The Mortgage Jungle
Posted by: admin in Real Estate, tags: Adjustable Rate Mortgage, Adjustable Rate Mortgages, Crises, Fixed Rate Mortgage, Greed, Jumbo Mortgage, Jungle, Mortgage Interest, Mortgage Payment, Subprime Mortgage Rate
Owning a home is one of the main ingredients of achieving the “American Dream.” You’re probably reading and hearing about the mortgage crisis in America right now. It’s real, but the main thing to remember is that, like all crises, it will pass – eventually.
The mortgage crisis that we’re facing right now is the direct result of predatory lending practices by lending institutions. People were “qualified” for a mortgage for which they weren’t actually qualified. The subprime mortgage rate combined with adjustable rate mortgages and unadulterated greed was like a balloon filled with too much air. It burst! Lots of people got hurt, and the end isn’t yet in sight.
Nevertheless, owning a home is still part of the American dream, and people are still buying homes. If you are one of those that dream of owning your own home, there are some facts about mortgages that you do need to be aware of. Mortgages are not all created equally.
The Fixed Rate Mortgage: A fixed rate mortgage means that the interest rate will not change for the duration of the loan. If the mortgage is for 30 or even 40 years, the rate that you agree to when you buy the home is the rate that you will still be paying when you make the final mortgage payment. The interest of a fixed rate mortgage isn’t tied to market fluctuations – good or bad.
The Adjustable Rate Mortgage: Unlike a fixed rate mortgage, the interest charged on an adjustable rate mortgage is tied directly to market fluctuations. If you get the mortgage when the interest rate is low, when the interest rate rises, your monthly payment will increase. On the other hand, if the interest rate decreases, your mortgage payment will decrease.
There are other types of mortgages available; the balloon mortgage and the jumbo mortgage are two examples. The main thing is that you investigate your options before you sign on the dotted line.
By: Milos Pesic
Mortgage Interest Rates – Should You Lock In Your Mortgage Interest Rate
Posted by: admin in Real Estate, tags: Adjustable Rate Mortgage, Downside, Financial Risk, Last Minute, Lenders, Loan Approval, Lowe, Mortgage Interest Rate, Mortgage Interest Rates, Sleep
Aside from taking out an Adjustable Rate Mortgage that comes with an introductory teaser rate, very few lenders guarantee anything with their interest rate quotes. Instead, your interest rate is set by the lender at the time you close, unless you lock the rate before that day. If you decide to lock in your interest rate it helps to know when, how, and if you should lock, along with whether or not you should pay to lock in your interest rate.
When Can You Lock Your Mortgage Rate?
Typically you can lock in your interest rate on the date of your loan approval, possibly even as early as your application date. You have the option of waiting a day or two before your closing date.
How Long Should You Lock?
Mortgage rate lock periods last from 10 to 90 days; it is possible to secure a longer lock if you are building your home.
How Much Will You Pay For the Rate Lock?
The longer you choose to lock in your mortgage rate, the more it will cost you. Some lenders try and charge this fee up front; however, you should never pay it up front.
Should You Lock in Your Mortgage Rate?
The decision to lock in your mortgage rate depends if your lender will still qualify you for the amount you’re borrowing if mortgage interest rates go up. If the answer is no, you should probably lock as soon as possible. If you don’t lock you could find yourself running around at the last minute trying to get qualified for the amount you need. On the other hand, if you have plenty of cash on hand you could take the risk and save yourself some money at closing.
Most people who dislike financial risk prefer to lock in their mortgage rates even if they have nothing to lose in the short-term before closing. If this describes you, lock in your mortgage interest rate at the first opportunity and you’ll sleep better at night. The downside of locking in your mortgage rate is that if rates go down before closing, you will have missed out on the opportunity for a lower mortgage interest rate.
You can learn more about your mortgage options, including expensive mistakes you need to avoid with a free mortgage tutorial.
By: Louie Latour
House Mortgage- Are They All the Same?
Posted by: admin in Real Estate, tags: Adjustable Rate Mortgage, Budget, Fixed Rate Mortgage, House Mortgage, Loan Mortgage, Modes, Mortgage Companies, Mortgage Company, Principal, Refinance House
Choosing the right house mortgage that perfectly fits your budget and need is very crucial. This will decide whether you will be able to pay your mortgage for the next years. Thus, knowing first the different types of house mortgage should be the first step to take for a successful house ownership. Having said this, you now know that not all types of house mortgage are the same. They may sound similar or may look similar, but each has its own nature and modes of rate computation. Let us take a close look on the 2 types of house mortgage.
Fixed-rate mortgage.
Fixed-rate mortgage is still the more popular type of house mortgage among the two. This is because the fixed-rate mortgage fee does not change throughout the life of the loan regardless of the changes in the national interest rate. It has become more attractive to future home owners since they do not have to worry of the possibility that the mortgage rate will go up in the future, which can suddenly become unaffordable. Also, future home owners can easily budget their payment more easily with the fixed-rate mortgage making is more convenient in any year.
However, to be able to qualify for the fixed-rate mortgage, higher income is required. Also, if the interest rate suddenly goes down during the course of the loan, the borrower has to refinance their house in order get a lower rate as compared to adjustable rate mortgage where the borrower can automatically compensate with lower rate.
Another important thing to take note of with fixed-rate loan is the promotional rate mortgage companies are offering. Often, they give low initial payment the will run for several months and will shoot up after the promo expires. Moreover, during the first years of loan, your payment will go mostly to the interest rate and not to the payment of the principal which means that the mortgage company still owns most of your house for a while.
Generally, the fixed-rate mortgage is offered either in 15-year loan and 30-year term. The 15-year loan has higher monthly payment at a lower rate. The 30-year loan on the other hand has lower monthly payment but has a slightly higher interest rate. Choosing between the two relies on your capacity to pay.
Adjustable Rate Mortgage.
The adjustable rate mortgage (ARM), also know as variable rate mortgage is a short-term fixed-rate mortgage. Meaning, a fixed-rate is set from the first year of the loan and runs for the next 3, 5, or 10 years. After the fixed-rate expires, an adjustment will be made annually depending on the current interest rate condition. For example, the 30-year 10 to 1 adjustable rate mortgage has a 10-year fixed-rate mortgage, say, at 6.03%. On the 11th year, the rate will adjust on the current national interest rate and will change every year for the next 20 years.
The good thing about the ARM is that you can compensate on possible future lower rate. Also, compared to fixed-rate mortgage, the interest rate for the ARM is lower. Applying for the ARM is also easier too since the rate is lower and affordable.
The main drawback for this type of loan, however is that the rate can suddenly shoot up during the course of your loan, which can make the mortgage payment becomes unaffordable.
Based on this information, base your choice in the following criteria:
1. How much you can afford?
2. How long are you planning to stay at your house?
3. What is the interest rate’s current trend?
4. How much are you willing to gamble?
In general:
1. The type of loan approval depends on how much you can afford together with other factors such as your credit score, money at hand, assets, information about your purchase, and debts.
2. If you are planning to stay at the same house for years, a fixed-rate mortgage is a good choice.
3. If the interest rate’s current market trend is going up, the fixed-rate mortgage is a safer choice but if it is going down, then ARM can be a good choice.
4. If you do not want to worry about the fluctuation of the interest rate, fixed-rate mortgage is perfect for you; if, however, you do not care about the future changes on the interest rate, then ARM is a fine choice.
By: Nathalie Fiset
Which is Better – Fixed Rate Mortgage or Variable Rate Mortgage?
Posted by: admin in Real Estate, tags: Adjustable Rate Mortgage, Amount Of Money, Fluctuations, Home Buyers, Interest Rate, Interest Rates, Mortgage Payment, Principal And Interest, Steadiness, Variable Rate Mortgage
To choose the right type of mortgage between a fixed rate mortgage and a variable rate mortgage (more commonly known as an adjustable rate mortgage or ARM); you need to understand the difference between the two. Fixed rate mortgages are that the interest rate remains fixed at a certain percentage over the life of the loan and therefore your monthly mortgage payment (principal and interest) never changes. With an ARM, the interest rate can and probably will change at periodic intervals during the life of the loan based on the market index your lender uses.
Know the positives and negatives of Fixed Rates mortgages
Fixed rate mortgages are some of the most common mortgages available on the market today. Since you always know what your monthly payment will be until the loan is paid in full, fixed rate mortgages are considered a safe and a predictable way to borrow money with little downside risk. Usually with this steadiness comes higher interest rates and, consequently, higher monthly mortgage payments.
Know the Ins and Outs of ARMs
Interest rates for ARMs are based on the market index. Your lender uses common indexes which includes the amount of money lenders pay on the money they borrow as determined by the FDIC, how much money the Treasury pays on the money it borrows, how much home buyers are paying on new mortgages nationwide etc.
Typically, interest rates for ARMs can fluctuate on a six-month, 1-year, 3-year or 5-year basis. With an ARM, there are limits on just how much the interest rate can change. These ‘caps’ has to be outlined in your contract and fluctuations in the rate can only be made based on those terms.
Know the Benefits and the Risks
The benefit of a fixed rate mortgage is that you always know what your monthly mortgage payment will be. The downside is that it’ is more difficult to qualify for this type of loan and typically, you are not able to borrow as much money as you can with an ARM. The benefit of an ARM is that the initial interest rate is often lower than a fixed rate which means your initial monthly payments are lower, and it’s a much easier mortgage to qualify for great for home buyers with lower incomes.
The downside of an ARM , however, is that your interest rate will fluctuate as your lender’s index rate changes. This could mean higher monthly mortgage payments – an important consideration in determining whether or not you can afford the greatest possible increase in the interest rate and ultimately, the greatest possible increase in your monthly mortgage payment.
By: Victor Thomas
Brief Overview of Mortgage
Posted by: admin in Real Estate, tags: Adjustable Rate Mortgage, Adjustable Rate Mortgages, Confines, Fixed Mortgage, Fixed Rate Mortgage, Lifespan, Low Interest Rates, Mortgage Loan, Mortgage Rate, Predictability
For many homeowners out there, the term “mortgage” is known all too well; this can either be a good thing or a bad thing. A mortgage is basically loan that is taken out to secure a particular house or property, but within the confines of a mortgage lays the promise by the borrower to pay back the mortgage. A mortgage has been a huge cause of financial problems for many individuals, especially if they do not pay it back on time. Considering that a mortgage is most likely the largest loan that an individual will ever take out, it would probably be best to follow the lender’s guidelines as best as possible.
When one applies for a mortgage, he or she does not merely apply for a mortgage as there are a few different types of mortgages. The four main types of Home Loans are: Fixed-rate mortgages, Adjustable-rate mortgages, Balloon/reset mortgages and reset mortgages.
Fixed-Rate Mortgages:
First time homebuyers will find comfort in a fixed-rate mortgage because one of the main advantages that come with a fixed-rate mortgage is the fact that it is stable. Regardless how long the term of your fixed-rate mortgage is, the monthly payments will most likely remain the same. This adds in an element of predictability, allowing you to figure out all of your expenses pretty easily. Other distinct advantages that can associate themselves with a fixed-rate mortgage are the aspects of low risk, long-term planning and even protection against inflation.
Adjustable-Home Loans:
A lot of people find adjustable-rate mortgages appealing because they usually start out with really low monthly payments coupled with low interest rates. However, it is important to remember that the monthly payments as well as the interest rates can change throughout the lifespan of an adjustable-rate mortgage. All adjustable-rate mortgages have adjustment periods that help lenders determine when the interest rates can change on a particular adjustable-rate mortgage.
Balloon/Reset Home Loans:
Balloon/reset mortgages are popularized by the fact that they have low monthly payments. However, while these types of mortgages do offer extremely low monthly payments, the entire amount of the mortgage must be paid off in full after the term is over. If the loan is not paid off in full by the end of the term, the there is usually a reset option that literally resets your interest rates back to what they were in the beginning of the term. A lot of people will sometimes call this type of mortgage a two-step mortgage because of the way they are laid out.
Reverse Mortgages:
A reverse Home Loans is essentially a baby because it was created not too long ago. A reverse Home Loans is basically a mortgage that does not have to be paid back until the home or property that the mortgage is securing is sold, the owner of the home dies or the owner of the home no longer resides there. This is why a reverse mortgage is particular appealing to homeowners who are a bit on the older side. Reverse mortgages also pose distinct tax advantages as well as supplemental retirement income for individuals.
With every Home Loans comes responsibility; it is of extreme importance that you do take a mortgage lightly as it could very well be the biggest loan you ever take out. Not paying off a mortgage can have extreme consequences financially that could potentially devastate. Make sure you do some in-depth research on mortgages before getting involved with them.
By: Sumit Dadhich
Pros and Cons of the Temporary Mortgage Buydown
Posted by: admin in Real Estate, tags: Adjustable Rate Mortgage, Average Mortgage, Fixed Interest Rate Mortgages, Fixed Rate Mortgage Loans, Interest Rate Mortgages, Mortgage Rates, Mortgage Shopper, Payment Mortgage, Repayment Terms, Special Mortgage
You need a purchase mortgage that is a bit bigger than you can qualify for customarily and you know it won’t be a reach financially once the wife returns to work next year. You don’t intend to take any of the adjustable rate mortgage choices as rates are heading higher, so how can you have your cake and eat it too?
The answer: A Temporary Buydown Mortgage!
The where, what, how and why of buydowns will have you so mind boggled you will soon be tearing your hair out in despair. Even more so because you are smart enough to know, you just don’t know enough. Hopefully, this article will help you understand what you need to know about this special mortgage and you can select wisely.
First you must understand a buydown is simply a different type of payment laid on top of a standard fixed rate 30 year mortgage. So let’s get to know how fixed rates work before moving on.
The Fixed Rate
The fixed rate mortgage is the most common and the easiest to understand in that the rate simply never changes or to put it another way, the interest on your loan remains fixed. The repayment terms for fixed interest rate mortgages range from 10 to 30 years. If you are fortunate enough to lock in your interest rate at a time when rates are low, no matter what changes takes place with the interest rates, your rate will be fixed.
As fixed rates go, the longer the term (Re. duration) the higher the rate. Usually 10 and 15 year terms are about.25-.50% lower than 20-30 year terms.
Most fixed rate mortgage loans (due to having a fixed rate) also have the added predictability of having a fixed monthly payment as well. This seems pretty easy to understand for the average mortgage shopper, so it is no wonder that most American pick a fixed rate, fixed payment mortgage. They get it, so they choose it most often.
But there is another option with fixed rate mortgages…
The Temporary Buydown Mortgage
There is another fixed rate option which does NOT have a fixed payment. It is called a 2-1 or 3-2-1 Temporary Buydown payment option mortgage. These mortgages are at the core a 30 year fixed rate mortgage, but with a twist.
The twist is simply creating a savings account, putting money in it at closing, and allowing the borrower to make smaller initial payments than the loan requires pulling the difference each month from the savings account for either two or three years.
The temporary buydown mortgage is useful for home buyers who expect to be making more money in the near future than today. Home builders use this type of mortgage to “incentivize” home buyers to buy one of their homes fully loaded with all the options. The temporary buydown will come back into widespread use once typical mortgage rates climb back over 8% in the coming years, since they allow buyers to qualify for more.
Here’s how a typical temporary 3-2-1 buydown works. Let’s say standard 30 year fixed mortgage rates are running 8%. If the mortgage amount is $200,000 then the full payment is $1467.53.
For the first year with this type of loan you’ll pay as if the rate was 3% less or 5%. That payment is $1073.64. The second year you’ll pay as if it were 2% less or 6%. That payment is $1199.10. The third year you’ll pay at 1% less or 7%. That payment is $1330.60. The remaining 27 years of the mortgage you’ll pay the $1,467.53 based on 8%.
In order to do this a “savings” account called an escrow account is setting up at closing and funded with money necessary to make up the short falls in first 36 payments. In our example the short falls are equal to the 12 x (1467.53-1073.64) + 12 x (1467.53 – 1199.10) + 12 x (1467.53 – 1330.60) = 4726.68 + 3221.16 + 1643.16 = $9591.00
This $9591 is called the buydown fee and it is paid for most often by the seller or the builder. This is a wonderful way to get help with your mortgage payment in exchange for buying the sellers home. The buyer can also pay for the fee in the form of discount points which are tax deductible…so now Uncle Sam can help even if the seller chooses not too!
I trust you can now discuss the buydown option knowledgeably and decide on the best mortgage to match your circumstances and repayment capability.
By: Rob K. Blake
Mortgage Loan: PITI Explained
Posted by: admin in Real Estate, tags: Adjustable Rate Mortgage, Insurance Policies, Insurance Policy, Insurance Premiums, Interest Interest, Mortgage Loan, Mortgage Payment, Principal Loan Balance, Principal Mortgage, Property Taxes
If you are shopping for a mortgage loan you have probably seen the acronym PITI in many of the loan offers you receive. PITI stands for principal, interest, taxes, and insurance. Here is what you need to know about PITI.
Principal
Mortgage principal is the total balance of your loan. When you make your monthly mortgage payments you are gradually paying down this balance along with the interest due for that month. Mortgage loans are front loaded with interest so in the early years of your mortgage you will find very little of your mortgage payment is being applied to the principal loan balance. The interest paid on any given month is based on the outstanding principal balance; as the years go by more of your payment is applied to the principal balance and less is paid to the lender as interest.
Interest
Interest is what you pay the lender for loaning you the money to pay for your home. The interest is a percentage of the principal balance due. Interest rates come in two flavors: fixed rates that do not change over the term of the loan, and adjustable interest rates that change at regular intervals set in your loan contract. If you have an adjustable rate mortgage your interest rate is tied to some financial index plus the lender’s markup. When the lender periodically updates your interest rate the amount of your monthly mortgage payment will change with it.
Taxes
Property taxes are often included in your monthly payment amount. Lenders do this to protect their investment in your home; if you allow your property taxes to lapse, your State or local government could put a lien on your home. If this happens the lender would be unable to foreclose if you fall behind on your payments.
Insurance
Your homeowner’s insurance policy protects your home from damages. Insurance premiums can be rolled into your monthly payment like property taxes; again, lenders do this to protect their interest in your property. Most homeowner’s insurance policies only protect your home against fire, vandalism, and certain other damages. If you live in an area prone to flooding the mortgage lender could require you to purchase flood insurance in addition to your homeowner’s policy. Mortgage lenders may require borrowers with poor credit or low down payments to purchase Private Mortgage Insurance in addition to their homeowner’s policy. Private Mortgage Insurance protects the lender from loses in the event of foreclosure. This insurance does nothing to protect you, the homeowner.
To learn more about shopping for the right mortgage and avoiding common mistakes, register for a free mortgage guidebook using the links below.
By: Louie Latour
