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Archive for the ‘home loan’ Category

There are a variety of mortgage loans that are available to homeowners who want to purchase a home. It’s important to be aware of the various loan options so that you can make the best decision based on your long term goals and the monthly payment you can afford. Here are the top five mortgages to be familiar with.

Fixed Rate Mortgage

A fixed rate mortgage is exactly as it sounds; your monthly payment will be fixed over a period, generally 30 years, although you can take out a fixed mortgage for 15 or 10 years. The interest rate does not change over this time, which makes this mortgage the safest, most popular choice. In fact, fixed rate mortgages account for 75 percent of all loans. Their greatest advantage is that the homeowner knows exactly what their monthly payment will be.

Some homeowners worry that by taking out a fixed rate mortgage, they won’t be able to take advantage of lower interest rates if the rates do go down. The good news is that with a fixed rate mortgage, the homeowner can refinance. The only stipulation is that the homeowner has to pay closing fees. Although fixed rate mortgages are predictable and widespread, they do have higher interest rates than with other loans.

The first payments will go mostly toward interest, providing you with a better tax break early on. As time passes however, more of your payment will go toward the principal instead of the interest. Nevertheless, your payment will always stay the same. Fixed rate mortgages are best for borrowers that intend to stay in their homes long-term and appreciate the stability of fixed monthly payments.

One Year Adjustable Rate Mortgage

A one year adjustable rate mortgage has an interest rate that fluctuates based on the market. The advantage to this loan is that the interest rate is lower than what you pay for a 30 year fixed mortgage. Also, homeowners can qualify for a larger loan amount while having a smaller monthly payment, allowing them to get a more valuable home for less.

The drawback to a one year adjustable rate mortgage is that the loan is unpredictable. One year a homeowner may be paying a small mortgage, but the monthly payment can skyrocket the next. Each year on the anniversary of the loan, the payment changes according to a specific schedule that occurs after the fixed period at the beginning of the loan.

For some borrowers, an adjustable rate mortgage is a great option, even though it’s not as steady. If you’re someone that needs the lowest possible payments over the term of your loan, planning on transferring over your home in the near future or require the flexibility of loan terms, an adjustable rate mortgage may be a great choice for your situation. Also, you can pay off the principal of your loan without being faced with prepayment penalties.

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Many people have heard the phrase “jumbo mortgage” and most likely know that it refers to a really large loan.  But did you know that some houses in your neighborhood may require a jumbo mortgage and do you know what the loan limits currently are?

So how exactly do lenders define what qualifies as a jumbo mortgage? Actually it’s the government that sets this designation for loan amounts higher than what is considered a “conventional” or “conforming” loan.  This means that, as of 2011, any amount borrowed over $417,000 in most states and $625,500 in some areas where property values are higher, including Hawaii, Alaska and California is a jumbo mortgage.

Considerations for jumbo mortgages

Keep in mind that a jumbo mortgage is not always given to those who can afford to make the payments on it. This is because there is a significantly higher amount of money going out to pay for this type of home mortgage , the risks are higher to the lender. This leads to limitations on who will purchase these loans.

If you want to obtain a jumbo mortgage, it is a good idea to invest in it only if you are confident you can qualify. There are often more limitations on things like the following:

1. The interest rate is likely to be higher than that of a conforming loan. There is more risk and therefore that means a higher cost to the borrower in the form of interest.
2. Most lenders require at least, if not significantly more than, 20 percent of a down payment. The higher the down payment, the more likely the lender will provide the loan to you. In fact, it is best for borrowers to put down enough to keep the loan under the jumbo mortgage rate if possible.
3. Because of the high foreclosure rate for homes of this value, many lenders have restricted lending for these types of purchases. Finding a lender who is willing to provide you with this type of loan can be limiting.
4. Limitations to the property.  Jumbo loans are often used for larger homes and estates – but those can often be difficult to establish a market value for, especially if the home is somewhat unique or there is a lack of comparable sales.

A jumbo mortgage is a good option if you have no risk of losing your job or not having the money necessary to purchase the home. Keep in mind that your mortgage payment, interest and the terms for these loans vary just as they will vary for any other type of mortgage loan. Comparing interest rates is also very important for those individuals who plan to obtain a jumbo mortgage. If you want to buy a home, and the value is high, find out from your mortgage lender what you need to do to qualify.

Deciding when is the best time to pull the trigger on a home loan refinance, as a rule of thumb, is not always clear. Refinancing seems like a new opportunity to get a better interest rate or perhaps even to take funds out of equity to use for your own benefit. The problem is, though, that refinancing can be costly in some situations. It is a good idea to know when to refinance and when it can cause you to end up spending more on your mortgage, rather than less.

What are good rules of thumb to refinancing? According to some experts, the following tips can help you to save money on refinancing. To learn when to refinance, consider the following:

How much is the new interest rate going to be? Most experts warn not to refinance unless the new rate will be at least one to two percent lower than what you are paying right now. Anything less than that and you may not end up saving as much (considering you have to pay closing costs on the new loan).  You must be able to compare the actual payment amounts if you want to accurately estimate if it’s a good idea to refinance. I do not fully agree with this as each situation is case by case. Sometimes 2% is not enough and sometimes .5% is a good refinances. It all depends.

Take your current loan product into consideration.  The type of current loan you have might make a huge difference.  For instance, if you have an ARM that’s at 5% currently, and can refinance into a fixed rate at 4%, this doesn’t make the 2% rule of thumb.  However the long term security of a fixed rate may be awfully attractive.  Things like mortgage insurance, loan terms and pre-payment penalties should all factor into the decision. Other exceptions apply.

Are you planning to remain in the home at least five years? If not, then refinancing may not help you to save any money. To save money on a refinance, you must stay in your house longer than the break-even period – the period over which the interest savings just cover the refinance costs. But again, call me because sometimes we have options where we can absorb costs because your break even must be within 6 months or 12 months or immediate, whatever the case may be.

 How much equity do you have in your home? If you plan to withdraw that equity, or some of it, to consolidate debt or to do home improvement projects, plan to have at least 20 percent in place. Some lenders will not allow you to borrow up to 100 percent of your home’s value, either. Some programs allow 85% while some max out at 75%.

 Do you have good credit? You may not qualify for a lower interest rate loan or save money overall if you do not have good credit. The better your credit is, the less you will pay to get a loan. If you have bad credit, it is likely that refinancing will be more difficult and will cost you.

 Know your goal. Do you want a lower monthly payment? If so, you may pay more in the long term. Do you want to pay off your loan sooner? Try reducing the term and getting a lower interest rate, too. Ensure that you can accomplish your goal.

Don’t be afraid to ask for qualified advice

The fact is if you cannot save money, then it probably doesn’t make sense to refinance. Otherwise, it may cost you more in the long term and not make any sense for you to pay the closing costs on a new loan.

The rules of thumb are great for weighing the pros and cons – but remember, they are just guidelines.  You should never make a decision as important as whether or not to mortgage your home based on general ideas, and that’s why we recommend taking the time to sit down with your favorite loan officer and get the facts. And in this situation, it’s important to be cautious with advice from friends and family members as it’s just that – free advice.