1. Fixed Rate Mortgages
2. Adjustable Rate Mortgages

Fixed rate mortgages, as the name suggests, as a fixed rate of interest applied to the principal amount of the mortgage and does not change over the life of the loan.  The life of the loan, usually 15 or 30 years, is also fixed.

However, Adjustable rate mortgages or “ARM’s”, as indicated by the name, has payments (principal plus interest) that adjust or change with direct correlation to changes in the existing prime rate, US Treasury bills, certificates of deposits (CD’s), the Cost of Funds Index (COFI)during the life of the loan.  However, there are limits, as specified in the terms of the loan, as to how much that payment can change during the life of the loan.  Many have a cap of 2-3 percentage points change during a year with a lifetime cap of 6 to 8 percent.

Furthermore, as the financial markets and prime rates change, so too does the climate of the lending industry. It is very important to consider these possible changes and how they would affect your ability to repay during the life of the loan. It is advisable to create 3 financial scenarios of the life of the mortgage before approaching a mortgage company. This will be your litmus test to know if you should or should not apply for a particular loan amount. It may seem tedious, but worth the time in the end. For the purposes of this exercise, we will leave out the possibly winning of the lottery.

1. Average Scenario:

   Expected monthly income and average expected monthly expenses

2. Less Than Average Scenario:

   20% lower than above expected average income and 10% higher than expected expenses (plus cost of living increases of 4% added to each year’s expense estimates

3. Worst Case Scenario:

   6 Months unemployment with no income and cost of living adjustments of about 5% added each year to your expected expenses

Having gone through these scenarios before you begin house hunting, you will be well equipped to look for the appropriately priced home. Also, when approaching a lender, you will not only understand the risks of the ARM’s, but also understand if you could withstand the increases in a monthly mortgage payment if there are any unforeseen financial setbacks during the life of the loan. Remember, establish a credit history and pay your bills on time. That way, the lender knows that you are not a financial risk, but a great customer to have.

No related posts.

Joe Consumer reveals an interview with a mortgage broker wherein the mortgage broker spills the beans.  You get the full inside scoop of how they overcharge, make up fees, inflate rates, bait and switch, or just overall stick it to you simply because you’ve been too annoying with your questions.

Just when you thought these guys were on your side — you really need to arm yourself with the ways to protect yourself against such fraud.  Check out the article for yourself and be a better informed, more aware consumer of mortgage broker services.

No related posts.

At the end of the mortgage term, the balance due on the loan will be equal to the full amount that was originally borrowed. This balance will be due, in full, when the mortgage loan term ends.

Why an Interest Only Mortgage Loan Sounds Attractive

Obviously, we would all like our monthly mortgage payments to be as low as possible. With an interest only home mortgage loan, the borrower is keeping his monthly payments to a minimal by paying only the interest that was accrued on the loan in the last thirty days since his last payment. Therefore, this type of mortgage is often marketed to the consumer as a tool which allows the borrower to “buy more of a home” than they would be able to afford with a traditional home mortgage loan.

To illustrate this let’s take a look at the purchase of a $150,000 home. Buying this home with a traditional 30 year fixed rate mortgage with a seven percent interest rate would give you monthly mortgage payments of approximately $1,000. On the other hand, if the consumer chooses an interest only 30 year fixed rate mortgage at the same seven percent interest rate, monthly mortgage payments would only be $695. This type of mortgage would be attractive to the consumer who can afford $700 each month, but can not afford $1,000.

For the most part; however, financial advisors will tell you it is best not to choose this type of loan except in rare circumstances. It is generally accepted that an interest only home mortgage loan is an alright choice if you don’t intend to hold the loan for more than a year or two and you are being offered a great interest rate.

When an Interest Only Mortgage Loan Isn’t Good

In general, it’s best not to choose an interest only option for your home mortgage loan. Why? The largest problem with this type of financing is that the home owner is not building any equity into his home with an interest only mortgage. The home will still be considered “fully financed” even after the mortgage term comes to an end.

There are also other reasons that an interest only mortgage is not usually your best choice.

If you buy the home during a high market and the value of the house drops or remains the same during the term of the mortgage, it is possible that even after selling the home, you will still have money unpaid from your interest only mortgage.

Furthermore, if the homeowner does not wish to sell the home at the end of the mortgage term, then he will have to have another plan in place for paying off the balance of the mortgage due.

As you can see, there are times when this type of loan would be wise-such as in investment properties-but if you are buying a home and planning on living in it for some time, it’s probably not the loan for you!

No related posts.

The sluggish economic conditions that may surround declining interest rates are of concern, in that job security or portfolio investment returns may be less certain. Yet, when refinancing mortgages, if the upfront costs of mortgage refinance do not out way the midterm benefits of money saved each month due to lower mortgage payments,  then by all means read further and explore if a mortgage refinance will increase your cash flow by reducing your mortgage payments and freeing up more disposable income.

Many financial institutions recommend, as a general rule of thumb, that if interest rates fall 2 or more percentage points below your existing home mortgage, it is worth researching further and consider mortgage refinance. However, this is not recommended and readers are encouraged to see that more as a financial urban myth of the days of old. Today, there are many different types of mortgage refinance loans; middle income families have much more complex investment portfolios today, and have become financially savvy by being creative and juggling a number of different types of loans and cash-producing investments, both short term and long term. Also, unfortunately, many have become victim to credit card lending and practices that have escalated interest expense for an average of 8-10% for decades now.

These are the critical factors regarding refinancing home loans for you to consider:
1. Current Interest Rage
2. Interest Rate of Your Mortgage
3. How Many Years are Left on Your Existing Mortgage?
4. How Long Do You Plan to Keep the New Mortgage?
5. Explore the Different Ways Banks are Competing to Lower Closing Costs
6. Does Your Current Policy Have a Prepayment Penalty?

Once you’ve thought through these basic concepts and jotted down a few notes for yourself about refinancing your home mortgage, you will have a relatively clear notion of how this will affect your cash flow and if it will generate additional cash flow from the monthly savings. At this point, an online financial or mortgage calculator might be helpful to run a few financial scenarios and speak with loan officer about refinancing.

Note: If the value of your currency is decreasing at a historically unusual rate as compared to benchmark currencies, consider factoring in the current and future value of money. A calculator may walk you through this or you may ask your financial advisor to go over it with you.

No related posts.

Like any other normal person, you probably do not have an unlimited amount of money in your bank account. When you are planning to get a Florida home loan and you have a set price range, it may not be a bad idea to look at loans before you find a house you fall in love with. By finding a loan first, you will be set on looking at houses that are in your price range, and won’t end up buying something that will cause you financial problems in the end.

Throughout the process of getting your Florida home loan you will learn that each bank or lender has different plans for you. It will be best for you in the long run if you go with the lender whose offer seems the most reasonable. Which one will you benefit the most in the long run? If I choose this one, will I have the money to pay it off in the future?

There are several things to keep in mind when getting your loan.

First, the interest rate. If getting your new house and home loan all depends on what you can afford financially, then getting a loan with the lowest interest rate will be best for you. Remember the interest rate is the amount you pay back for borrowing the money to pay for your new home. You want to make sure you can pay back this money in the end to stay away from any future problems.

Second, make sure you understand the terms of the loan. Simply stated, the terms determine how long the loan is for. To state the obvious, longer terms means more money you are paying because of interest. On the other hand, if your loan lasting only a few years, your monthly payments are going to be much higher. Once again, make sure you know what you will be able to afford.

Finally, realize all the fees that come along with the loan. Although different lenders will offer higher or lower rates, you will always have to pay origination and closing fees.

When you are ready to get your new home make sure to find the lender who will offer you the best deal. While you may find a house you really like, it is a good idea to get different rates from more than one lender so you know you are getting the best deal in the end. By getting the most reasonable price on the market, you are only helping yourself in the long run.

No related posts.

Remember the three C’s

How do banks and brokers rate mortgages? It is quite simple. Just remember this equation: three C’s equals LTV (Loan to Value). The three C’s stand for collateral, capacity and credit. Collateral is the property that the borrower pledges to the lender to secure a loan and is subject to seizure if requirements and terms are not met. Capacity is the borrower’s ability to pay and it is determined by income or employment. And lastly, credit is the person’s capacity to borrow and his credit standing (whether he has a good credit history or not). If all of the 3 C’s are excellent, then the borrower will have no problem obtaining a loan. If one or two of the requirements is unsatisfactory, then certain conditions and adjustments will be made. This could mean bumps in interest rates.

Get oriented

The Internet is a rich resource for obtaining information on Florida mortgages. You could orient yourself on the available programs and try to see what is out there and get a feel of the marketplace. Search the Internet for good deals by making your key words more specific like “Florida mortgage programs” or “Florida mortgage rates.” Try to compare rates to see what the market standard is.

Get a mortgage broker

Getting oriented on getting a mortgage Florida is essential for the next advice–getting a mortgage broker. This is so because you would want to ask the right questions from your prospective broker so that you can be sure you are on the right track and that your broker is looking out for your best interest. Once oriented, you would know how to ask why a certain program is more advantageous than another. You could also ask why a certain program is not so beneficial for you. This way you get the best possible option. A mortgage broker will also help you understand everything about the mortgage business. Also, the best things about getting a broker is getting the inside tips he or she knows about the marketplace that no one else knows about. This is the information that only seasoned and experienced mortgage brokers know about. So it is important to choose your broker well. Just remember to be clear on all the fees required by your broker before hiring.

No related posts.