So, you've just done your own income tax complete with eight schedules, and you think you are now ready to tackle the mortgage market. Think again. It's easier to follow one strand of spaghetti through a soup bowl than to find the best mortgage. Unless you enlist the help of one of several online mortgage calculators.
One of the best places, you hope, to sink your capital for a good return is in real estate. However, when you provide the financing for someone to purchase their own home, your capital is tied to their ability to pay back the loan. If they start to miss payments, then you need to start considering your options. A mortgage calculator which specializes in foreclosure loss helps you to decide when the time is right for starting action against the homeowners.
In theory, if you own the loan, you own the property if the mortgage you're financing goes into default. However, this doesn't mean that you will automatically see a profit - or even not suffer a loss - should you need to foreclose. There are a number of things to take into account which a foreclosure risk of loss mortgage calculator can call to your attention so that you don't allow things to get out of hand.
For example, the mortgage calculator may ask you to input the amount of interest you receive on the loan each month. Then it asks for how many months you received no interest leading up to the foreclosure. The longer you keep the non-paying owners there, the more this will amount to. You'll start seeing just where your cash flow is going.
The mortgage calculator may want to know the amount of the loan, and the value of the property (remember: this is the value now, not when the mortgage was taken out.) This should be in your favor unless the property has been allowed to fall into disrepair during the time the owners had it. Sometimes, when they can't make the mortgage payment, they lose interest in even basic maintenance.
Another factor that the mortgage calculator considers is any property taxes which are unpaid. Once you foreclose on the property, you become liable for these and if they haven't been paid for quite some time this could account for a serious deficit in your funds! First there are the taxes; and then, there are penalties; and the final total includes interest. While the mortgage calculator take these into consideration, don't forget to follow up. It is possible to check whether or not the property taxes are up-to-date prior to foreclosure by contacting the county or parish in which the property is situated.
Legal fees are another area that the mortgage calculator might remind you to take into account. No matter how long you allow the arrears to go on, the legal fees will be waiting for you. There will be the legal fees associated with the foreclosure; and then another set of legal fees when you resell the property to another buyer.
Other miscellaneous entries that may be entered on a mortgage calculator will include:
- selling costs
- any discounts that you give in order to sell the property quickly and not lose more interest than necessary
- any necessary clean-up and repair costs,
- even insurance of the property in the interim period between foreclosure and exchanging contracts with the new owners of the property
After all that, you begin to wonder if you're making a profit. Well, using a foreclosure mortgage calculator before it becomes absolutely necessary to foreclose will show you the value of working with your clients to help them stay in their home.