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Mortgage Secrets

There are many mortgage industry secrets that the average person might not know about. In discussing some of them, we will go over several keys secrets that can be very helpful in understanding how mortgage companies, lenders, and servicer's operate. Mortgage companies, just like any other company are in business to make money, and they do a great job at it. There are many things that mortgage companies would rather you not know about the industry. We will cover some of them here.

Teaser or Adjustable Rates

When the mortgage industry was hot and many people around the country were buying real estate in the early 2000'S, mortgage companies were happy with all the new business they were getting. That was in the time period when credit was given out easily to almost anyone with a job, and or had fair credit. The industry was booming and we had the highest homeownership rate ever in the history of this country. There were some real estate agents making millions selling high priced real estate, and the need for loan officers to close on those deal were high. The lending institutions started hiring taxi drivers, pizza delivery driver, fast food restaurant workers, or anyone with a high school diploma and had the ability to fellow simple instructions unbelievable money. Many of these individuals came from minimum wage jobs and started to make $20-40,000 a month to close mortgage deals. Their income transformed quickly.

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Then after the new home buyers started to fizzle out, homeowner started becoming late on the payments, and previous buyers need new cash infusions, then came the refinance era. Refinance ruled for years between 2002 and 2007. Banks and mortgage companies started to refinance all those homeowners that took out home loans a year or 2 earlier, and now had equity, and many new homeowners suddenly had lots of equity in a short space of time. They were drawn into these low interest or teaser rates, also known as adjustable rate mortgage loans(ARM). These loans promised a great new low rate for a fixed period of time, usually up to about 5 years. Then after that period passed then the rate starts to adjust, and sometimes like crazy. The rates adjusted and based on the London Interbank Offered Rate(LIBOR).

A typical ARM loan would start out somewhere around a 3% interest rate for 3 yrs, and then after that is starts to adjust maybe every 6 months, for the rest of the life of the loan. The 1St adjustment does not move more than 3 points up. For example, if you started out with a 5% interest rate and your loan is now ready to adjust your interest rate will not go up more than 3% =8% interest rate for the next 6 months, and so on. There is usually a ground and a ceiling for your interest rate; which is the loan's lowest and highest possible rate percentage. Mortgage companies made allot of money using ARM loans to entice many borrowers looking for easy refinance money, and then the borrowers watch their interest rates in most cases, go up a great deal. This type of loan is usually a good choice in a strong real estate market that is appreciating, and also good if you plan on not staying in the home for more than about 5 years; Otherwise it might not be wise to keep this kind of loan long term.

Property Tax Sales

Property tax is necessary if you want to buy a home, unlike living in an apartment. Property taxes helps to pays for school, roads, teachers, police officers, fireman, among other community services. If you don't want or expect to pay property taxes you should not buy a house. Usually when someone buys a house in any year their taxes are not due until the next year at a pro-rated basis. You are being pro-rated for the year that you bought the property and you may not have had the home in your name the whole year, therefore your 1St year's taxes are usually pro-rated.

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You will have a set amount of time to pay those taxes or else your will start to incur penalties for your taxes being past due. If you continue to keep your property taxes past due, then your local taxing authorities can begin the process of selling a tax lien certificate that was placed on your property to try to recover the delinquent taxes that you owe. The tax sale is usually publicized for potential bidders to get information on the tax sale. All counties across the country hold usually conduct property tax sale, normally monthly on a set day. For example, the 1St Tuesday of each month at the local court house or downtown. They will bid on the tax amount owed, lets say a homeowner has $500 in past due taxes. They will start the bidding at a set price, usually the price of the taxes owed, and hopefully they will sell the tax lien certificate to the highest bidder.