For the average person who does not work in the mortgage industry, the mortgage jungle is very overwhelming. Mortgages are complicated! This article is a small collections of tips and advice of what an average person should know when looking for a mortgage. We kept it simply, but informative.
Reverse Mortgage Funding
As we grow older, living expenses seem to increase drastically, it is for this reason a great number of elders choose to seek a reverse mortgage to provide help with these expenses. This option typically works well for those who have fully paid for their home, and have no mortgage upon it. Simply speaking, when you take advantage of a reverse mortgage you will receive a monthly stipend from the equity that your home carries. This is especially useful to the elderly, sometimes securing a reverse mortgage aides them with living expenses, that alone could help in allowing them to remain within their own home. It is wise to request to a mortgage broker that the cost of closing should be paid out of the money received from the reverse mortgage loan. Essentially meaning, no expenses directly out of pocket.
Mortgage Options – Interest Only
Interest only mortgages are specifically designed to substantially decrease your payment amount over the first years of the mortgage term. The way this program works is that for these first few years you are only making payments towards the interest of the mortgage. This keeps the mortgage payments lower than other mortgage options because you are not required to pay on the principal of the loan. Eventually the time will come that you will be required to pay both the interest and the principal. It is wise to fully investigate this mortgage option prior to choosing it. Very carefully make some calculations and determine rather or not you will be able to afford the payments once both interest and principal are required.
The Right Mortgage Broker for you.
With the vast presence of the internet, obtaining the proper mortgage broker has never been easier. Additionally the internet allows you to locate mortgage brokers from all over your area. You are not limited to using a local broker or company in any way. The mortgage brokers you can find on the internet are in great competition with each other. What does this mean for you? It is simple because they are so competitive, you will win with excellent program and competitive rates. To choose the proper mortgage broker for you, you first must be comfortable in choosing them. Choose a mortgage broker that gives you confidence in their guidance. Take your time in finding the perfect mortgage broker for you; make sure their goals and your goals match, thoroughly research all your options before making a choice.
Obtaining a Mortgage Loan the Fast way.
Obtaining a mortgage loan through the internet is easier than ever before. The benefit of an online mortgage broker is that generally, they have a wider spectrum of lenders and various programs that a typical mortgage broker might have. More often than not, they have the ability to process request more quickly, as well. Online mortgage brokers can even aid you if there is urgency because of a fast approaching closing date or you are in need of speedy refinancing. All of this is thanks to the technology of automated credit checks, verification of income and online loan applications. You can find mortgage brokers through various measures such as using a popular search engine like Google, simply type in mortgage broker and you will be amazed with the results. A better option is to search for reviews about the mortgage broker or seek the advice and referrals from your friends and family. The best mortgage broker will possess the seal of the Better Business Bureau.
Adjustable Rate Mortgage and What you should know about it.
If you opt for an adjustable rate mortgage ensure that you are fully aware of these facts , this will help you be ready when the time comes for your fixed rate mortgage ceases.
1. You should know when the first rate adjustment will occur and how much the adjustment will be. Knowing the specific date will prepare you for the event.
2. You should know that the adjustable mortgage rate fluctuates with the changes of interest rates. Find out what index your rate is associated with, so you can investigate the interest rates on your own.
3. Know all of your options when it comes to refinancing. If a adjustable rate mortgage proves to be unbeneficial for you, you have the option of refinancing with a fixed rate mortgage. To get a good interest rate on a fixed mortgage you should watch the rates closely and if you choose to refinance, do so when the rates are comfortable to you.
Obtaining Flexible Interest Only Mortgages
For those that practice self-discipline, a flexible interest only may be practical. This option provides a payment arrangement that is flexible in regards to the payments that you make. This does not mean they are flexible on the timely manner in which you pay them, this simply means when your payment date arrives you are required to make a minimum payment of at least an amount towards the interest on the loan. However, with this flexible option you can opt to pay an additional amount towards the principle of your mortgage. Generally, your flexible interest only coupon book will include an area that determines the amount needed to be applied towards the principle if you should choose to do so. This is where that self-discipline comes in handy, it is wise to apply as much as possible towards the principle, bringing the amount down and coming that much closer to paying off your mortgage.
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Which mortgage features attract consumers to their mortgage lender?
January 6th, 2010The feeling of security afforded by a fixed interest rate is the most popular feature for UK consumers when it comes to choosing a mortgage, a survey by checkmyfile. com has found.
The 2006 Mortgage Lender Survey found fixed interest rates, closely followed by the reputation of the lender as the top two attributes most likely to make Britons choose a mortgage product.
The survey also found that consumers generally regarded features such as higher lending multiples and the absence of higher lending charges – the fees charged by lenders when extending loans of more than 75 per cent of the value of the property – were amongst the least popular reasons for choosing a mortgage provider.
Barry Stamp, Joint Managing Director of checkmyfile. com, the UK’s leading provider of online credit files to consumers, said: “Our survey suggests the average UK consumer tends to be much more cautious when choosing a mortgage, compared to choosing other forms of credit which tend to be crisis-led. Consumers look for some stability when it comes to what is likely to be their largest monthly outgoing. Despite the relatively stable interest rate environment we have enjoyed for some years, they are keen to protect themselves from interest rate shocks. ”
The motivation for choosing a mortgage was found to differ between the genders in two distinct ways.
Barry Stamp added: “The top priority for men, when it comes to choosing a mortgage, is a fixed interest rate. Women, on the other hand, look at the reputation of a lender as the most important factor in choosing a mortgage. Getting a quick decision is also a key factor for men. Women are far less concerned about how quickly their mortgage offer appears. ”
As consumers get older, the key factors in choosing a mortgage product also change.
“Consumers in their 20s tend to look for the security offered by fixed rate mortgages, the reputation of the lender and the level of fees charged. They are not so concerned about how quickly they get confirmation of their mortgage offer – probably as they have no prior experience to base an expectation of the time a mortgage application can take.
“Consumers in their 30s also look to fixing their interest rate, and are more likely to be an existing customer of the lender. They are, however, looking for a quick decision on their mortgage offer.
“When a consumer reaches their 50s, their priorities have changed significantly. The top priorities for this age group are to choose a mortgage that gives them the ability to vary repayments and they are keen to choose a lender with a strong reputation. A quick mortgage offer in writing is also a key priority,” said Stamp.
With the reputation of mortgage lenders being the second most important factor for UK consumers in their choice of mortgage, the 2006 Mortgage Lender Survey asked respondents about the customer service levels of the top UK mortgage lenders.
60% of respondents to the survey rated the standard of customer service provided by mortgage lenders as ‘excellent’ or ‘very good’. One in six consumers were dissatisfied with the standard of customer service received.
Northern Rock and Nationwide were rated by respondents as the best mortgage lenders for their high standards of customer service. At the other end of the scale were Halifax and Barclays.
The full results of the 2006 Mortgage Lender Survey can be viewed online on checkmyfile. com.
checkmyfile. com has found.
The 2006 Mortgage Lender Survey found fixed interest rates, closely followed by the reputation of the lender as the top two attributes most likely to make Britons choose a mortgage product.
The survey also found that consumers generally regarded features such as higher lending multiples and the absence of higher lending charges – the fees charged by lenders when extending loans of more than 75 per cent of the value of the property – were amongst the least popular reasons for choosing a mortgage provider.
Barry Stamp, Joint Managing Director of checkmyfile. com, the UK’s leading provider of online credit files to consumers, said: “Our survey suggests the average UK consumer tends to be much more cautious when choosing a mortgage, compared to choosing other forms of credit which tend to be crisis-led. Consumers look for some stability when it comes to what is likely to be their largest monthly outgoing. Despite the relatively stable interest rate environment we have enjoyed for some years, they are keen to protect themselves from interest rate shocks. ”
The motivation for choosing a mortgage was found to differ between the genders in two distinct ways.
Barry Stamp added: “The top priority for men, when it comes to choosing a mortgage, is a fixed interest rate. Women, on the other hand, look at the reputation of a lender as the most important factor in choosing a mortgage. Getting a quick decision is also a key factor for men. Women are far less concerned about how quickly their mortgage offer appears. ”
As consumers get older, the key factors in choosing a mortgage product also change.
“Consumers in their 20s tend to look for the security offered by fixed rate mortgages, the reputation of the lender and the level of fees charged. They are not so concerned about how quickly they get confirmation of their mortgage offer – probably as they have no prior experience to base an expectation of the time a mortgage application can take.
“Consumers in their 30s also look to fixing their interest rate, and are more likely to be an existing customer of the lender. They are, however, looking for a quick decision on their mortgage offer.
“When a consumer reaches their 50s, their priorities have changed significantly. The top priorities for this age group are to choose a mortgage that gives them the ability to vary repayments and they are keen to choose a lender with a strong reputation. A quick mortgage offer in writing is also a key priority,” said Stamp.
With the reputation of mortgage lenders being the second most important factor for UK consumers in their choice of mortgage, the 2006 Mortgage Lender Survey asked respondents about the customer service levels of the top UK mortgage lenders.
60% of respondents to the survey rated the standard of customer service provided by mortgage lenders as ‘excellent’ or ‘very good’. One in six consumers were dissatisfied with the standard of customer service received.
Northern Rock and Nationwide were rated by respondents as the best mortgage lenders for their high standards of customer service. At the other end of the scale were Halifax and Barclays.
The full results of the 2006 Mortgage Lender Survey can be viewed online on checkmyfile. com.
Who Wants Low Mortgage Rates?
January 6th, 2010Who doesn’t want low mortgage rates? A low mortgage rate means spending on monthly payments during the course of a mortgage. A low mortgage rate can save homebuyers like you several thousands of dollars. A low mortgage rate means having more funds to spend on investments that might prove profitable.
Despite the reported increase of previously low mortgage rates, rates today are still low enough to consider a mortgage refinance for your home. The Internet provides you with the perfect portal to start applying for those low mortgage rates. Below is a list of websites where you can apply for low mortgage rates.
Low Mortgage Rates at Interest . com
Interest. com offers you an opportunity to compare rates of several lending companies in your state so you can have a better chance at getting a low mortgage rate. For instance, you want to apply for a low mortgage rate on a 30-year fixed rate refinance mortgage in Georgia. The amount you wish to borrow is $100,000 with no discount points and a standard loan type. After clicking on the search button, the page will display the low mortgage rates of several lending companies in Georgia, including Sterling Home Mortgage Corporation whose low mortgage rate is 5. 375%. There are several other lending companies that offer low mortgage rates and all you have to do is choose the one offering the lowest rate.
The Low Mortgage Rates of MortgageRatesUSA . com
Mortgage Rates USA is yet another company that offers choices and options for costumers who are on the look out for low mortgage rates. Their online low mortgage rate quote request is free and secure. The information you provide so the website could generate your low mortgage rate quote request is only shared with the lender and not with any third party.
The Low Mortgage Rates of ELoan . com
E-Loan is one of the top lending companies offering low mortgage rates. The reason for their low mortgage rates is that they do not charge you with any lender fees or any other hidden costs which is the main culprit to an increased mortgage rate. For example, a 5-year adjustable rate mortgage with E-Loan has a low mortgage rate of 4. 625% and an APR of 5. 078%.
How to take advantage of low mortgage rates
Refinancing is something that all homebuyer should consider when the market offers low mortgage rates. When you refinance, you take advantage of low mortgage rates by paying off your first mortgage with a new mortgage with low mortgage rates. This move can help you lower down your monthly payments and save on your overall interest bill.
For example, you have a year into a $150,000 loan for 30 years. The interest rate is 8. 5 per cent and fixed for the duration of the loan period. You can refinance your first loan with a new 30-year loan with a low mortgage rate of 7 per cent. By doing this, you can cut down on your monthly payment by $155 to $998. The low mortgage rate of the new loan can also help you reduce your overall interest bill by $42,200 to $223,000.
Looking For A Second Mortgage Loan?
January 5th, 2010A second mortgage loan is a subsequent loan and subordinate to the earlier mortgage. In other words, a second mortgage loan is used as collateral pledged for the first loan.
Length of Second Mortgage Loans
Second mortgage loans have varying lengths with which they are eventually paid off. Some second mortgage loans may last for as long as 15 or 20 years. Other second mortgage loans only require one year for repayment.
When you’re thinking of taking on a second mortgage loan, you will need to know what term best suits you. Discuss the repayment terms of the second mortgage loan with your bank or lending company. For instance, you get a second mortgage loan worth $20,000 to make some home repairs. With this amount, you might want to take on a second mortgage loan that will allow you to repay the entire amount in one or two years. If you pay a second mortgage loan that has a shorter term, the monthly payments may be too high.
Payment Calculations for Second Mortgage Loans
Before taking on second mortgage loan, be sure that you understand a couple of things first. Know how much your monthly payments will be for that second mortgage loan. Moreover, it is also helpful if you also have an idea as to where those second mortgage loan payments will cover.
Some second mortgage loans require you to make monthly payments on both interest and principal. Other second mortgage loans only require you to pay the interest of the borrowed amount.
The former type of second mortgage loans will allow you to significantly shorten your payoff period since with each payment you make, you are also chipping away at the principal. With the interest-only second mortgage loan however you will be required to pay back the entire amount that you borrowed as soon as the term ends. This type of second mortgage loan is also called balloon payment loans.
Second Mortgage Loan Costs
Fees may be charged by some lending companies for the money you borrow on second mortgage loans. The fees, referred to as “points,” are usually a percentage of the second mortgage loan. One point on your second mortgage loan is equivalent to one percent of the amount you borrow.
So, if you were to get a second mortgage loan of $10,000 with an eight-point fee, then you would have to pay $800 in “points. ” Second mortgage loan companies may charge you in varying number of points so if it might be helpful if you do a comparison first.
Second Mortgage Loan Rates
Second mortgage loans have different payments plans. Most second mortgage loans have a fixed rate payment included in their payment plans. If you have a fixed rate second mortgage loan, the interest rate will be set for the whole loan term. This means that your monthly payments for your second mortgage loan will not be affected by any outside changes.
Some companies also offer second mortgage loans with variable rate payments. These variable rate second mortgage loans periodically experience rate adjustments. A variable rate second mortgage loan might be cheaper than a fixed rate payment in the long run. But this is only provided if the interest rates of second mortgage loans go down. If interest rates rise, then your monthly payments for your second mortgage loan will rise as well.
How A Reverse Mortgage Works
January 5th, 2010Ever wonder how a reverse mortgage works? For folks that have lived in their home for a long time, they may very well be sitting on a gold mine. Home prices have increased greatly over the last thirty years, and nationally have nearly doubled in value over the last ten years. This has left a great many homeowners with valuable equity in their homes and many different options to access that equity, home equity loans and mortgage refinances being the most common. For older Americans, there is another, less common option that is growing in popularity as home prices have increased and baby boomers have moved closer to retirement age: the reverse mortgage. But do you know what it is, and do you know how a reverse mortgage works?
So what exactly is a reverse mortgage? A reverse mortgage is a loan product that allows homeowners 62 years of age and older to use their equity to generate tax-free income, without having to sell the home or take on a new mortgage payment. In fact the reverse mortgage is exactly what the title states, the reverse of a standard mortgage. With a standard mortgage, the borrower (or homeowner) makes monthly payments to the lender (or bank or mortgage company), in order to pay back the loan that the lender originally lent to for the purchase or refinance of the house. This payment includes interest that the lender charges the borrower for the loan. In a reverse mortgage, the situation is reversed; the lender makes monthly payments to the borrower. However, in both a standard and reverse mortgage, the lender secures their loan amount by using the house as collateral.
There are a few factors that determine how much money a borrower will receive from a reverse mortgage, such as the value of the home, borrower’s (and co-borrower’s) age, current interest rates and any lending limits that may be standard for your geographic area. As a rule of thumb, the older the borrower and the more valuable the home, the larger the available loan amount. Homeowners can choose how they want to receive their payments, either as a lump sum, monthly payments or as a line of credit. The line of credit is the most popular option, with nearly 60% of reverse mortgage borrowers choosing to the option to draw income or a lump sum off the line at the time of their choosing. And the proceeds from the reverse mortgage can be used for anything, completely at the discretion of the borrower, though most borrowers use the funds for home repairs or modifications, health care expenses, to settle other debts, or for their long-planned vacation! Reverse mortgages are available for nearly all property types with the exception of co-ops, though co-op owners in some metropolitan areas, specifically New York, should have local options. If you are in retirement, or nearing retirement, and think this may be the product for you, I will go into more detail about exactly how a reverse mortgage works.
For reverse mortgage borrowers with an existing mortgage, that mortgage will need to be paid off completely, so that the new reverse mortgage will be the only lien on the house. If the proceeds from the reverse mortgage are not ample to pay off the existing mortgage, the borrower will need to access savings or other sources to pay off the rest of existing mortgage amount. In this scenario, the borrower won’t have access to any additional funds from the reverse mortgage; however, they will no longer have a mortgage payment! The more common scenario is one in which there is a small or no mortgage on the home and then the borrower is able to access nearly the full amount of the reverse mortgage to use at their discretion. No monthly payments are due on the loan and the loan is repaid when the moves or sells the home, passes away, or ownership otherwise changes hands. If the home is sold and the proceeds of the sale exceed the mortgage amount, the balance belongs to the borrower or their heirs.
One very important facet of the reverse mortgage process is the consumer counseling that is required for borrowers contemplating a reverse mortgage. Your lender can help you find counseling agencies and most programs are approved and monitored by HUD and/ or AARP. The counseling is required to make sure that the terms and risks of the program are clear to you. Counselors are obligated by law to review with you all of the implications of the new mortgage, and what your potential options are.
Overall, for older Americans contemplating a stress-free retirement, the reverse mortgage may be just the option! Just make sure that you know your options and goals. . . and how a reverse mortgage works.
Refinance Second Mortgage, 2nd Mortgage Rate
January 5th, 2010A second mortgage simply means that the amount you borrow is secured by your property, in second preference to your first mortgage. Some lenders call it secured loan. 2nd mortgage loans are loans that are made in addition to the first mortgage, and it is usually based on the amount of equity that the borrower uses to build into his home.
Second mortgage used to be hard to get up until a few years ago, lenders had decreased the amounts and limited the situations that enabled you to purchase 2nd mortgages, the situation now is different. There are now a wide selection of loans available to meet your needs, and it’s much simpler to get a second mortgage on your home.
Second Mortgage and Home Equity Loan.
The amount you can borrow is depends on the difference between the value of the property and the amount of your first mortgage. Better known as the equity you have on your property.
There are two types of second mortgages:
1. Home equity loans.
2. Home equity lines of credit.
Home equity loan is a loan in which the borrower uses the equity in his home as assurance. Home equity loans are a lump sum loan with a fixed interest rate and a planned payment. The amount of loan is determined by credit history, income, and the value of the collateral. People with poor credit can get bad credit personal loan or bad credit home equity loan, but they pay a very high interest rate.
The home equity line of credit is a tool used by homeowners who need to borrow against the equity in their home. There are several different types of home equity lines of credit. These differences are generally based on the interest rate charged the homeowner.
Home equity line of credit is similar to a credit card, you don’t get the money in one lump sum, what you get is a line of credit to use it when you need it. Line of credit will have a variable interest rate, the homeowner cannot know what the interest payment will be. The interest rate on the loan will vary to the same degree as the interest rate set by the Federal Reserve Board
Second Mortgage Interest Rate:
The are two types of mortgage loans: fixed rate mortgage, and adjustable rate mortgage(ARM).
In a fixed rate mortgage,the interest rate remains fixed for the life of the loan. The borrower is protected from sudden increases in monthly payments if interest rates grow. Borrowers choose fixed rate mortgage when interest rates are low.
In a adjustable rate mortgage(ARM),the interest rate may change during the life of the loan.
If you intend to live in your home more than just few years and you like the financial stability of a fixed payment, Than fixed rate mortgage is the right loan for you.
But, If you Plan to briefly remains in your home, Don’t afraid from monthly payment change, And you firm your income will increase in the future, Than adjustable rate mortgage is the right loas for you.
Adjustable rate loans have cleverly protected borrowers money in recent years.
According the msn money expert fixed-rate mortgage are much higher than the Adjustable Rate Mortgages.
The second mortgage interest rate are a bit higher than 1st mortgage rate. But the interest paid on the second mortgage may be tax deductible. In most cases the accumulated interest is 100% fully deductible as long as the combined loan to value of the first and second mortgage does not exceed the price of the home.
Borrowing more than 80% of the home’s value will subject the borrower to private mortgage insurance. The monthly payments should also be a determining factor. If one refinances in the future, he will have to pay off the 2nd mortgage.
The amount borrowed will be combined with the amount the borrower still owes on his first mortgage. But first of all, one should not take a second mortgage on his home unless one has arranged payments on the primary mortgage balance for a good amount of time. One may be able to get a second mortgage if one does not have much equity, but then the loan rates will be much higher, and the amount will be much lower.
While acquiring a second mortgage loan the lender places a lien on the borrowers house. This lien will be recorded in second position after the primary or first mortgage lender’s lien, hence the current term second mortgage. Typically the terms of the loans are for 5, 10 or 15 years, which means that you can choose monthly repayment in accordance with your circumstances.
Debt Consolidation, Home Improvements
Since the loan is secured the interest charged is very competitive compared to other loans, especially credit card loans. Generally, there are no restrictions on the way you use the money. You are free to use it as you please, from debt consolidation to home improvements, from college education to buy a second home or even a dream holiday, a second mortgage loan can be used for just about anything.
Usually, lenders are eager to lend money to home owners because the loan is secured and the borrower has already passed a stringent credit worthiness when he applied for the first mortgage.
One more things, freedom and speed. Second mortgage put you in the driving seat and in charge of your own finance affairs in the fastest way possible. Come on, you can do it.
Understanding Interest Only Mortgages
January 4th, 2010There are only two things people should keep in mind before taking on an interest-only mortgage. The name interest-only mortgage is misleading. If truth be told, there is no such thing as an interest-only mortgage. In an interest-only mortgage, you will still have to pay for the loan principal. When you get an interest-only mortgage, what you’re really getting is an interest-only payment method which you can combine with other traditional mortgage types.
The other thing you need to keep in mind is that the stated benefits of interest-only mortgages are exaggerated. In a standard mortgage, 95% if each dollar paid to the lender goes to the loan interest. Thus on a $100,000 standard loan with 6% interest, the total payment would be $600 with the $500 going to interest and the other $100 for equity.
A Brief History of Interest-Only Mortgages
Interest-only mortgages are not relatively new concepts. The idea behind interest-only mortgages was spawned from the more flexible and more inventive jumbo mortgage markets. Because of this, interest-only mortgages are traditionally a loan type preferred by savvy investors and well-heeled clients who want to use the principal portion of their payment on other more productive investments.
Because interest-only mortgages are jumbo loans, the difference in monthly payment grows with the larger loan amount. For example, in a $100,000 interest-only mortgage loan, the per month difference is $100. If the loan is worth $1,000,000, then the difference per month grows to $1,000, a substantial amount that can be put to better use. The savvy investor can make it so that his investment using the money he gets from the per month difference growth of an interest-only mortgage can increase within a short period, thus leveraging incomes to build assets.
This is partly the reason why interest-only mortgages are still preferred by big-time investors. However, it is only natural to assume that there are some considerable risks associated with an interest-only mortgage, especially when it comes to stocks.
Interest-only mortgages have payment periods based on adjustable rate mortgages. This however is not always the case. Interest-only mortgage payment schedules are also offered in fixed rate mortgages as well. Interest-only mortgages have also gone mainstream so virtually anyone can borrow money with this type of loan.
Temporary Payment Periods
The payment periods for interest-only mortgages almost never run for the entire term of the loan. Even with a fixed rate mortgage, interest-only mortgages are still bound to be only temporary. And InterstFirst product only lets interest-only mortgage payments for half of the total term.
The expiration schedule of an interest-only mortgage payment is usually at the end of a set period. This makes interest-only mortgages compatible to “amalgam” adjustable rate mortgages. When the interest-only mortgage payment comes to an end your payment will then rise to include principal and interest.
The great thing about interest-only mortgages
Interest-only mortgage payments also have their advantages. Borrowers can find that there are various practical benefits that an interest-only mortgage can offer. First is that, interest-only mortgages can help you in accumulating assets. Because interest-only mortgages do not demand so much during its initial years, you can use the payment differential in a cash investment. The “spare” cash provided by interest-only mortgages may also be used for college money, retirement money, and even as a seasonal income factor.
Of course, you are the only person who can really tell if the mortgage option is right for you or not. However, awareness of the issues that surround those choices is a good way to make a more informed decision.
Capital and Repayment Mortgages
January 4th, 2010What Is Capital and Repayment Mortgage?
“Repayment mortgage (also called a capital-and interest loan)
Your monthly payments gradually pay off the amount you owe as well as paying the interest charged on the loan. Provided you make all the agreed payments, the loan will be fully paid off by the end of the mortgage term. “
- Consumer Information, FSA, June 2006
Repayment mortgage and capital mortgage (or capital loan) are the exact same thing, made more confusing by the fact that this type of mortgage is known by more than one name. But don’t let that confuse you! Capital and repayment mortgage is, in fact, the same thing.
How Do I Know Capital, or Repayment, Mortgage Is Right For Me?
Repayment/Capital mortgage is great for those who want to get their entire mortgage, capital and interest, paid off by the end of their mortgage term. Once the term is up on this type of mortgage, you’re done and fully paid off. Many mortgage policies focus on the interest that you owe. Capital and repayment mortgages are popular because they allow homeowners to pay off everything that they owe.
The bank or company that you work with to determine your mortgage policy and payments can give you all sorts of options. Make sure to ask what the interest rate and payment structure on a Capital or repayment mortgage would be. The numbers will help you decide what’s right for you. After all, the right mortgage is the one that you can afford.
Do Capital and Repayment Mortgages Cost More Than Other Types of Mortgages?
“You usually pay off mostly interest in the early years and then gradually more of the capital debt. It may seem as if this is costing more but that’s because unlike the other types of mortgages you’re paying off the capital and not just the interest. “
- Repayment Mortgages, Mortgage Sorter web site, June 2006
While capital and repayment mortgages do not necessarily cost more than other types of mortgages, you may feel that you are paying out for a longer period of time with a capital and repayment mortgage. This is not true, however. Capital and repayment mortgages just allow you to pay off your entire mortgage in one complete payment cycle. And once you’re done, you’re done. That’s the beauty of a capital and repayment mortgage, one of the most popular types of mortgages used by homeowners.
I Still Don’t Know What Kind of Mortgage I Need. What Should I Do?
If you know that you want to finance or re-finance your home or property, it’s an easy decision to take out a mortgage policy. The only problem is, what kind of mortgage will suit your needs best? With so many options out there, and so much information about different types of mortgages available, it can make your head swim. When you’ve never had a mortgage before and don’t know that much about mortgages in general, how do you decide what’s best for you?
The only way to know what type of mortgage will fit your needs is to run the numbers. Have your bank, financial advisor, or the company that you’re re-financing with gives you examples of payment plans for many types of mortgages, and be sure to get your questions answered about each policy. You will think up many different questions, some of which can only be answered by those you’re working with to establish your mortgage. You’ll know what’s right for you when you see the plan in black and white, because you’re the only one who truly understands what your financial situation is.
Common Mortgage Terminology Explained
January 4th, 2010Acceleration – This refers to a lender’s right to request immediate payment of the balance of the loan when the borrower defaults or by using a stipulation from a Due on Sale Clause
ARM / Adjustable Rate Mortgage – A mortgage that has an interest rate that is periodically adjusted. This adjustment is based off of criteria from an agreed upon index and is also called a variable rate mortgage.
Amortization – Mortgage split into periodic, equally sized payments so that at the end of the agreed upon mortgage period the balance is paid.
APR / Annual Percentage Rate – Expression of the yearly rate of the mortgage measured by mortgage’s full cost including all expenses and fees.
Appraisal – A documented official estimation of a property’s value.
Assessment – Tax on a property that serves a specific purpose, like sewers for example.
Assumption – The agreement between a buyer and a seller in which the buyer is taking over payments from the seller on the seller’s existing mortgage.
Balloon Mortgage – This is a loan whose amortization schedule exceeds the length of the mortgage. A final (often large) balloon payment is paid at the end of this end of this extended period of time.
Bridge Loan – A secondary trust used for collateral by the homebuyer’s present property, which permits proceeds to be utilized to close on a new property purchase before the existing one is sold.
Buy Down – A buy down occurs when a lender allows a mortgage rate to be lowered by buyer subsidization.
Caps – Safeguards that set limits on the amount of interest rate or payment change on a monthly basis for ARM’s
Change Frequency – The increment of the number of months that a rate may change in an ARM
Closing – The closing is the final meeting that occurs involving the property buyer, the seller, and the lender during which all legally binding papers are signed and the property purchase deal is “closed” and property ownership is transferred.
Closing Costs – The expenses and fees incurred either by a home buyer or seller at a closing for a variety of tasks, charges, insurances, etc.
Conversion Clause – ARM provision for having the mortgage’s rate be converted to a fixed-rate at some point during the life of the loan.
Credit Report – Official documentation noting the status and history of a potential buyer/borrower.
Default – In a nutshell, not making a payment on time; legally failing to provide required payment to lender by specified deadline.
Down Payment – The money paid during a property purchase that fills the gap between sale price and moneys borrowed.
Equity – The amount left over when comparing money owed on a property to the property’s current value.
Escrow – An escrow account is held by the lending institution in which the borrower pays money for insurance or tax reasons. Escrow describes the deposits that are held when a loan is pending closing.
Escrow Payment – The part of a borrowers monthly mortgage payment that the lender holds to pay for insurance, lease, or tax purposes.
Fannie Mae – Federal National Mortgage Association; a government backed organization that buys and sells residential mortgages.
Freddie Mac – Federal Home Loan Mortgage Corporation; a government backed organization that acquires mortgages from various depositary institutions and HUD-approved lenders.
FHA Loan – A loan that the Federal Housing Administration insures, open to any home buyer that meets certain requirements.
Fixed Installment – The regular monthly payment that is due on a mortgage.
Fixed Rate Mortgage – A mortgage loan whose interest rate will not change for the entire duration of the loan.
Foreclosure – Process by which a mortgage lender legally repossesses and forces the sale of a mortgaged property as a result of the borrow defaulting.
GPM / Graduated Payment Mortgage – Flexible mortgage payment plan in which the borrower’s monthly payments increase for a specific timeframe.
GEM / Growing Equity Mortgage – Mortgage in which the borrower’s payments increase over a set period of time; this larger amount is then applied to the mortgage’s principal in most cases.
Hazard Insurance – Insurance used for protection against various forms of property damage and/or loss.
HUD-1 Statement – This is a document provided by your lender/broker that includes a detailed listing of the moneys needed at closing, including points, escrow, commissions, and other fees.
Impound / Reserves – The amount of the buyer’s monthly payment kept by the lender to pay for various insurances or taxes.
Index – The publicly available market interest rate used by lenders to determine the difference between ARM rates and current interest rates and to set loan sale rates on fixed rate mortgages.
Interest – Monetary fee charged by a lender to a buyer for borrowing money.
Interest Rate Ceiling – The agreed largest possible interest rate for an adjustable rate mortgage.
Interest Rate Floor – The agreed lowest possible interest rate for an adjustable rate mortgage.
Interim Financing – A short-term or temporary loan made while property construction is being completed.
Jumbo Loan – A mortgage that exceeds the limits set by Fannie Mae and Freddie Mac.
Liabilities – The debt owed by a buyer.
Lien – A claim made on a piece of property for exacting payment of a financial obligation.
Lock – Mortgage lender’s written guarantee that the quoted rate is good for a set period of days from the time of issuing.
Margin – The total that a mortgage lender adds to the index on an ARM to set the adjusted rate.
Market Value – The price that a buyer and seller would agree upon for sale of a property.
Maturity – The date that a loan’s principal is scheduled to be paid in full.
Mortgage – Document pledging a property to a loan provider as security for a debt’s payment.
Mortgage Broker – One who receives compensation for the work of bringing a buyer to a lender for the purpose of completing a loan arrangement.
Mortgage Insurance – Money paid on a regular basis for the purpose of insuring a mortgage on a property whose buyer has less than 20% equity.
Note – A document specifying that a borrower is to repay a loan at a specific interest rate over a specific period of time.
One Year Adjustable Rate Mortgage / One Year ARM – Loan in which the interest rate changes on a yearly basis.
Origination Fee – Fee charged by a lender for the work involved in preparing a loan.
Owner Financing – Property sale in which the seller provides at least some part of the buyer’s financing.
Payment Change Date – Date when a new payment amount begins on an ARM or GPM.
PITI – Principal, Interest, Taxes, and Insurance
Points / Loan Discount Points – Interest money paid at closings for the purpose lowering the cost of monthly loan payments. One Point is equal to one percent of the loan’s total amount.
Power Of Attorney – The legal authorization of one person being able to act in behalf of another.
Preapproval – The process of evaluation a potential buyer goes through to decide how much money a loan can be given to them for.
Prepayment – Mortgage stipulation permitting the borrower to make additional payments before the maturation date.
Prepayment Penalty – Fee charged by a lender to a borrower when the borrower repays the a loan earlier than an agreed upon date.
Principal – On a loan, the total amount that remains unpaid by the borrower. On a monthly payment, the amount that goes towards the final paying of the loan.
PMI / Private Mortgage Insurance – Insurance that a buyer must pay for; required when a borrower does not provide a 20% down payment on purchase of a new property.
Rate Lock – Commitment given by a lending institution to a buyer that guarantees a certain interest rate is valid for closing for a specified period of time.
Real Estate Agent – A person that is licensed to negotiate the sale of property.
Recission – The cancellation of an agreement or contract; the law giving a homeowner 3 business days to cancel a loan arrangement. “Right of Recission”
Refinancing – The obtainment of a new replacement mortgage on a property that is already mortgaged.
Satisfaction of Mortgage – Document issued to a borrower on the occasion of their repayment of said loan.
Second Mortgage – The acquirement of an additional, subordinate mortgage on a property that is already mortgaged.
Servicing – All the work involved to keep a mortgage in good standing such as paying various tax, insurance, and other costs.
Shared Appreciation mortgage – A mortgage in which the buyer receives a property for less than current market value; in exchange, the seller is granted a portion of future property appreciation values.
Simple Interest – Interest calculated only on the balance owed.
Step Rate Mortgage – A loan in which the interest rate increases based on a set schedule until a set point, after which the rate remains constant.
Title – The document declaring a property’s ownership.
Title Insurance – Insurance policy that insures a potential home buyer or lender against errors in a title search.
Title Search – A legal examination of records to determine who is the rightful owner of a property.
Truth in Lending – Federal law that requires the lenders to disclose the APR to a buyer after applying for a loan.
Underwriting – The decision made by a lender on whether or not to provide a loan to a borrower based on their qualifications.
Mortgage Loan Basics: Interest Only Loans, Pay Option Arm
January 3rd, 2010To understand loans and mortgages we need to understand loan limits first. If your loan amount exceeds the amount below, you will qualify for a Jumbo Loan, which carries higher interest rate.
One-Family (single family homes) $417,000
Two-Family(duplex) $533,850
Three-Family (triplex) $645,300
Four-Family(fourplex) $801,950
FIXED Loans:
30 Year Fixed Mortgage Rates
This loan program is fixed for 30 years. Your interest rate will not change for 30 years. This is ideal for people who plan to stay at their present property for a long period of time.
20 Year Fixed Mortgage Rates
Fixed for 20 years. Your payment will be higher than 30 year fixed loan becuase your loan term is only for 20 years. Interest rate will not change for 20 years.
15 Year Fixed Mortgage Rates
15 year fixed loan has a loan term of 15 years and will not change during this period. Your monthly payment on this loan program will be much higher than 20 years fixed or 30 years fixed. Use this loan program if you plan to sell your home in 5-8 years. Interest rate will not change for 15 years.
ARM (Adjustable Rate Mortgage)
ARM Loans are fixed for a certain period of time, where after that period ARM loan becomes an adjustable loan. How do they work?
Each ARM Loan Program has these options:
1) Index: Most comon index-LIBOR
2) Margin: Is given to you by your lender, and it is the difference between the index rate and the interest charged to the borrower
For example 5/1 ARM. This loan is fixed for 5 years after which in 6th year it becomes an adjustable loan. Your loan officer will tell you what your index is and what your margin is. Usually 5/1 arm is tied to 1-year treasury index and margin is around 2. 00%-3. 00%
Your index + margin = Fully Index rate . Your new note rate (interest rate) after 5th year.
What about the 6th year? What would your payment be?
Let’s say that your loan officer told you that your margin is 2. 5% with 1 year treasury index. You will have to look up 1 year treasury index for a specific month.
1 year treasury as of Oct. 2005 is 4. 18, and you know that your margin is 2. 5%. Therefore you new interest rate is 1 year treasury 4. 18% (index) + 2. 5% (margin) = 6. 68% for the begining of 6th year.
Index rate are move on monthly basis, therefore your payment may flunctuate each month. In most cases banks wills end you a statement advising you that your rate will change.
3) To protect consumers from high index rates, lenders implemented a CAPS.
An example of this is a 2/6 cap, which allows the interest rate on your ARM loan to go up or down by no more than two percent every adjustment period, and has a total limit of six percent for cumulative changes. Therefore a 2/6 cap on a 5% ARM will allow a maximum rate (6 + 5%) of no more than 11%.
In some cases you will see 2/2/6, which means 2% adjustment with 2 year prepayment penalty and total of six percent of cumulative changes.
4) With an arm you can have either a fixed rate or you can choose an Interest Only structure loan.
1/1 ARM Mortgage Rates
1 year ARM (Adjustable Rate Mortgage) is fixed for 1 year and in 2nd year it becomes an adjustable.
3/1 ARM Mortgage Rates
3 year ARM (Adjustable Rate Mortgage) is fixed for 3 years and in 4th year it becomes an adjustable.
5/1 ARM Mortgage Rates
5 year ARM (Adjustable Rate Mortgage) is fixed for 5 years and in 6th year it becomes an adjustable.
7/1 ARM Mortgage Rates
7 year ARM (Adjustable Rate Mortgage) is fixed for 7 years and in 8th year it becomes an adjustable.
10/1 ARM Mortgage Rates
10 year ARM (Adjustable Rate Mortgage) is fixed for 10 years and in 11th year it becomes an adjustable.
Interest Only Loans
For example, if a 30-year fixed-rate loan of $100,000 at 8. 5% is interest only, the payment is . 085/12 times $100,000, or $708. 34. This is an example of interest only payment.
Each loan payment consists of Interest and Principal. Here you will be paying an interest each month and your principal will be adding to your balance, thus increasing it. You may also pay both principal and interest.
If a lender offers you an Interest only Loan these loans are tied to an index just like ARM loans.
MTA Index: The MTA index generally fluctuates slightly more than the COFI, although its movements track each other very closely.
. 1 Month MTA ARM Mortgage Rates
. 3 Month MTA ARM Mortgage Rates
. 6 Month MTA ARM Mortgage Rates
. 12 Month MTA ARM Mortgage Rates
COFI Index: This index rise (and fall) more slowly than rates in general, which is good for you if rates are rising but not good for you if rates are falling.
. 1 Month COFI ARM Mortgage Rates
. 3 Month COFI ARM Mortgage Rates
LIBOR Index: LIBOR is an international index, which follows the world economic condition. It allows international investors to match their cost of lending to their cost of funds. The LIBOR compares most closely to the CMT index and is more open to quick and wide fluctuations than the COFI.
. 6 Month LIBOR ARM Mortgage Rates
. 12 Month LIBOR ARM Mortgage Rates
Pay Option ARM Loan
Pay Option ARM in a new loan program allowing customers to choose from up to 4 different payments. This loan program is part of an ARM, but with added flexibility of making one of the 4 payments.
Your intial start rate varies from 1. 000% to anywhere around 4. 000%. The intial start rate is held only for one month, after that interest rate changes monthly.
4 major choises are:
1) Minimum payment: Fot the first 12 months interest rate is calculated using the start rate after that interest rate is calculated annually.
Example:
Loan Amount: $200,000. 00
Initial Rate: 1. 25%
Index: 3. 326 (MTA as of October 2005)
Margin: 2. 75%
Payment Cap: 7. 5%
Fully Indexed Rate: 6. 076% (ndex + margin )
Minimum Payment Changes:
Year 1 $666. 50 Minimum Payment
Year 2 $716. 49 = $666. 50 + 7. 50%
Year 3 $770. 22 = $716. 49 + 7. 50%
Year 4 $827. 99 = $770. 22 + 7. 50%
Year 5 $890. 09 = $827. 99 + 7. 50%
The Option ARM’s 7. 5% payment cap limits how much the payment can increase or decrease each year, except for every fifth year (beginning in the 10th year on certain programs), when the cap does not apply. In the event your balance exceeds your original loan amount by 125% (110% in N. Y. ), the payment amount may change more frequently without regard to the payment cap.
Becasue you are paying “minimum payment” this option will defer a payment of an interest which will be added to your balance.
Minimum Payment Adjustment Period: The minimum payment is usually set to 12 months, unless negative amortization limit is reached.
Minimum Payment Cap: This is a limit on how much the minimum payment can change. Your payment cap will be 7. 5% for the first five years. On your next payment due, your minimum payment cannot increse or decrease more than 7. 5%. If it does than a loan is recast.
Recast (Recasting) or re-calculating your loan is a way of limiting negative amortization (neg-am). Option ARM’s recast every 5 years. When the loan is recast, the payment required to fully amortize the loan over the remaining term becomes the new minimum payment
2) Interest Only Payment: With Interest Only you will avoid deffered interest, becausue you are paying principal and interest. If you pay only Interest or Principal your loan balance will increase because you are adding either pricipal payment or interest payment to your loan balance, thus leading towards Neg-Am Loan.
Your payment may change on monthly basis based on ARM index (LIBOR,COFI,MTA).
3) Fully Amortizing 30-Year Payment: It’s calculated each month based on the prior month’s interest rate, loan balance and remaining loan term. When you choose this option, you reduce your principal and pay off your loan on schedule.
4) Fully Amortizing 15-Year Payment: It is calculated from the first payment due date.
Negative Amortization Loan (Neg-Am Loan)
Negative amortization loans calculate two interest rates. The first is called the payment rate the second is the actual interest rate. The true interest rate is calculated as simply the index plus the margin without periodic caps. Borrowers are given a choice of which rate to pay. Thus advertisers of negative amortization loans often refer to these loans as “payment option” loans.
A loan that allows negative amortization means the borrower is allowed to make a monthly mortgage payment that is less than the interest actually owed during that month. For example, let’s say we have a $200,000 loan with an adjustable rate that’s currently sitting at five percent. Simple interest on this loan is easy to calculate. Multiply the interest rate by the loan amount and you have the annual interest of $10,000. Divide $10,000 by 12 months and the monthly “interest only” payment is $833. 33 or simply here is the formula for your monthly payment for interest only loans: loan balance x interest rates / 12 = monthly payment.
Now, let’s say that there’s a provision in the loan documents that allow the borrower to make a minimum payment based on a “payment rate” of four percent. So your lowest payment would be $666. 67 because the “payment rate” is based upon four percent, not the actual interest rate, which is five percent.
So if you make make the lowest allowable payment you are actually losing $166. 67 in equity. The balance of the loan increases to $200,166. 67.
Exotic Mortgage
You may have heard this term before. So what are they?
The latest and most exotic mortgages out there include:
1. The 40-Year Mortgage: This is similar to a 30-year fixed rate mortgage, except the payment is being stretched over an extra 10 years. The lender will charge a slightly higher interest rate, as much as half a percentage point.
2. The Interest-Only Mortgage: With an interest-only mortgage, the lender allows the borrower to pay only the interest for the first so many years of a mortgage. After the grace period, the loan essentially becomes a new mortgage with the interest and principal being stretched only the remaining years. Please refer above for Interest Only Loans.
3. The Negative Amortization Mortgage: This interest-only type of mortgage allows a buyer to pay less than the full amount of interest. The difference between the full interest payment and the amount actually paid is added to the balance of the loan. Please refer above for more information.
4. The Piggy Back Mortgage: This is actually two mortgages, one on top of the other. The first mortgage covers 80% of the property’s value. The second covers the remaining balance at a slightly higher interest rate.
5. 103s and 107s: You may not need to save for a down payment at all. You could borrow 3% or 7% more than your home is even worth. These loans give you the option of borrowing money needed for closing costs and moving costs. You can include it all in the mortgage.
6. Home Equity Line of Credit: These aren’t just for those who own a home! They are commonly known as HELOCs, and they can finance an original home purchase using a credit line instead of a traditional mortgage. HELOCs are variable-rate mortgages tied to the prime rate. If you use this mortgage as your first mortgage, all of the interest is tax deductible.
