Mortgage Tips
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Mortgages – 3
Important Factors
When buying a home for the first time, a mortgage can
seem like a daunting thing that you don't understand.
Here is some basic mortgage terminology that you need to
know in order to make an informed decision.
- Term - A mortgage
term is the length of time you have to pay off your
loan. It could be anywhere from 10 years to 30
years. Like any loan, the longer you have to pay off
your mortgage, the lower the payments will be. An
important mortgage tip - in some cases, the shorter
the term, the lower the interest rate.
- Rate - The "rate"
is the interest rate, which basically defines how
much you will be paying the bank to borrow money
from them. The interest rate offered to you is
dependent on your credit rating, how much money you
are able to put down, how much money you make and
the value of the home you're buying. Rates can also
change depending on the loan program.
- Cost - Costs
typically refer to closing costs, which are a part
of every mortgage. You may see offers for "No
Closing Costs" but these programs are rare. If you
get a no closing cost loan, it usually means the
mortgage company is making a large enough commission
on your loan to cover the closing costs for you.
Closing costs usually include an appraisal,
recording fees on documents at the registry or
deeds, attorney or notary fees and the like. Watch
carefully for junk fees!
Choosing a Mortgage
Term
The term of your mortgage is an important factor to
consider when choosing your mortgage program. Obviously,
the longer the term, the lower the payments - but low
payments aren't on every person's mind. In fact, some
people prefer to make larger payments towards their home
loan because it will be paid off more quickly and
because they are putting their money into an
appreciating asset. Additionally, if you plan to rent or
lease your property or a unit in your property, you'll
make more money the faster you pay down your mortgage.
The moral of the story is that larger payments are
better as long as you can afford them. This doesn't mean
you can't get a 30 year fixed mortgage and just be
disciplined enough to make an extra payment or two
throughout the year, but it does mean that the more
money you put into your home, the better off you'll be.
Advantages to Using Mortgage Brokers
Finding the right home may seem like the hard part of a
real estate transaction, but in reality, getting the
best financing can be much harder. This is partially
because we have so many options nowadays for mortgage
loans and so many places to find them. A mortgage broker
or your local bank can often lay out your options
clearly. They will be armed with what you want in terms
of loan term, ideal rate, targeted monthly payments and
the like. If you're smart, you talk to them before you
decide on your home so you really know your price range.
Once you have your options from your local folks, go
online and shop around. Some mortgage websites have so
many lender partnerships that they are bound to find you
a cheaper rate, shorter term or more competitive option
- they just have greater resources! Don't feel bad
either - this is your financial future and if your local
folks can't offer the best mortgage options - that's
life.
Adjustable
Mortgages – Risk vs. Reward
Why do people take out ARM loans anyway? An ARM is an
Adjustable Rate Mortgage and these can suit many people
perfectly. The idea is that you have a term where your
interest rate is fixed. This term can be as short as one
month and as high as ten years. ARM loans are ideal for
starter homes or condos, where you plan only to stay for
3-10 years and then you plan to sell. They can also be
great for getting into the home of your dreams with a
slightly lower payment. The risk is that when you
refinance your mortgage, the interest rates may be
higher, so although you are getting a great deal in the
short term, your long term interests are not as clear.
If you are in the financial industry and you follow
interest rates, an adjustable mortgage is probably a
great plan. The key is knowing when to refinance into a
fixed rate mortgage to protect your long term property
interests.
Paying Off Your Mortgage Loan Early
When you buy your first home and you see that 30 year
term, it seems like you'll be paying for your home
forever. There are ways to shorten your mortgage term
without refinancing.
- Pay a little
extra every month towards your principal. You can
usually add a dollar amount that specifically goes
towards that and even if you can only afford $20.00,
send it in. That is an extra $240.00 towards your
principal each year.
- Make one extra
full payment a year. By doing this simple thing, you
reduce your loan term by YEARS.
- Don't spend money
on frivolities. If you have extra cash on hand,
invest it in your equity or in home improvements -
especially the kitchen and bathrooms which will
increase your home's value.
Prepayment
Penalties on Adjustable Rate Mortgages
No matter which mortgage you choose, make sure you ask
about prepayment. If you want to refinance down the
road, you don't want the obstacle of a prepayment
penalty to get in your way. Prepayment penalties are not
the norm - they are usually associated with higher risk
loans with higher interest rates. Basically, if you
decide to pay off the loan, they will demand an amount
of money as a penalty. This can be a fixed amount or a
percentage of your loan. No matter which program your
mortgage broker or mortgage website is suggesting, ask
about prepayment penalties before you sign. This can
mean thousands of dollars in savings down the line.
Funding the Costs of Your Reverse Mortgage
Many older people are taking advantage of reverse
mortgages to help with living expenses. If your house is
paid for, this may be a viable option for you. A reverse
mortgage means you are taking a monthly draw from the
equity in your home. It can mean the difference between
being able to stay in your home as you get older, or
having to sell it and move someplace else. A great
mortgage tip - ask that your closing costs be paid out
of your loan proceeds. This means you can secure a
reverse mortgage for no out of pocket costs.
Choosing an Interest Only Mortgage Option
If you are looking to make a significantly lower payment
for the first several years of your mortgage, an
interest only mortgage may be the right program for you.
The program is just as it sounds. You will be making
payments only on the accruing interest of your home. You
don't have to make payments towards your principal,
which is why the payments stay so low. If you're smart,
you won't use this program as an opportunity to buy a
lot more house than you can afford. Calculate the
affordability of the home according to making payments
towards both the interest and the principal so that when
the loan requires those payments, you are prepared.
Don't be put off by this though - an interest only
mortgage program can be great for select home buyers so
talk to your mortgage broker about the option.
Choosing a Mortgage Broker
Today, finding a mortgage broker is easier than ever.
Because of the internet, you are no longer forced to use
local mortgage brokers - you can find great mortgage
brokers and lenders on the internet that can offer
better programs for better rates than ever. The key to
choosing a mortgage broker is comfort. Are you
comfortable with the person? Do they make you feel
confident that they are guiding you to the right
mortgage option? Remember, this is not a popularity
contest. People often make buying decisions based on
whether they like the person with whom they are dealing.
Let that go and play the numbers game with your
mortgage.
The Fastest Way to Obtain a Mortgage Loan
Getting a mortgage online has never been easier and
offers many benefits. Online mortgage brokers usually
have access to more lenders and programs and they can
turn things around quickly. Because credit checks, loan
applications and income verification have been automated
so thoroughly, an online mortgage company can help you
if you have a short closing date or need a fast
refinance. Start with the major search engines when you
want to find mortgage broker options. Better yet, try to
find online reviews or get a referral. Make sure the
site you choose has the Better Business Bureau seal and
all of the information security precautions possible.
Things to Know About Your Adjustable Rate Mortgage
When you choose an ARM loan, make sure you know some of
the following facts, so that you are prepared when your
fixed rate term ends.
- When will your
rate adjust the first time, and by how much? This
could be any term from 1 month to 7 years, so make
sure you know the date and you are prepared for the
adjustment.
- Be aware that the
rate of your ARM will not shift only once. It's
likely to shift regularly according to any changes
in interest rates. Your rate can be determined by
the US Treasury or the LIBOR index, do familiarize
yourself with the right index and follow interest
rates so you are well educated.
- Be aware of your
refinancing options. ARM loans can be great to start
off in a home or condo, but you can easily refinance
to a fixed rate loan. The key is to get a great
interest rate on your fixed loan, so watch rates,
keep in contact with your mortgage broker and make
the move before you get into trouble with your ARM
loan.
Getting a 'Flexible' Interest Only Mortgage
Interest only mortgage loans can be a smart option
for you if you are self disciplined. They offer a
flexible payment schedule where you are only
required to make a payment towards the interest of
your loan, but you also have the option to pay
toward the principal. In most cases, your interest
only mortgage coupon will even lay out
pre-calculated options for payments towards
principal. If you have an interest only loan, make
it work for you - be disciplined and pay off as much
as you can. By all means, take advantage of the
payment flexibility when you need to, but put money
towards your equity whenever possible.
