash for a down payment

Not having a down payment can be a mistake for two reasons.
The first is that it can sink your prospects of getting a mortgage. After being bitten by the housing market crash, traditional lenders shy away from giving mortgages to those bringing nothing to the table. But even if you can find a program that will allow you to get a mortgage with little or no money down, you could still be making a mistake.
Remember how the housing market crashed from 2007-2009? Property values plunged and suddenly homeowners found themselves owing more than their homes were worth. When those owners then lost their jobs or otherwise couldn’t keep up on their payments, they often found themselves without a prayer of refinancing or selling their property As a result, many ended up on the receiving end of a foreclosure notice.
While nothing is guaranteed, putting 10-20 percent down on your house can reduce your chance of ending up in the same position.

Mistake No. 6: Not understanding your mortgage terms

Underwater mortgages weren’t the only problem facing homeowners during the Great Recession. An untold number of people also lost their houses simply because they signed on the dotted line without understanding what the heck their mortgage entailed.
For example, people thought they’d hit the jackpot with interest-only loans that let them buy houses beyond their wildest dreams. However, they apparently didn’t understand or overlooked the fact that their monthly payment would hit the stratosphere five years later. What’s more, those five years of payments wouldn’t give them a bit of equity in their home.
Adjustable rate mortgages, known as ARMs, operate under a similar structure. Homeowners were fine for the first few years when their mortgage rate was fixed and low. Then it reset to the current market rate and that affordable monthly payment suddenly didn’t seem so affordable anymore. A 2008 report from the Federal Reserve Board found more than 75 percent of the subprime loans issued from 2003-2007 were “short-term hybrids” that work like ARMs. By 2008, more than 21 percent of these subprime loans were seriously delinquent.
The moral of the story is to always understand what you’re signing up for. It’s not enough to know what your monthly payment is today. You also need to ask if the interest rate can change and if so, when and by how much will it increase. If you’re not comfortable with the loan terms or don’t understand them, it’s better to walk away than make an expensive and potentially life-altering mistake.

Credit

Applying for Insurance

7:21 AM

There are many ways in which people apply for insurance. Years ago, this was usually by completing a document called a proposal. But for most domestic, particularly fire and general insurance, this can often be done over the phone. Generally the insurance company will ask a number of questions, and at the end of those questions will either decline or offer insurance depending upon the circumstances.

Even when the process is completed over the telephone, it is important to remember that this is a formal process, and your answers will be recorded either by a tape recording or by the person you are speaking to. If you answer any questions incorrectly, it may invalidate your insurance, and so it is important to listen to every question carefully, and answer it accurately. There is no point in providing incorrect information because you may be wasting your money when you find your insurance avoided when you need it most at claims time.

The same applies to written applications, whether for house, contents, car, business, health or life insurance. The application process is a formal process that must be taken seriously.

In relation to health, income and life insurance policies, the questions about medical history can often be confusing. They are very carefully crafted by the insurance company to often be as wide as possible. You are simply required to tick a box and, provided you do not disclose any adverse information, the insurance will be granted. You will then hear nothing more about it for many years. But when you do make a claim, you can be certain that the insurance company will then check the information you have provided. The insurance company may seek your medical records from your general practitioner or other doctor, and compare those to the information you provided. If there are any discrepancies that may be material, the insurance company may avoid your policy and therefore refuse your claim. This process of what is commonly called retrospective underwriting is most controversial. The Privacy Commissioner recently questioned the ability of insurance companies to demand entire medical files, and the media has often been critical of insurance companies waiting until claims time to truly investigate.

Our advice is to consider the questions very carefully, and if in doubt at all, ask your insurance company to conduct your doctor before taking out the insurance. If the insurance company wants to see your medical records, then they should ask for them upfront, and not wait until claims time.

Credit

What is insurance?

7:20 AM

Insurance is a special type of contract between an insurance company and its client in which the insurance company agrees that on the happening of certain events the insurance company will either make payment to its client or meet certain costs.

For example, in a car insurance policy, the insurance company agrees that if the car is damaged, the insurance company will pay the cost of repairing it. Under an income protection policy, the insurance company agrees that if its client is unable to work, the insurance company will pay its client an agreed amount.

The reason we call an insurance policy a special type of contract is because there are certain characteristics that relate to an insurance policy that do not relate to most other contracts. In particular, an insurance policy is a contract of “utmost good faith”. This means that the insurance company and the insured person have certain very important obligations that do not exist in normal contracts. These include the duty of disclosure and the duty not to make any false statements in relation to a claim. This duty of good faith is why insurance companies can refuse to pay your claim if you have not told the insurance company all material information when you applied for or renewed the insurance. Some of the obligations that exist in an insurance contract can be very onerous on the insured person, and so over the years, the government has regulated the insurance industry. This is considered under the regulation tab.

The special nature of the insurance contract also places very important obligations on the insurance company. The insurance company has to act in good faith, and a failure to do so can expose the insurance company to special types of damages. In addition, because many insurance policies are contracts to provide comfort in stressful times, a failure by an insurance company to honour its obligations can result in general damages being awarded by the Courts.

Because an insurance policy is a type of contract, it is important to remember that the duties of the insurance company and the insured person are largely contained within that contract, often called a policy. So before jumping to conclusions about what the insurance company should or should not do, or what your obligations might or might not be, it is important to first read your insurance contract or policy. Ask the insurance company for a copy of the policy if one has not been provided to you, and read the policy carefully. Avoid generalisations. Whilst many insurance policies are similar, none are exactly the same, and slightly different words in an insurance policy may have different meanings. Many people express opinions about insurance policies or what should or should not be covered without actually reading the policy, and that must be avoided.

As well as the insurance contract itself, the law (called common law by lawyers) imposes all kinds of special obligations on insurers and insureds, and so when considering an insurance contract, it is important to do so in the context of the common law obligations that are imposed upon insurance companies.

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