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Mortgage Loan Questions

Given the popularity of the last searcher questions on 401K and Roth IRA [3], I figured I’d poke through the logs and pull out some mortgage loan related questions. Some of these are very good questions and I invite you to share your own opinions if they differ on my own (or even if they’re the same).

Should I pay the closing cost or roll them into the new loan?
This is a tricky question and it’ll take a few minutes to explain why but the answer is – it doesn’t matter. Most experts will claim that you shouldn’t roll your closing costs into the new loan because when they are capitalized (integrated into the principal of the loan), because you will pay for those closing costs for the next X years (your loan terms). The problem with that logic is that if you assume you have a finite amount you can afford to put towards a down payment for the loan, then it makes no difference whether the dollar goes towards the purchase price or it goes towards the closing costs. Either way the loan amount is going to be the same so it doesn’t matter.

How to get your PMI (private mortgage insurance) off at CitiMortgage?
This one is best answered by the experience of a reader who had CitiMortgage cancel his PMI payments [4]. Essentially, this is possible only when your home value has increased such that the principal on the mortgage is less than 80% of the value of the home. If your home value has increased, call up your mortgage lender to have them hire an appraiser (this will cost you money) and hope that the appraisal comes back high enough. If the principal has fallen under 80% of the value of the home as a result of your payments, The Homeowner’s Protection Act of 1998 has mandated that your lender is required to remove the PMI.

Are mortgage interest rates negotiable?
Your mortgage interest rate is not going to be negotiable with your current lender because they calculate based on your characteristics but you should be able to get the lenders to “compete” through brokerage services (like LendingTree) or comparison shopping (which is basically what places like LendingTree does anyway).

What is on a mortgage gift letter?
I used the following mortgage gift letter [5] when I applied for my mortgage and it was accepted by the lender. The major components that the lender looks for are: who is giving who money, that it is a gift, and that there is no expectation that the gift will be repaid.

Should I use home equity to pay off credit card debt?
I just wrote an article on this exact topic a few days ago because of a NYTimes article about folks losing their home [6] because they can’t make the payments after a refinance. When you shift the loan from an unsecured credit card or a car note, you risk your home if you can’t make the payments. If you can’t make the payments on a credit card or a car note, you might lose the card and the car but you won’t lose your home.