AltaireCon

Archive for the ‘Fixed Rate Mortgages’ Category

Mortgage rates can either be fixed for the duration of your loan or can be adjustable. An adjustable rate mortgage is a loan that is set up with an interest rate that changes based on pre-determined criteria, primarily tied to the federal interest rate. If the interest rates are up, then your interest rate on your loan will be higher, if the interest rates are low than the interest rate on your loan will go down.

Adjustable rate mortgages (ARM) are generally fixed interest rates for a period of time and then become adjustable. Generally speaking the introductory interest rate for an ARM loan will be lower than a fixed rate mortgage. This is done in order to lower initial payments and allow people to take out larger mortgages, or give them smaller payments for the introductory period. This is attractive to people who may know that their income will be increasing over that period of time.

Whether or not to choose an ARM or a fixed rate mortgage has been debated for as long as there have been ARMs. Though people feel strongly in both camps, simple mathematics can assist you in determining which mortgage is best for you and your personality. Your personality? Yes. Some people are not comfortable with any uncertainty in their lives. The idea of having an uncertain mortgage payment in the future may cause them more stress than the money they are saving is worth. Therefore, factor your own comfort level into the equation.

Generally speaking, ARMs are 2, 3 or 5 years, though they can be longer or shorter. At the end of that period your interest rate will become variable unless you sell your home or refinance. If you think that the likelihood of your selling or refinancing within the period of the ARM is strong, than the lower interest rates of the ARM loan will be of great benefit to you. If you think it is unlikely that you will sell or refinance within that period, then you may not benefit from an ARM.

Bob and Robyn are a young married couple just starting out. Bob is in advertising sales and Robyn is a teacher. Bob is fairly confident that his income will continue to increase over the next several years as he works his way up to becoming an account executive. Robyn’s income is more predictable and is on an upward trend. Being a young couple they do not have the finances for large mortgage payments.

Bob and Robyn are presented with two mortgage proposals for their $150,000 mortgage. Proposal one is a 30-year fixed rate mortgage at 6% and the other is a 5-year ARM at an introductory rate of 5.25%. The fixed rate mortgage payments would be $899.33 per month, not including taxes. The ARM would have a 5-year period where payments would be $828.31 per month, not including taxes. Bob knows that even if he can afford the extra $70.00 per month for the fixed rate mortgage, that $70 per month may be better spent knocking down principle during the ARM period. He is further confident that as his salary increases, he is likely to upgrade his home within five years or refinance to make home improvements. Bob and Robyn took the ARM loan.

John and Catrina are a married couple with three grown children. John has been employed at the same company for 18 years and Catrina has been with her company for 12 years. They have consistent and stable income. Neither John nor Catrina expect any substantial increases in their salaries. After their last child moved out of the home they decided to downsize and buy a smaller home. They have a substantial down payment and will only be taking a mortgage of $100,000 on their new home. John and Catrina are presented with the same loan options as Bob and Robyn were. John and Catrina, however, know that it is unlikely they will sell or refinance in the next five years. They are comfortable with the payment schedule and, therefore, prefer the certainty of the fixed rate mortgage.

There are countless websites that offer mortgage calculators to determine your mortgage payment. For your convenience we offer one on our site (if you are not going to have one on your site, we can remove this, though I think it’d be good to have one on your site). You can review the different payment schedules based on the interest rates quoted for the fixed-rate and the ARM. Once you know the different payment amounts you will be able to determine which loan makes the most sense for you and your unique circumstances.

Your mortgage professional should also be able to assist you in reviewing the options and making the best decision for you. The more open and honest you are with your mortgage professional the more helpful they will be. It is only if they are armed with full and honest information that they will be able to make recommendations to you.

There is a new trend in Reverse Mortgages today. The Fixed Rate HECM is now an established product and is becoming one the most popular products in the industry. The Fixed Rate Reverse Mortgage is a great product but it does have some important differences from the standard adjustable rate Reverse Mortgage that we will discuss in this article. Knowing these differences is crucial to make sure your next Reverse Mortgage is the most efficient and the most satisfying for you and your family.

Actually, the differences in the adjustable rate HECM and the Fixed Rate HECM are very slight. Both products are guaranteed and regulated the Federal Government through the Department of Housing and Urban Development, or HUD. Both products are non-recourse loans, which means that should the balance of the Reverse Mortgage somehow become more than the value of the home, neither you nor your heirs will be liable for the difference. This is a loan that is only based on the value of the home and none of your other assets, estate, or investments. Both loans have no credit, income, or health requirements. The only qualifications you must meet are that you over the age of 62, and that you own your home.

Now, obviously the major difference in the two products is that the Fixed Rate product’s interest rate is fixed for the life of the loan, while the other HECMs’ rates are adjustable through a variety of indices. The Fixed Rate is currently at 5.56% and if you obtain a Reverse Mortgage at this time, the rate will remain fixed at that rate for the entire life of the loan. The rate could change in the near future, but so far, the rate has been steady and is extremely low.

The other major difference in this product compared to the adjustable rate mortgages, is the way that you may receive the funds. In an adjustable rate HECM, you may receive your funds in a full lump sum, a monthly payment amount, a line of credit, or a combination of the three. The Fixed Rate product is restricted to only the full lump sum distribution method. This is not important if the bulk of the Reverse Mortgage funds will go toward a satisfaction of a current mortgage or debt. This is due to the fact that currently, the fixed rate Reverse Mortgage is usually going to be the best performing Reverse Mortgage. It will give you the most funds possible with the same about on closing costs.

When rates stabilize and future interest rates give lower to the point where the adjustable rate product becomes feasible again, then the choice will be yours as to which product will best benefit you. However, knowing the requirement of the fixed rate HECM’s disbursement, you can now make an accurate and informed decision exactly when to obtain your Reverse Mortgage.

Amongst the two most popular types of mortgages taken out in the UK today are the standard variable rate mortgage and the fixed rate mortgage. There are other mortgage products available that also come under the umbrella of a variable rate mortgage, such as a base tracker mortgage or a discounted mortgage.

If you are new to the world of mortgage it may be difficult to decide which mortgage to opt for, and there are pros and cons to both variable and fixed rate mortgages.

When deciding whether to opt for a variable or a fixed rate deal it is important that you consider the pros and cons of both so that you can make a more informed decision with regards to which type of mortgage will prove most suitable for your needs and pocket. Your mortgage is an important long term commitment and in order to avoid hassles and additional costs it is important that you get it right first time.

Variable rate mortgages

There are a number of mortgages that come under the umbrella of variable rate mortgages, and this includes lenders’ own standard variable rate deals, discounted rate mortgages, capped rate mortgaged, and base tracker mortgages. A variable rate mortgage is where the interest rate can vary, and can go up or down in line with the Bank of England base rate.

The main benefits to a variable rate mortgage is that if interest rates fall then your rate of interest and your mortgage repayment will also fall, which means more money for you.

Another benefit is that the initial interest rate charged on the variable rate deal is lower than the current fixed rate deals, and you can get some competitive deals from a range of lenders. There is also a choice of variable rate deals, so you should not have too much difficulty finding one to suit your needs.

One the downside the interest rates on variable rate deals can also go up, and as has been seen over the past year following a series of Bank of England rate rises this can quickly lead to unmanageable repayments and the possibility of repossession.



Fixed rate mortgages

A fixed rate mortgage is a mortgage where the interest rate is frozen for a specified period, so no matter what happens with the base interest rate your fixed rate will remain unaffected. Fixed rate mortgage have become increasingly popular, and are particularly popular amongst first time buyers. You can get different fixed rate lengths, although the most common are between two and five years.

The advantages of fixed rate mortgage is that they offer financial stability and peace of mind, because you know exactly what your repayment will be each month and there will be no fluctuation throughout the term of the fixed rate. This means that you can enjoy easier financial management, which is perfect for many first time buyers that are not used to having to budget.

One of the main disadvantages is that if the base interest rate starts to fall your fixed rate will not fall – it will remain fixed. Therefore you will have to continue making the higher repayments at the higher rate of interest.

Incoming search terms:

The question of which is preferable: the 15 or 30 year fixed mortgage rate is one that home buyers are always unsure about. Buying a home later in life means that many people want to have the mortgage paid off early. But, before you commit yourself and sign any documents, there are points you need to think about. For almost every homeowner, having constant interest rate is critical if they are to meet payments without difficulty.

Avoid the mortgage loans offered by some lenders, those that sound unbelievable because they usually are. A 15 year fixed rate mortgage means the interest rate remains stable for the life of the loan. This is always a good thing for those people that don’t like surprises. When my wife and I were looking at homes for sale we decided to check out the various loans available with 15 year fixed mortgage rates.

Even though it was important for us to pay off our loan at the earliest possible opportunity, we didn’t want high, unrealistic monthly payments which we would have trouble maintaining. When we considered fixed rate mortgages we also looked into even longer term loans that spanned 30 years as well. No-one likes the idea of having a mortgage when they are close to retirement, and we were no different, so it was still our hope that a 15 year fixed mortgage rate plan would still be an option. We were worried about the emphasis placed on early completion of the mortgage.

It took some time but we finally chose to go ahead with the 30 year mortgage plan. Reaching the decision we did was the only one that made sense. The most important point was the fact I discovered my wife was having a baby. Her regular monthly income would become unreliable because she wanted to be at home raising our child. The financial commitment per month on the 15 year fixed mortgage rate was just too high. We just decided we would probably get into trouble if we took this route. The monthly payments on a 30 year loan were quite a bit lower.

Being able to make additional lump sum payments during the year means the outstanding loan reduces faster. By doing this you can also reduce the term of the mortgage by quite a few years. This may be difficult but well worth the effort in the a few years down the line. Taking our needs and abilities into account was more important than our desire for a shorter term mortgage plan. Anyway, everything worked out fine despite our hesitancy.

Since the inception of the reverse mortgage program by HUD, it has offered only an adjustable interest rate. With the recent news stories spreading fear about the “danger” of adjustable rate mortgages, many seniors have understandably been more than a little gun-shy of the reverse mortgage with an adjustable rate.

But just in the past 6 months, a new fixed-rate reverse mortgage has been introduced. The rate is locked at the drawing of the final loan documents and remains fixed for the life of the loan. With rates as low as 5.5% this year this year, a fixed rate reverse mortgage sounds like an attractive option! But, as with most things, it comes with a few caveats.

The fixed rate reverse mortgage requires that the senior homeowner take the money that they qualify for as a lump sum. No credit line, term or tenure income payment is available. For those that have a large current mortgage to payoff, or for those who have plans for the money, this disadvantage is the sleeves out of their vest. But for this reverse mortgage for seniors who owe little or nothing on their homes and just want a little additional monthly spending money, the lump sum requirement has some real tradeoffs.

If they are required to take out all of the money at once, then interest will begin accruing on the full loan amount from day one. But with the adjustable rate reverse mortgage, they could get a monthly income check that is only added to the mortgage balance when the check is cashed. This would keep the balance of the reverse mortgage lower over the long run, allowing less interest to accrue and leaving the senior or their heir more equity in the home down the road.

The adjustable rate reverse mortgage also has the advantage of offering a larger amount of money to the senior homeowner. For example, a senior whose home is worth $220,000 and who is in his early 70′s, qualified for $10,000 more under the adjustable rate versus the fixed rate reverse mortgage.

Many seniors do not care about having an adjustable interest rate. After all, the main danger of an adjustable rate mortgage, as exposed in the news stories, is that your monthly mortgage payment could rise quickly and beyond your means. Since a reverse mortgage has no monthly payment, this danger does not apply. The interest with go up and down, but other than seeing the changes on the monthly statement, the senior will not feel effects.

The fixed rate reverse mortgage may be a good idea for some seniors. For those who think that an adjustable rate will average out over time to be higher than the currently available fixed rate, it may be a good choice. Those who choose the fixed rate reverse mortgage must also have a good use for the lump sum of cash that they will receive, so that they do not needlessly accrue interest on their loan.

Our financial industry is facing unprecedented financial challenges. One of the primary root causes is that non traditional variable rate mortgages were being made to people that did not understand them. As the payments on these loans increased beyond the buyer’s ability to repay the loans, the default rates skyrocketed. The lenders ‘creative’ business practices and short term financial motivations that led to this fiasco are beyond the scope of this article. This article is directed at the borrower and how to borrow money for a home in the safest manner.

Here is a list and a brief description (and commentary) of some of the riskiest non traditional types of loans:

1. NINJA Loan – No Income, No Job and no Assets – also called the ‘liars loan’ by industry insiders because few if any qualifications are imposed on the borrower. These loans are also referred to as Alternative-A (Alt-A) loans because they are not made to highly qualified borrowers. These loans come with a high interest rate and fees and are the most lucrative for mortgage brokers. This loan assumes that the borrower will not borrow more than they can pay back. Not a very safe assumption.

2. Balloon Loan – This loan allows the borrower to pay interest only for 5 to 10 years at which point a lump sum payment is due. These loans were designed for people not intending to be in the home for very long. The borrowers gain no equity in the home (unless prices increase a lot in the near term) and better have a large amount saved up in case housing prices fall. This loan is based on the assumption that housing prices will never fall or that the borrower will save a lot of money. Once again, not very safe assumptions.

3. Piggyback Loan – This is usually a loan for 80% of the purchase price coupled with another loan for 20% of the purchase price. The second smaller loan is considered the down payment. This type of loan does not require the borrower to have any of their own hard earned money in the home. When housing prices fall, they owe much more than the value of the home and are more likely to walk away from the loan. Once again, a reliance upon ever increasing home values.

4. Adjustable Rate Mortgage or ARM Loan – The interest rate on these loans fluctuate with current interest rates. Since 2002, we have had the lowest interest rates since the 1960′s. So any ARM loans made since 2002 are most likely going to have an interest rate hike. This rate hike translates into a higher monthly payment, causing financial troubles for those borrowers.

5. Teaser Loan – A loan with an artificially low interest rate for two years which then resets to the standard interest rate. These loans are qualified at the teaser rate, so when the real interest rate takes effect the borrower can be in trouble and not able to afford the payment.

6. Stretch Loan – A loan where the borrower is expected to pay over 50% of their pre-tax earnings towards a mortgage payment. By the time all state taxes, local taxes, federal taxes, social security, health insurance, dental insurance and 401K are paid I only receive 62% of my gross income. With this type of loan, my house payment would take 80% of my after tax paycheck!!!

As you can see, any borrowers that chose these types of loans and over borrowed can be in serious trouble. You do not have to make this same mistake – stick with a traditional fixed rate mortgage.

Fixed rate mortgages are usually done over 30 years or if you can afford it, 15 years. If you are someone that does not need to buy near what you can afford, there is tremendous savings by going with a 15 year fixed rate mortgage instead of a 30 year mortgage. This does not include the majority of home buyers.

For reference, here is data showing the monthly payments on a 30 year fixed rate mortgage of $200,000. This data does not include PMI, insurance or taxes (which are included in many mortgages) – only the payment on the loan.

A $200,000 loan at 4% interest has a monthly payment of $955 and total interest payments of $143,739 while a $200,000 loan at 8.5% interest has a monthly payment of $1538 and total interest payments of $353,614.

As you can see, there is a $500 spread between payments on a loan at 4.0% versus a loan at 8.5%. In addition there is a more than $200,000 difference in the total payoff of the loan. These numbers show the importance of locking in the best possible interest rate on your loan. What these numbers also show is the risk associated with any loan that does not have a fixed interest rate. By not locking in a payment, you risk a huge increase in future mortgage payments. Monthly payments will increase enough just through tax and insurance increases, without adding the financial stress of not knowing what your mortgage payment will be each month.

If you are searching for a mortgage loan, it is safest to go with a fixed rate mortgage. With a fixed rate mortgage, your interest rate and therefore your payment on the interest and principle will not increase over time.

Although there are exceptions to every rule, most people are purchasing and moving into a home for an extended period of time. If this is you, do not be teased into buying more home than you need or financing it with an exotic loan just because the bank will lend you the money. They are looking at their short term gains while you must look at your family’s long term financial security.