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Mortgage Cycling - Brilliant
or Risky
by George Burks
With mortgage rates hovering around 20-year lows, competition in the mortgage
industry is fierce. It seems like every day a new mortgage loan strategy comes
out that is suppose to be the best thing since sliced bread.
Whether it's a mortgage with no
closing costs or an interest only mortgage, everyone is claiming they can save
you a ton of money. Now someone has come out with something called Mortgage
Cycling. Mortgage Cycling could save you thousands of dollars or it could cost
you your home.
Mortgage cycling is a program that advertises itself as a method to payoff your
mortgage in 10 years or less without making biweekly mortgage payments or
changing your current mortgage. Does mortgage cycling work as advertised? The
answer is unequivocally yes - with a few caveats. I'm going to let you in on the
secret to mortgage cycling.
Mortgage cycling is based on making huge lump sum principal payments every 6-10
months. What this means is mortgage cycling works well for those who have at
least a few hundred dollars in extra cash at the end of each month. The problem
is most people don't have that kind of cash available.
For most people, Mortgage Cycling relies on using a Home Equity Line of Credit
to make huge lump sum payments against their original mortgage principal
balance. When you take out a home equity line of credit, you pay for many of the
same expenses as when you financed your original mortgage such as an application
fee, title search, appraisal, attorney fees, and points. You also may find most
loans have large one-time upfront fees, others have closing costs, and some have
continuing costs, such as annual fees. Home Equity Line of Credit interest rates
are also higher than a typical mortgage loan interest rate.
While Mortgage Cycling does have some additional costs for most people, that is
not what makes this mortgage reduction strategy risky. If you use a Home Equity
Line of Credit and money gets tight, you could lose your home. Home equity lines
of credit require you to use your home as collateral for the loan. This may put
your home at risk if you are late or cannot make your monthly payments. And if
you sell your home, most lines of credit require you to pay off your credit line
at that time.
Prepaying your mortgage is smart. You can save tens of thousands of dollars in
mortgage interest. For most people, mortgage cycling is risky way to payoff a
mortgage. Be sure and look at your all of your alternatives before choosing
Mortgage Cycling as a mortgage reduction strategy.
Copyright 2004 My Big Fat Mortgage.
"This
information courtesy of http://www.mybigfatmortgage.net "
About the author:
George Burks works with small business and homeowners to reduce mortgage
interest expense via http://www.mybigfatmortgage.net |
