With mortgage rates near 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.
Mortgage Cycling relies on using a revolving 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. You could find yourself paying hundreds
of dollars to establish a home equity line of credit. Most
home equity lines of credit also carry what is known as interest
rate risk.
Home equity line of credit interest rates are typically variable.
The Federal Reserve is currently in the process of raising
the overnight federal funds rate. As the Fed continues to
raise rates, it is all but inevitable that variable interest
rates for mortgages will also rise. Your savings may not be
as great as anticipated.
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 and the equity
you have built up. 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.
Mortgage Cycling requires you to make mortgage payments and
Home Equity Line of Credit payments for up to 10 years. For
most people mortgage cycling is an extremely risky way to
payoff a mortgage. Mortgage cycling should be used only after
a careful assessment of the risks and benefits. Prepaying
your mortgage is smart. You should explore all of the mortgage
reduction alternatives before choosing Mortgage Cycling as
a mortgage reduction strategy.
George Burks of http://www.mybiweeklymortgagepayment.com
has offered a biweekly mortgage payment plan with no enrollment
fee since 1999. His interest in financial topic is varied.
Visit http://www.mybiweeklymortgagepayment.com financial library
for more information about a revolving Home Equity Line of
Credit.
