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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.
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