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refinancing Archives | Ovation Credit Repair Services

High Mortgage Payment? Check Your Credit Score

By | Mortgage

Did you calculate the cost and find out your mortgage payments will be high? If so, your credit score could be to blame.

Buying a Home With Average Credit

You need a FICO score of 620 or more to be taken seriously by most traditional lenders. With FHA financing a score of 580 or more is needed, but FHA loans come with other requirements.

The thing is, you don’t want to just have a “good” credit score. There’s a big difference when you’re buying a house. It’s too big of a loan to approach when you’re not an optimal borrower.

The Difference in Monthly Payment Costs

The biggest comparison to make is a $200,000 loan over 30 years. With a FICO score of 620 to 639, you’re looking at a 4.79 percent APR rate. This comes with a $1,048 monthly payment. A borrower with a FICO score between 700 and 759 will pay $890 a month.

As a result, improving your FICO score before financing a $200,000 mortgage can save you $150 a month. There are other poor terms that come with a low-grade home loan. You might effectively lose as much as $250 a month as a result of not qualifying for a better mortgage.

The Cost of Buying a Home by FICO Score

It’s common knowledge that your credit rating affects your interest rate. However, not many realize how much of an impact it will have on the overall cost of your new home. So it’s interesting to see what you can expect to spend when buying a home — based on your FICO score.

Take a look below for a rough run-down with an analysis for a home buyer with a FICO score in the 620 to 659 range. This information comes from the Loan Savings Calculator on myFICO’s website.

Interest Cost Differences

In this score range, you can expect an APR between 4.244 and 4.79 percent. Say you’re borrowing $80,000 toward a home and you plan to pay it off in 15 years.

This averages out to between $574 and $596 a month for mortgage premiums. It also means $23,340 to $27,253 in total interest paid over the 15-year term.

How Much Can You Save on a $200,000 Mortgage Loan?

This scenario gets even more interesting when you look at the purchase of a $200,000 home loan. Borrowing that amount requires having a sizable down payment or income.

This loan will cost a lot more if you take it on while you have only average credit. You might find yourself opting for a 30-year term to avoid the high monthly payments. In this case, the interest difference can “blow your mind” when you discover it.

A low 600s credit rating would mean approximately $150,000 to $175,000 in interest paid over 30 years on a $200,000 loan.

Borrowers with FICO scores in the low 700s can expect to receive $40,000 to $60,000 in interest savings.

Other Benefits of a Better FICO Score

With a strong FICO score, you can bully around lenders. When buying a home, this means you have the power to negotiate the best APR rate possible.

This means you can save a lot on your interest payments. This results in a lower monthly payment too. You could save as much as a few hundred dollars a month.

Being able to pick and choose between lenders is a good thing for other reasons, too. You can gain access to terms like “early buyouts without penalties,” which is hard to find.

This is especially beneficial if you inherit a lot of money or win the lottery. The loan term will make it so you can pay off your last month of interest and buy out the rest of the loan.

Don’t Forget About the Refinancing Dilemma

Next, you need a strong FICO score to qualify to refinance your mortgage. Having the bare minimum is not good enough if the borrowing requirements change over time.

It’s also not helpful if you end up with another blemish that pushes your score below the minimum. When your loan term is up, you might find yourself selling the house or foreclosing if your credit score is low.

The same is true if you’re using a co-signer to qualify for the mortgage. If this person cannot qualify anymore, you might not be able to pull the weight when you attempt to refinance. Since you only gain considerable equity in the later years (due to more interest paid upfront) this is a serious disadvantage.

Remember What Happens Next

When you first take on a new loan, your credit score drops before it ages a bit. The negative effects of the new debt become less month by month. In the end, your good repayment history and strong utilization rate will result in a higher FICO score.

However, in the near term your credit rating will suffer. The large home loan will make you seem like a bad borrower. So you might struggle in financing for even smaller things (like store cards) in the first six months after you finance your home.

Conclusion

If you take in anything from reading this, it should be the fact that a better FICO score means a better loan. This is true whether you’re buying a car or a house. It’s even true when you’re trying to take out a second mortgage.

We went as far as to cover a piece listing four reasons your credit score matters during retirement. You can read that blog post and find even more reasons why you’ll want to build your score before it’s too late.

Credit Score – 4 Reasons It Matters During Retirement

By | Credit Scores, Your Credit

Retirement and Your Credit Score

You’ve reached your retirement years. Congratulations are in order. What’s more, you might have enough money to live on thanks to some combination of savings, investments, a pension and Social Security payments. On top of that, you might not be planning to make any major investment, such as a new home, in the future. So who cares about your credit score, right?

Well, this idea is a common misconception among seniors. In fact, your credit report will matter a great deal to you for the rest of your life. Without one that’s above average, you won’t have access to the following financial benefits.

1. Loans

For one thing, your car could stop suddenly working due to age, an accident or another problem. If you want a decent chance of securing an adequate car loan, you must have good credit.

Likewise, the need for an emergency loan might arise. It’s certainly horrible to think about, but household accidents, abrupt illnesses and other crises can happen at any time. To avoid paying an exorbitant interest rate on such a loan, a high credit score is again essential.

2. Refinancing

The Consumer Financial Protection Bureau reports that 30 percent of Americans who are at least 65 years old make mortgage payments. In addition, the research company Strategic Business Insights has found that about 40 percent of Americans who are between the ages of 60 and 64 have mortgage obligations.

If you’re in one of those groups, you might want to ease your burden at some point by refinancing your mortgage, especially in a time of low interest rates. However ― and you may be noticing a pattern here ― you won’t be eligible for those low rates if you lack an acceptable credit score.

Not to mention, if you ever find yourself in trouble financially, you might wish to negotiate a cash-out refinancing. Doing so should be a last resort, but if you’d like access to such funds, you’ll probably obtain better terms with a strong credit report.

3. Rewards Cards

You might have a longtime aversion to using credit cards. And it’s true that a person who has trouble paying off credit cards would be wise to avoid them altogether.

On the other hand, if you’re diligent about paying your debts, your plastic can actually provide financial relief. That’s because it can give you so many rewards.

For instance, a cash back card will essentially supply you with free money as you make purchases, and those bonuses can really add up over time. Plus, credit card companies often give people small sums of cash just for signing up.

Frequent travelers can especially benefit from credit card usage ― by using platinum rewards cards in particular. That’s because those cards can help you earn free nights in hotels as well as discounts on airfare, rental car insurance, luggage fees and more.

However, if your credit score is poor, it’s unlikely that you’d be eligible for any cash back cards, let alone one at the platinum level.

4. Insurance Rates

It’s wise to keep looking for the best insurance rates you can, even if that means switching companies from time to time. Why spend money on your insurance unnecessarily?

It might not seem fair, but home and car insurance providers might take your credit score into account when they’re determining your monthly rates. Yes, a low score can mean higher costs.

The thinking behind this strategy is that people with good credit scores are responsible individuals and less likely to cause car accidents, leave their homes unsecured, start fires by accident and so on.

So How is Your Credit Score?

At this point, you might realize that you’ve been neglecting your credit score for a while; you might even be starting to worry. Fear not. There are plenty of ways to boost it. To give you just a few examples:

  • Always pay all your bills on time.
  • Remember that not using your credit cards won’t help your credit score. If a credit card company ends its relationship with you because you’re not taking advantage of its card, it could hurt your credit score. For the same reason, try not to close your credit cards.
  • Use your credit cards for small, regular purchases, and make a habit of paying them off on the same day every month.
  • Keep searching your credit history for errors. If you have a friend or a relative who’s a financial expert, she might be able to help you find a mistake. Then contact the credit reporting agency that made the error to argue your case.
  • Obtain outstanding credit repair services, and watch happily as your score rises.

Finally, you’ll find that good credit brings an additional benefit, one that’s intangible yet invaluable: peace of mind. If your children or grandchildren need monetary help or if life throws an expensive curveball your way, you’ll have the means to improve the situation. After all, you’ve worked hard all your life. You deserve to enjoy your golden years without fearing financial hardships.

Sources:

http://www.aarp.org/money/credit-loans-debt/info-2015/credit-score-changes-for-consumers.html

http://abcnews.go.com/Business/credit-retirement-important/story?id=29789894

http://www.fool.com/investing/general/2016/01/29/why-your-credit-score-matters-during-retirement.aspx

http://www.foxbusiness.com/features/2016/03/18/keep-your-credit-score-in-good-standing-it-never-retires.html

http://www.forbes.com/sites/moneybuilder/2014/05/02/11-ways-to-raise-your-credit-score-fast/#3d14483c1716

http://money.usnews.com/money/blogs/on-retirement/2013/05/28/5-reasons-your-credit-score-matters-during-retirement

Student Loan Refinancing and Credit Repair: Facts You Should Know

By | Credit Repair

student-loan-refinancingThey don’t really tuck a student loan payment book into the folder with the diploma you receive at college graduation—it only seems that way. That loan is often the first major financial obligation a graduate faces, and it can last for many, many years. Like all other borrowing, it affects your credit score, so be smart about how you pay it back. And when (or if) a good option for refinancing becomes available, be sure to grab it and save yourself some money.

When Is Refinancing Student Loans Right for You?

If you have a good credit score and you’re financially better off than you were when you took out your student loan, refinancing may be right for you. It’s also right when the interest rate you will get from a refinance is lower than the rate you’re paying now.

The goal is to pay less in the long run, not just to lower the monthly payment. So a lower rate is great, but if the term stretches too many months into the future, you may end up paying more when it’s all added up. Do the math to figure the total amount you will pay over the life of the loan, or ask your lender to do it for you, so you can see the numbers for yourself.

Before you refinance, take note of whether your loans are public or private. Student loans that come from federal programs can sometimes be partially forgiven if you go into some kind of public service work, and they sometimes have income-based repayment options, which can be helpful if you run into financial trouble. If you don’t need either of these provisions, consider refinancing. But if they are attractive or necessary to you, be careful about giving them up.

Refinance or Consolidate?

Refinancing means getting a new interest rate on a loan. Consolidation means lumping together several different student loans (which many people have) into a single loan. This can be convenient—better to write one check than several—but it may not save you money. Pay attention to the interest rates on each loan you already have. It may be better to keep the ones with the lower rates, refinance only the higher-interest loans, and not consolidate at all. But if consolidation will save you money in the long run, go for it.

A Refinance Can Help Your Credit Score

Every financial obligation you have contributes to your credit score, so keeping your student loan payments affordable enough to pay regularly is important to the health of that score. If your credit score isn’t quite as healthy as you’d like it to be, consider a credit-repair service such as Ovation. We can give you advice for managing your financial obligations, so you can control your credit rather than have it control you.

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