Mortgages

A Painless Way to Shorten Those Painful House Payments!

If you are like the average American your home is your largest investment and your largest expense. Over the course of a 30-year fixed rate loan you will pay hundreds of thousands of dollars in interest alone. Remember the moment when you were signing the documents to purchase your house and realized how much you were going to pay just in interest? Fortunately, there is a pain free way to shorten the length of your house payments, prevent the bank from taking more of your hard earned money, while keeping more of your money in your pocket!

So what is this magical solution that will shorten my house payments you ask? The solution is simply a magical case of mathematics called a bi-weekly payment plan. The majority of Americans are paid by their employer every two weeks. Therefore, you split your monthly house payment in half, for example a $1,400 payment would be $700 and you pay that amount every two weeks when you get paid. As a result, over the course of an entire year you will make one additional house payment. The good thing about this additional house payment is that it is being used to pay down the principal amount of the loan, not the interest.

By paying half of your house payment every two weeks you are actually putting your mortgage on a diet and trimming away all of that interest. The next question to be answered is how much will the bi-weekly payment plan shorten my payments and how much will it save me? By making bi-weekly payments you will shorten the payoff time on your home loan from 30 years to between 22-24 years on average. In addition, you will also be saving tens of thousands of dollars on interest payments alone. Back in school you may have hated math, but the bi-weekly payment plan is one formula where you will love the answer.

A Quick Guide to Shopping Rates Online

Can’t decide which mortgage product suits you best? Try shopping for mortgage rates online and you’ll have a plethora of choices. Although most of us are already aware of the dangers that adjustable rate mortgages can bring (thanks to the real estate market collapse), not all potential homebuyers have a sound idea of how to choose the best mortgage that they can easily manage.

Because many are now enticed of how low interest rates can reduce monthly payments, homeowners are scrambling to get the best rate in loans for which they qualify. Shopping for mortgage has never been easier but these tips will guide you on how to properly compare mortgage rates.

Step 1: Check the lender’s criteria for qualification
Lenders differ from each other in terms of classifying which borrower is well qualified. A combination of factors such as credit score, principal payment, current debt and other criteria are considered by banks. If you think you don’t qualify in some banks, do not include them in your list.

Step 2: Review national average rates
Every week, Freddie Mac publishes its Primary Mortgage Market Survey (PMMS) that “surveys lenders each week on the rates and points for their most popular 30-year fixed-rate, 15-year fixed-rate, 5/1 hybrid amortizing adjustable-rate, and 1-year amortizing adjustable-rate mortgage products” along with comparisons of rates on different U.S. regions. This is a good starting point on your search since you’ll get a good idea of how rates are faring in your area.

Step 3: List loan-related fees among lenders
All lenders charge borrowers on the processing, approval and making of the mortgage loan. By listing these charges, you can find better gauge which lender is competitive enough to keep your payments lighter. After determining their uniform charges, remember to separately list the fees which are independent to each lender to keep a more accurate tally later on. These “other” fees include processing and wire transfer fee, origination fee, mortgage insurance premium, appraisal fee, credit report cost, tax service fee, underwriting fee, application, commitment, etc.

Step 4: List the lock-in period of mortgages
Because mortgage rates depend on a number of factors, they vary daily – keeping borrowers and lenders tuned to its movements. In order to minimize the risk that you will be paying a higher mortgage than the one that you had originally applied for, locking in a mortgage rate is highly encouraged. The most common lock-in periods are 15, 30, 45 and 60 days. List the lock-in fees and penalties that lenders are charging since you’ll be spending for this eventually.

Step 5: Group all lenders sharing the same interest rate and lock-in periods
Create a table that will help you compare lenders with similar offers. Refer to your PMMS if they are not offering rates that are way too high than the national average. By grouping lenders together, you can eliminate any biases that may come during your research.

Step 6: Add the independent charges of each lender
By calculating the annual percentage rate (APR) per lender, you will be able to arrive at a more accurate decision of which lender will offer a more competitive rate based on their loan options. Remember, a high mortgage loan processing fee doesn’t necessarily mean the mortgage carries a high interest rate. It all depends on the offer of the lender.

Everything You Need to Know about Adjustable Rate Mortgages

One of the things you should know before purchasing a property is the wide range of mortgage types offered by lenders. You should become knowledgeable about the different pros and cons of acquiring a particular mortgage type. You should also base your decisions according to your unique needs as buyer and your financial capacities as a borrower. Once you have chosen the best mortgage type that would help you accomplish monthly repayments easier, you would never experience losing ownership over your home.

Most homebuyers like you prefer applying for adjustable rate mortgages than fixed rate mortgages. They consider this loan type as easier to repay than other kinds of loans. However, this does not necessarily mean that you would also enjoy paying for an ARM rather than other kinds of home loans. If you want to determine whether adjustable rate mortgages are also right for you or not, you should read this article. It explains everything you need to know in order to assess the pros and cons of acquiring an ARM.

Going back to basics

Before proceeding with understanding the different advantages and disadvantages of acquiring an ARM, you should first understand its basic and simplest definition. By having a basic understanding about this particular mortgage type, it would be easier for you to know how it can become beneficial or harmful for your finances.

Adjustable mortgage rates are famous for the rock-bottom monthly repayments they require. Unlike fixed rate mortgages, they do not require hefty monthly repayments. However, this kind of mortgage is also affected by fluctuating interest rates. Even though repayments are inexpensive during the first few months of the loan, they would start climbing up again once the adjustment period has already ended. This can become risky for borrowers who cannot afford sudden increases in their mortgage repayments.

Fluctuating interest rates

The basic feature of adjustable rate mortgages is their fluctuating interest rates. After the adjustment period given to a borrower is finished, the mortgage repayments he would need to make would start to increase. The particular increase would depend on the new set of interest rates that his lender would provide. This scenario could be problematic for those who do not have extra budget for handling increased mortgage repayments.

Once a borrower receives a new set of interest rates, he would need to have a mortgage recalculation in order to find out how much he would spend for repaying his home loan little by little.

Index rates and margins

Index rates are usually represented by tow set of numbers. The first figure corresponds to the duration of the adjustment period when repayments remain stable and unchanged. Meanwhile, the second figure represents the amounts of increases on interest rates once the adjustment period has ended. Lenders usually provide their borrowers with copies of the index rates they implement in order to guide help them with their decisions.

Meanwhile, margins represent a lender’s markup or the amount of profit he generates from a particular loan he is offering. It also shows the particular interest rate that lenders implement for borrowers who carry loans from them.

These are the most important things you should know about adjustable rate mortgages. If you want to consider this kind of loan, you should first assess your capability to repay constant increases on your monthly mortgage repayments.