Finance Articles

Selecting the Right Mortgage for You

A mortgage is a loan you take out to buy a home. This loan covers the "principal" (purchase price of the house minus your down payment) plus the "interest," which is the fee a lender charges you to borrow the money.

There are various types of mortgages, including Fixed-rate, Adjustable-rate, Balloon, VA, FHA, and FmHA. It is important to select the one that is right for you.

Fixed-rate mortgages.

With a fixed-rate mortgage, your interest rate stays the same, or "fixed," throughout the term of the loan. Therefore, your mortgage payment stays predictably the same, making it easier to plan your spending each month. However, lenders typically charge a higher interest rate to make up for the lost income that could be gained from a rate increase. Charging a higher interest rate lowers the total amount you can borrow. And though you're protected from rising interest rates, you're also stuck with a certain rate even if the going rates fall.

The most common fixed-rate mortgages are 15-year and 30-year, which refer to the time you have to pay off the loans. The interest rate on a 15-year mortgage is usually lower than a 30-year mortgage, meaning you'll pay less over the life of the loan. But your monthly payments will be higher since you have half the time to pay off the mortgage.

Adjustable-rate mortgages.

Adjustable-rate mortgages are also called ARMs or adjustables. These mortgages typically start off with a lower "teaser" interest rate that stays fixed for a specified time, and then "adjusts" periodically depending on changes in the market interest rate. The risk to you is that the interest rate—tied to a money market index such as the one-year U.S. Treasury bill or certificates of deposit—will fluctuate, and so will your payment. Your lender can tell you the highest possible monthly payment you would owe if the interest rate hit its max, or cap. You must be sure you can afford it!

A good reason for considering an ARM is if you don't plan to stay in your home for very long; another is if you're sure your income will increase enough to cover the maximum payment possible. And, of course, if interest rates go down, so will your payments. With these loans, the lender is taking less risk since he or she gets to charge you more interest when the rates go up. As a result, you can typically borrow a larger amount, making it possible to buy a home you wouldn't otherwise be able to afford.

An example of an ARM is the 10/1 ARM. This loan has a fixed interest rate (and monthly payment) for the first 10 years, with an annual (that's what the "1" in "10/1" refers to) adjustment to the interest rate for the next 20 years of a 30-year loan. The lower the first number, (for example 7/1 ARM, 3/1 ARM or even 6-month ARM), the lower your initial interest rate. How often rates are adjusted is established at the time you apply for your loan.

Balloon Loans

Balloon loans have a lower interest rate than a fixed-rate mortgage. The interest rate stays stable for a specified time—such as five, seven or ten years. But when that time is up, you still have to pay off the entire balance of the loan. Borrowers consider balloon loans when they don't qualify for a traditional mortgage, or during periods of high interest rates. The idea is to refinance when the loan balance is due.

VA, FHA and FmHA mortgages

If you have less than 20% of the purchase price to apply to a down payment, you can ask your lender about loans guaranteed by the government organizations below. These mortgages offer competitive interest rates, with little to no money down, such as:

* Veteran's Administration (VA) mortgage: Qualifying veterans can get VA loans with no money down for houses valued at up to $203,000.

* Federal Housing Administration (FHA) mortgage: Designed for people with modest income, these mortgages usually require a down payment of around 3% to 5% of the purchase price and offer competitive interest rates.

* Farmers Home Administration (FmHA) mortgage:. These no-money-down loans are for individuals with limited income who prefer to live in rural communities. Interest can be as low as 1%.

Get answers!

Here are some important questions to ask your lender to help determine which loan is right for you:

Penalties. Can you pay off the loan early without prepayment penalties?

Insurance and taxes. What are the provisions for homeowners insurance and property taxes? With some loans, lenders insist you pay these expenses directly to them on a prorated basis, while they hold the money in a separate escrow account. The insurance and tax bills come straight to the lender, who then pays them with your money.

Loan limitations. Are there limitations on your right to borrow additional money from another source to facilitate your closing?

Interest rates/mortgage balance. Will your mortgage balance increase if interest rates go up? This is called "negative amortization," and it's as bad as it sounds! It has to do with adjustable-rate mortgages that place limits on the increase in your monthly payment without capping the interest rate. The result is that if interest rates go way up, your payments don't cover all the interest on your loan, and so your mortgage balance increases. Your balance is supposed to amortize—or gradually decrease over time. With negative amortization, the reverse is true!

Assumable mortgage. Is the mortgage assumable? When you sell your home, can the buyer take over what's left of your loan balance? Most assumable mortgages are adjustable-rate rather than fixed-rate mortgages.

Second mortgage/home equity loan. Can you borrow additional money against the home with a second mortgage or a home equity loan at a later date?

Selling limitations. Are there limitations on selling the property without paying off the loan?

Total cost. What is the total cost of the loan, including service charges, appraisal fees, survey costs, escrow fees, etc.?

What is a "point"?

Lenders make money on the interest they charge. "Points," (also known as "loan origination fees"), are up-front interest to compensate the lender for processing your mortgage. Each point equals 1% of the loan. For example, if you borrow $200,000, one point would equal $2000. Points are also referred to as "discount points" because usually the more points you pay, the lower the interest rate is, saving you money in the long haul. "Zero-point" loans exist, but the trade-off is you'll pay a higher interest rate, making for higher monthly payments over the life of the loan. Points, like interest rates, are negotiable; try to make them fit your situation.

Do your homework!

Since knowledge about the various options will affect your monthly mortgage payments for the next 30 years, it is important that you do your homework! Then consult your real estate attorney or another trusted source to discuss your options until you feel you can make the best choice for your situation.

Genesis Font is an SEO and Developer for LoansInteractive.com - Mortgage and Loan Officer Websites. We also offer Quality Web Hosting Services.

Other Article Sites

findabook.com  moneycd.info  a-mortgage.info   about-lemon-laws.info  aboutstudentloans.info
all-about-publishing.info  auctions-articles.info  bestcollege-university.com  bestispconnection.com
biblefolder.com  blogger-website.com  books-used.info  brokers-guide.info  buywindows.info  cable-dsl.info
career-miner.com  carpel-tunnel.info  cashinaflash.info  cashloanreviews.info  casinobell.com  chat-house.info
clearmycredit.info  collegeloantips.info  crones.info  depression-articles.info   dirnic.net  dishguides.info
divers-below.com  expodog.info   financewizz.com  fire-insurance.info  getgood.info  handleit.net   it-idea.info
health-supplies.info  hosting-right.com  insidealert.com  insurance-facts.info  jobs-employment.info
justgood.info  lookgold.net   lowcost-travel.info  money-source.info  myhostzone.info  numisblog.com
peoplesearchfinder.info  pr-articles.info  realeas.com   refinancing-guides.info  spyware-remove.info
telelot.info  the-law.info   toppaid.info  travel-deals.info  travelcorrect.com  wedding-guide-site.com
your-blog.info  your-credit.info

Mortgage Lenders In San Diego Can Bring You Closer To Seals And Navy Seals
You spot the huge creature standing in the distance as it raises its lengthy trunk straight up into the air. It starts trumpeting. The deafening sound it makes is no jazz, that's for certain. Then, the enormous mammal points its 400-pound tusks at you and its 15,000-pound body charges towards you! Your mind tells you to move, but your body refuses. The beast runs closer and closer, until you find yourself peering into the eyes of true terror. And then, suddenly, it slows down! The creature extends its trunk, which is powerful enough to knock down trees, towards you. You quickly reach into your pocket, pull out a handful of peanuts, and then uncurl your fingers towards the animal. The elephant happily uses its trunk to suck them up like a va...

The Buy-to-Let Mortgage Arla Panel
Property investment first came into existence in the UK in the 1990s and has boomed considerably in recent years Although there has been some recent turmoil in the financial markets experts still consider property to be a solid long-term investment

Investors Look For Alternative Investment To Bear Market; Consumers Pull Money From Volatile Wall Street to Invest in Nontraditional Method
According to PickLogic (www.PickLogic.com), an alternative investment option, some investors are putting their money in rather untraditional places, like foreign currency exchanges, the gold market, or the company's investment system, which is based on professional sporting events.

Online Paid Surveys Need Zero Investment?
When it comes to online paid surveys, there are many individuals who get fooled by unscrupulous survey site owners. They naturally tend to pay money to join certain market research sites, and this normally turns out to be a scam. Thus paid surveys must only be done if it involves no money initially ie, it should cost you nothing to join the market research site. This is something that is common for market survey companies. They will be able to get plenty of reviews from consumers while these consumers get paid for doing surveys with them.

Search For UK Car Finance With A Specialist Online
When looking for UK car finance you can get access to the cheapest quotes if you go online with a specialist provider A provider would be able to scour the whole of the UK marketplace and find you the cheapest quotes which you can then compare at your leisure

How to Finance a Business
How to finance a business is one of the main concerns that every new business person has to resolve. There are two main ways of financing a business, equity financing and debt financing.

Applying For a Mortgage Loan
Does applying for a mortgage seem too complicated Knowing how your application will be evaluated will better equip you to evaluate your financial strengths and weaknesses

ThePublicityAgency.com Signs Real Estate Investment Expert
The publicity agency adds real estate investment expert Rick Harper to its roster of business publicity clients.

Document Management System in Accounting
In this article, we seek to identify the tangible business results that a good document management system in accounting could produce. We look first at the kinds of accounting, then at the documents generated in accounting and finally examine how a document management system could produce business results.

New Suite of Services Helps Enterprises Measure and Demonstrate Return on Marketing Investment
Marketing Operations Partners and L2M Associates, Inc. today announced they are jointly offering a suite of services to help organizations better define, measure and demonstrate their return on marketing investment. The services, under the category of Return on Marketing, will be directed by Linda Popky, president of L2M Associates and an associate partner of Marketing Operations Partners, in conjunction with other members of the Marketing Operations Partners team.

Making Use Of Mortgage Points
What makes mortgage points important They can save you a substantial amount of money

Investment Techniques For Creating Passive Income
There are many wealth creation strategies and investment techniques available to those who are looking to create a passive income. These fall into three main categories.

House Mortgage: What Coverage You Need
In many instances, people do not give much importance on homeowners insurance shopping than in home buying since they are still in a cloud 9 with their new purchased house. The result is, new homeowners end up getting an insurance policy with too little coverage or paying more than what they should have. This mistake of course is not yet realized after a fire or other loss.

Why Get Pre-Approved For A Mortgage?
One of the most important steps in the home buying process is getting Pre-Approved as early as possible.The Pre-Approval process involves you speaking with a Mortgage Lender about your financial situation, what you'd like to accomplish, and any concerns you have.