Emergency funds can lower future payment and interest costs
Q:With limited equity, it’s tough to refinance. Is tapping part of an emergency fund a good idea?
Not if you have less than six months of expenses saved in the bank.
But if you do have a healthy “rainy day” fund, the combination of a lower mortgage rate and a smaller balance could dramatically reduce your monthly payments and save you tens of thousands of dollars in interest costs.
If you can’t get a mortgage through the Home Affordable Refinance Program or other government options, you’ll probably have to bring some cash to
A:the table in order to refinance.
That’s because many banks will refinance your home for no more than 80 percent of the home’s current value. Even if you find a bank or mortgage company willing to refinance your loan with 5 or 10 percent equity, it will require you to buy private mortgage insurance ( PMI) to protect the lender in case you default.
PMI could wipe out any savings a lower interest rate might provide. How much of an impact can increasing the down payment have on monthly mortgage payments?
Q:A:For every $ 10,000 you kick in from your savings, you’ll lower your monthly payment by an additional $ 45 and save more than $ 6,100 in interest over the life of the new 30- year loan.
Q: A:What does flood insurance cover? Flood insurance reimburses property owners who incur losses when their real property and personal property suffer from serious water damage. Standard homeowners policies typically do not cover flood damage. There are a number of reasons a property might suffer from water damage other than from massive flooding. Water damagemight happen when normally dry land becomes soaked by large amounts of water, as happened recently with Hurricane Irene.
Since standard homeowners/ hazard insurance does not cover flood damage, flood insurance provides additional protection for your investment, which is the lender’s collateral. That is why the lender requires the borrower to purchase homeowner’s insurance ( fire or hazard insurance, as it is sometimes called). He/ she needs to protect the investment. When is flood insurance required?
The National Flood Insurance Program
Q: A:was created when Congress passed the Flood Disaster Protection Act in 1968. This program makes flood insurance available through a joint program sponsored by private insurance companies and the federal government. This act was later amended to require mortgage loans made by a federally regulated lender, government- backed home loans, i. e., loans backed by the Federal Housing Administration ( FHA), or Department of Veterans Affairs ( VA) have flood insurance protection if the property resides in a designated flood plain area. This is required since homes in these areas have a higher probability of suffering flood damage. Home buyers still are encouraged to consider the benefits of flood insurance, which can be purchased through many insurance agents, even if the property is not in a designated flood area. A word of caution: There is debate in Congress now over the re- authorization of the insurance program, which is deeply in the red. Lawmakers are calling for higher premiums to help pay down the program’s debt, brought on largely by claims following Hurricane Katrina in 2005.
Bankrate. com