Unless you have been in the mortgage market for some time, you may not be sure about the concept of discount points. It is a simple enough concept: in order to lower the interest on your loan, you pay your bank some cash upfront as an incentive to lower the rate. When the rate is less, so will the monthly loan payment.

One point is a cost equivalent to 1% of the total amount of the loan. For a $200,000 mortgage, one point costs $2,000. The more points you are willing and able to pay, the lower the rate on your mortgage will be.

Your home loan rate is calculated primarily by your credit worthiness, but whatever the rate on the loan, paying points will make it lower. For example, if your original rate quote is 6%, according to your credit score, ask how much it will be if you are willing to pay any points. A general rule, but one that can change from one lender to another, is that one point will lower the loan rate .25% on a fixed rate loan and .375% on an adjustable rate loan. In the case of your $200,000 home loan that you are willing to pay $2,000 for one point, your mortgage would then be reduced to 5.75% for a fixed rate loan and 5.625% for an adjustable rate mortgage.

If you inquire about a mortgage rate, you will most likely see the rate quoted with the points. For example, the bank may list the rate as 6%, no points, 5.75%, one point, 5.5%, two points, etc. Next you would see 7%, with the accompanying rate reductions per point, and so on for each rate. This is why it is necessary to know your original rate and then calculate the reduction for points.

Obviously, your loan payment is going to be lower on a loan with 5.75% or 5.625% than it will be on a loan with a 6% rate. Lowering the rate like this is because you are really paying some of your interest beforehand. If you only held onto the loan for a short while, after you sell the house or refinance, you will have paid this interest for a loan you no longer have. In other words, you have to amortize the payment amount for the points over how long you plan to have the loan.

Many times home sellers employ points to get buyers. A seller may advertise “seller pays points” to bring in more buyers. But this shouldn’t change the original calculations, because the price of the house will reflect the seller’s contribution.

Borrowers do not have to pay points, they do it if they are interested in reducing the rate. It’s a decision that a borrower can examine depending on all of the other factors in the loan.

Many borrowers are not aware, but they can choose a payment option for their mortgage that makes it easier to pay because it suits their needs. If a borrower can suit the payment method or schedule to his needs, his loan history will be better.

Suppose you are one of those who never pays his home loan on time simply because you are too busy; you could use online bill pay or you could have an automatic bank deduction. Of course, you still have to be sure you have the money available, but if that is not an issue, and you are usually late simply because of not having the time to sit down with your checkbook, these are ideal solutions.

You may even find that many banks are able to offer a lower rate if your mortgage is automatically deducted from an account you hold with them. Their processing costs are lower, and they are guaranteed that the loan will be paid, so they can pass some of those savings on to the borrower.

One of the most common problems many wage earners have is to keep the money available for when the mortgage is due. Even when you try to set one half of the mortgage aside with your first paycheck, you may find the amount dwindling when the check is due. Many homeowners would rather to pay half their home loan at the start of the month, and the other half at the middle of the month.

In this manner, they can match the payment due dates with their biweekly paycheck and assure that this major expenditure is covered before other non essential items may eat away at the balance in the checking account. An added advantage is that the borrower will lower his mortgage more quickly by paying half the payment two weeks early each month.

Banks also give option loans that let the borrower decide how much he wants to pay. This convenience can be dangerous if it is not managed properly. There is normally a minimum amount due which is the amount of the interest due, and then the homeowner pays anything (or nothing) above the interest. However, only remitting the minimum means that the loan balance is never paid.

If, however, you earn an income that fluctuates greatly, perhaps as a salesman or consultant, you may want the flexibility of keeping payments low when funds are low and catching up when quarterly sales bonuses come in. This will only be good for those individuals who have enough discipline to pay the larger amount when the money is available.

Banks have been cutting their home loan portfolios back, that is certain, but the careful borrower can still locate a mortgage.

Many local banks never got involved in the credit mess and are actively lending. That small banks are performing this task should not be too much of a surprise. The beginning of the home loan business was really small building and loan societies that funded local expansion with local investments. Of course, they go by other names nowadays, but lenders that focused on their core business and area have largely avoided many of the problems in banking.

They are actively granting loans to their customary clients and even expanding to pick up the slack where other banks are no longer active.

While major banks project lower loan volume in all categories, including mortgages, community banks expect stable numbers in loan volume for single family homes, but no increases.

But there are still many organizations, community-development banks, credit unions, and other entities that are not only still lending, but lending to sub prime customers, because they are involved in shoring up the communities they are located in. These banks are not just managing, they are thriving.

Organizations like Chicago’s Shorebank, which has $2.3 billion in assets and predominantly serves low income communities boasts a delinquent loan rate of 3.1% of assets, compared to the national average of 18.7%. They do lend at increased rates than for prime rate customers, but they are careful about their risk. They strive to be profitable, but not to be involved in “profit maximizing” according to Mark Pinsky, CEO of Opportunity Finance Network, an umbrella group for community development finance institutions. If we take profit maximizing as a euphemism for greedy, then this may be one of the main things that separates these banks from the national giants that are on the ropes now.

If you look at the salary of a CEO of one of these small community based organizations, such as that of Douglas Bystry of Clearinghouse CDFI, at $190,000 in comparison to that of Angelo Mozilo, CEO of Countrywide Financial at $22.1million, you can see a problem. ShoreBank is located in an abandoned 1920’s movie house, not a multilevel steel and granite structure in a suburban corporate park.

These kind of lenders prefer to remain close to their customer base, for by doing so, they can monitor their loans and protect their assets better. For example, Shorebank has an interesting energy program that assists and encourages bank clients to lower their heating bills, making money available to pay the mortgage!

Banks have been cutting their mortgage loan portfolios back, that is for sure, but the careful borrower can still locate a mortgage.

Smaller, community based banks are still extremely active in the mortgage business. That small banks are doing this should not be too much of a surprise. The origin of the home loan business was small, locally focused “building societies”, who took in deposits from local citizens to lend out to local homebuyers. Of course, they go by other names nowadays, but lenders that focused on their core business and area have for the most part avoided many of the problems in banking.

They are still able to not only make mortgages available, but are even expanding their mortgage portfolios to fill some of the gap created by the big players who have been forced out of the market because of rapid expansion in low quality loans.

The large, stamdard banks are cutting back on loans across the board, but local, community based banks are predicting continued stability in their lending business, although with not much growth.

Community lenders such as this, that may include credit unions and development banks, have had extraordinary success in lending to the so-called sub prime borrower, because they stay close to the customer they are lending to. In fact, many of these lenders are not just staying alive, they are earning a profit.

A good example is Shorebank of Chicago, a $2.3billion asset bank which is active in the low income community of this city and, compared to the national average of delinquencies of 18.7%, has only 3.1%. Since they are dealing with sub prime customers, their rates are higher, and they tend to be extremely careful about how they manage their loans. They strive to be profitable, but not to be involved in “profit maximizing” according to Mark Pinsky, CEO of Opportunity Finance Network, an umbrella group for community development finance institutions. Reading between the lines, profit maximizing can be understood to represent the greed that has been one of the foundations of the financial markets’ current woes.

If you look at the salary of a CEO of one of these small community based organizations, such as that of Douglas Bystry of Clearinghouse CDFI, at $190,000 in comparison to that of Angelo Mozilo, CEO of Countrywide Financial at $22.1million, you can realize the problem. ShoreBank is located in an abandoned 1920’s movie theater, not a multilevel steel and granite structure in a suburban corporate park.

These kind of lenders prefer to remain close to their customer base, for by doing so, they can monitor their portfolio and protect their assets better. Take the program managed by Shorebank that educates its borrowers in energy conservation in order to save costs, money saved that can contribute to paying the mortgage.

There has been a major upheaval in the world of lending and home mortgages. What next? It is important to make an intelligent guess about how interest rates will go.

Tight conditions in the mortgage world should normally lead to lower rates, since banks would have to lower rates in order to attract customers with good credit ratings. However, the banks are doing the reverse, and raising rates in an attempt to increase revenue.

It seems almost short sighted, but to make up for falling revenues, banks are increasing rates across the board, instead of offering attractive rates for their most credit worthy borrowers. This shortsightedness is not limited to the home loan industry; credit card companies are doubling and even tripling their rates in response to defaults on the part of customers in this depressed economic environment.

In prior times, a slower economy normally meant lower interest rates which would bring in more customers. Today, though, the financial industry is so disrupted that matters was considered normal before are not now.

So what is the solution for a potential homebuyer with the right credentials to borrow? Take a wait and see approach and hope that matters will return to normal, with lower interest rates, or take advantage of any credit that can be obtained, regardless of the rate?

Some pundits are not only predicting a recession, but even a depression, with deflation instead of inflation. Normally, deflation will in turn lead to lower interest rates, so this indicates a wait and see attitude is the best to take right now.

Some lenders are still actively soliciting borrowers. Many small banks never had the capital to delve into the giant home loan programs that many of the larger banks did. In this case, being small was an advantage, since many of them were insulated from the issues now haunting most of the credit industry.

Another argument for waiting is that home prices are also probably not at the bottom and may fall an additional 10% over the 25% decreases seen over the last year. A study of housing prices conducted by researcher Case-Schiller shows an average decrease of 17%, but some regions with home prices falling 25%. If a combination of lower interest rates and lower home prices are in store for the housing market, it may be wise to put off a home buying decision.

There exist only two mortgage insurance products. Mortgage life insurance pays down your mortgage if you pass on. This can be either decreasing term or fixed term, depending on the nature of your mortgage. The other kind of mortgage insurance is disability that will keep paying your monthly mortgage in case you become disabled.

But behind the basic policies, there are some choices homeowners have to make regarding their policies.

First make sure you understand whether you have picked a partial disability policy, with a predefined bebefit or a residual policy, with an amount based on current salary.

Short term in addition to long term disability exists and you may decide to take short term if you feel you have other income that will start at a certain point. This is usually the kind for someone who has another policy that would cover his expenses in at a later age.

In addition to picking a policy, the buyer will have to decide between a choice of riders available. Some of the riders usually offered are guaranteed future insurability, non cancelable policy, waiver of premium, inflation protection or guaranteed renewable policy.

Inflation Protection

Buying this rider will mean that your benefit will increase as inflation goes up. This will protect the mortgage benefit from being too little to pay your future home loan payments.

Guaranteed Future Insurability

The value of your residence may increase due to market forces or improvements you have made, but if you purchase this rider, you will be guaranteed that you can increase the insurance to cover it, without re-applying.

Guaranteed Renewable Policy

This rider assures that the policy will always be renewable (as long as premiums are current, though they may go up.)

Non-Cancelable Policy

This rider will renew the policy and also will protect the premium from increase.

Waiver of Premium

Once you start collecting a benefit, the premiums are no longer due under this rider. This means that when you are disabled, you do not have to keep on paying the premiums on your mortgage disability policy.

You can count on three main factors determining the premium of your mortgage insurance. For any given policy with all the same features, the premiums will be determined by the size of the loan, the age of the homeowner and whether or not he is a smoker.

Both mortgage life (to assure payment of the mortgage at the death of the insured) and disability (to provide income for paying the mortgage in case of the disability of the insured) use the same criteria to price the premiums.

The age and health of the insured is of paramount importance to the insurance company, since that will determine for its actuaries what the chances of paying off the insurance are. A great many mortgage insurance policies do not even require a physical. Just because a physical is not needed, don’t think you can hide a grave health condition or the fact that you are a smoker. Don’t think you can claim that you are a non smoker and then collect on the policy because the insurance company didn’t know. But if the cause of death or disability can be related to the hidden condition, the policy can be voided, and the insured would have paid premiums for nothing.

Recognizing this limitation, many companies now have Regular (for smokers) and Non-tobacco, which is for applicants who do not currently use tobacco or have not used it within the prior twelve months period. Of course, a smoker’s risk is already calculated into that policy.

Bear in mind that insurance policies that are writable without a physical have previously priced the additional risks into the premium. If you are in good health, you may be better off asking a quote for a policy that requires a medical exam; you may quality for substantially lower premiums.

Age and health are such important components of the calculations that a 50 year old with 18 years left on his $210,000 mortgage will pay more than twice as much as a 38 year old using the same conditions. Lowering the mortgage amount insured does not change the premium that much. None of this is surprising, since the insurance business is based on increasing the collection of premiums and delaying paying of policies.

The mortgage figure has an affect at a given level, however. Up to about $250,000, the amount insured will not change the premium a great deal and will probably fall within the quick quote easy application classes. But once the value of the property insured starts to go up, the insurer will require a full application and an individualized quote, and of course, the property itself will need to be assessed.

Buying a home can be a serious businessaffair. In a flash, you are responsible for an asset which is worth hundreds of thousands of dollars. You have most likely already started considered protecting it via mortgage life insurance.

That is fine if you pass on, but the more likely situation is that you will be disabled, and neither you nor your family will be able to stay in your residence since you cannot work.

The best way to determine how much you will require in terms of disability insurance is to consult with a financial planner or a life insurance agent. If done correctly, you can have a full analysis of the total costs of maintaining your home compared to your expected income if you should not be able to work.

Just because you already possess disability insurance from your job or a government program, don’t expect that to cover what is most likely your single largest cost, your mortgage. You have to look at all of your debt when you think about being disabled. Other consumer loans, such as your car or credit cards, as well as other insurance policies, all have to be kept current. You will quickly realize that your stand alone disability policy is not going to be enough to cover your mortgage and other home related expenses, in addition to these other expenses.

There are a number of features to be aware of when shopping for mortgage disability insurance such as the benefit period, the elimination period and optional riders.

The benefit period is the amount of time the benefit will be paid. In most policies, the benefit period goes to age 65, but if you can shorten it because you can count on some supplementary income before then, you can save a lot of money. For instance, if your spouse starts to collect retirement benefits before then, or if you can start taking out your own retirement benefits without penalty.

The next area of concern is the elimination period, how long your disability must exist before you can receive a benefit. Again, if you can extend this waiting period, your premiums will be lower. If you have saved for a rainy day, this may be the rainy day, and you can save a lot of premium expense if you have these funds to cover you for a period of time.

A rider is an added coverage that you can choose to add onto your policy. A common rider is a cost of living rider, that will increase the benefit according to recognized cost of living increases.

Before you can make the right decision about your mortgage disability, be sure you understand what it covers, and how much each feature costs. Make sure you choose the policy that will save you the most in premiums and be best for your needs.

As you start the process of applying for a mortgage, you will probably get into discussions about mortgage insurance.

There is frequently some confusion among homeowners about the kinds of insurance they are discussing when they are talking to their bank.

Banks feel they have to protect themselves when a lender has a very little down payment. The concept is that the buyer does not have enough equity, or enough of his own money invested in the property to make walking away from it a less attractive prospect. These small or no down payment mortgages worry banks since the temptation to default is more than normal.

The bnak then requires that the buyer take out an insurance policy on the mortgage, but the beneficiary of the policy is not the buyer, but the bank. Note that the bank is the beneficiary, not the borrower or his family.

If you are concerned, as a responsible homeowner and family man, that your family will not be able to continue to pay the mortgage and live in their home if anything occurs to stop your flow of income, you may be interested in taking out mortgage life or disability insurance.

With this type of insurance, your family will not have to worry about keeping up the mortgage payments in case anything happens to you, the primary breadwinner.

If you want to protect your family in the event of your death, you would subscribe to mortgage life insurance, which would pay down the outstanding balance on your home in the case of your death. The most popular type of mortgage life insurance is decreasing term insurance, in which the policy amount decreases over time, just as the mortgage is decreasing. In other words, you would not have to pay the premium on a $200,000 policy as the outstanding balance on your home gets lower.

In the instance of mortgage disability insurance, the amount of the monthly home loan payment will be guaranteed for the allowable period of the disability.

It is very important to understand which types of insurance your bank is talking about when you discuss mortgage insurance. Some lenders may be anxious to sign you up for mortgage life or disability insurance since they can make a commission from it, but if you are in a situation with a low down payment loan, your bank may only be talking about protecting his interests, not yours, when he discusses mortgage insurance with you.

Understand what you purchase before you buy is always important, but no more so when it is disability insurance. In order to compare the different policies that will be offered to you, you have to be aware of and understand each aspect and its impact on the policy premium.

First of all, make sure you understand the policy’s definition of disability. This is a critical component, especially if you have a highly specialized career. Make sure the policy is clear about whether it covers “own occupation” or any occupation”. Own occupation means it is what you are trained to do, and if you can no longer do it, your income will be severely curtailed. An any occupation limitation says that you are unable to work in any job. A pilot who could no longer fly, for example, may be able to perform some other job for his airline company.

This is a veritable possibility if you pick the Any occupation choice. It is important to make sure you amply insured to substitute your former salary.

The next area of concern should be the benefit period. Normally this extends to 65, but some people might have income expected before this age, and therefore can be sure of not needing the benefit all the way until that age. For example, you may have retirement funds that are available or perhaps your spouse starts to collect social security and that income can be used.

The next area to look at is the benefit amount of the mortgage disability policy. The actual mortgage payment should be insured. But there are ancillary costs involved with maintaining a home, that you may not be able to afford unless you cover them with your disability policy: real estate taxes, fire or other hazard insurance, maintenance costs. You have to calculate if the additional premium makes it worth while to cushion the benefit.

Those are the basic components that will determine the coverage and premiums of your mortgage disability insurance. There are many other features, most of which are optional additions to your policy, otherwise known as riders.

The inflation protection rider is a useful rider. Your monthly benefit will increase as the cost of living increases. Many people consider it important to protect against these cost of living increases. There are two kinds, simple, whereby a percentage is added to the amount received, or compound, which compounds previously granted increases.

Various riders you may see are non cancelable policy, guaranteed renewable policy, guaranteed future insurability or waiver of premium.