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John Bear
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An Introduction To Mortgage Loan Rates
May 8th
Basically, a mortgage is a loan that uses real estate as collateral. A mortgage loan rate, on the other hand, is the interest rate charged on a mortgage. Now, mortgages are classified into two types: the residential mortgage, and commercial mortgages. In the case of a residential mortgage, the property of the borrower with a self-occupied residential property is provided as collateral.
A commercial mortgage, on the other hand, is a loan for which real estate other than a residential property occupied by the borrower is provided as collateral to secure payment of the principal and interest or just the interest. Usually, in the case of commercial mortgages, the collateral is an office, commercial building, store or other business real estate.
These mortgages are typically made by businesses that require the money for working capital, purchasing new equipment, or even an expansion. And because a business may be formulated as a partnership, or a limited liability firm, the assessment of creditworthiness of a business by a financial institution is more complex.
The residential mortgage loan rates differ from the commercial ones as the rates are usually higher for commercial mortgages and this is due to the risk associated with residential mortgages and the default percentage is lower compared to commercial mortgages.
Mortgages can be classified as fixed rate or adjustable rate mortgages. Both of these mortgages may be obtained for residential and commercial properties. The initial interest rate of an adjustable rate is actually lower compared to the fixed rate mortgage.
The Federal Reserve Board primarily governs mortgage loan rates and if the board changes the interest rates, the mortgage lenders should then adjust their interest rates accordingly. They are also influenced by economic and market factors such as inflation.
Generally, lower rates can be availed if you pay a 20% down payment or more of the loan amount. On the other hand, if you pay a down payment of 5% or less of the loan amount, you may only have to qualify for a higher interest loan.
Mortgage loan rates usually fall somewhere between 5 and 13%. Long term loans have slightly higher interest rates than the short term loans and the difference is usually below 1%. Loan rates also differ with mortgage loan types such as FHA loans, VA loans, commercial loans, home equity loans, home improvement loans, and bad credit/sub prime mortgage loans.
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Choosing The Best Home Mortgage Rates
May 7th
Taking a mortgage loan has always been considered a smart move to owning a home. But of the large number of loan types and loan programs that are made available through various mortgage brokers, bankers, loan and finance companies, credit unions, and lenders, it is no wonder that selecting the right home mortgages rates would be so difficult.
Finding a home mortgage doesn’t begin with an application, as many would think. It is important to educate oneself first and there is plenty of reliable information available through websites, magazines, books and seminars to facilitate that. One can also consult real estate agents or financial planners.
After getting the right education about home mortgage rates, you will then have to plan on how you will be able to fit the payments with your budget and future plans that will depend on the mortgage term.
Mortgages can often be paid off in incremental payments that will reduce the principal of the loan, this process is called as amortization. So for the initial years, a large amount of your monthly payment will go to pay the interest while the small portion goes to pay the repayment of principal.
There are two variants that are generally available for home mortgages and these are the fixed rate mortgage or the FRM and the adjustable rate mortgage or the ARM. A lower rate of interest is actually being offered in adjustable rate mortgages compared to fixed rate mortgages as because the risk on the rate changes is born by the mortgagor.
If the interest rates rise, the mortgagor will end up paying higher monthly payments. The mortgage rate offered is linked to an underlying economic index and is adjusted periodically that is based on the movements in the economic index.
Fixed rate home mortgage rates, on the other hand, carry an interest that is fixed and cannot be changed throughout the mortgage term. So if you have been paying an amount of $1000 monthly and your term is 20 years, you will still then pay $1000 every month for twenty years, even though the interest rate keeps changing.
Whether you opt for a fixed rate mortgage or an adjustable rate mortgage, it is entirely your choice. However, it has been noticed that adjustable rate mortgages are more beneficial when the terms are short. For longer terms, fixed rate home mortgage rates appear to be better.
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Mortgage Refinance Loans Guide
Jan 12th
If you are already in the process of refinancing your home mortgage loan, choosing the right type of mortgage for your situation could save you thousands of dollars. There are two types of mortgage loans to choose from when refinancing depending on your financial needs and tolerance for risk. Here are several tips to help you select the right type for mortgage when refinancing your home loan.
The two types of mortgage refinance loans are loans with fixed interest rates and those with adjustable interest rates. As for fixed rate mortgages, they come with ten to fifty years of term lengths and have payments based upon an interest rate that does not change for the duration of the loan.
Adjustable Rate Mortgages, on the other hand, are based on a specific financial index and include the mortgage lenders margin. There is another type of mortgage known as hybrid loans; however, hybrid mortgages are really just a combination of the Fixed Rate and Adjustable Rate Mortgages.
The adjustable rate mortgage’s interest rate will change every time the lender resets your loan. So when the lender resets not only your interest rate but also your payment amount, they will use the financial index your loan is tied to plus their own margin. The one-year treasury note is the most common index that is being used by mortgage lenders. Adjustable rate mortgages basically have the advantage of lower initial payments, though the loans have more risk for borrowers when the lender begins adjusting the loan.
Homeowners who understand the risks associated with Adjustable Rate Mortgage Refinance Loans will be able to save thousands of dollars when refinancing their mortgage loans. You shouldn’t write off Adjustable Rate Mortgages because someone told you that you’ll have a payment shock when the lender begins adjusting your loan.
Now, there are several advantages to accepting an adjustable mortgage. As a start, a low rate mortgage will allow buyers to purchase pricier home even while maintaining an affordable monthly payment. And because of the record of low rates, home buyers who obtain an adjustable rate mortgage may enjoy falling rates without even having to refinance their mortgage. Thus, they can avoid the closing costs and other fees.
Adjustable rate mortgages are in fact ideal for people who plan on moving in a few years. Some people enjoy the stability of living in one place for many years. So in this case, having to refinance for a fixed rate is truly a wonderful idea, but if you would like the flexibility of moving every three to five years, then you can save some money with an adjustable rate.
Fortunately, home mortgage loans can be refinanced whenever you like and some lenders even suggest allowing the loan to mature at least 12 months. However, if you detect a change in market trends, refinancing shortly after purchasing your home is surely a smart maneuver. Those contemplating refinancing must be prepared in order to pay additional closing fees. Moreover, contact your current lender and inquire about prepayment penalties regarding mortgage refinance loans.