||Selecting a Mortgage
By William Brister
Selecting a mortgage is not only time consuming but confusing, given the large variety of loan packages on offer in the market today. With different mortgage rates, varied costs and fees and multiple terms and conditions, you need to be well informed to make the correct decision about which mortgage is best suited for you.
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Among other things, mortgage rates are extremely important while selecting a mortgage. Interest rates fluctuate depending on different factors that influence the economy like prime rate, Treasury bill rates, federal fund rate, federal discount rate and certificate of deposit rate etc. If the economy is doing well and the demand for mortgages is high, the interest rates will also see a climb. On the other hand, if the demand for mortgages is low in a poor economy the interest rates will drop as well.
However, there are several other factors that are as or perhaps more important than interest rates that determine which mortgage is right for you. These primarily include your financial situation such as income, savings and liquidity, your housing needs and duration of stay, the level of risk you are willing to take as well as the term of your loan. All these factors need to be considered equally and balanced with oneís present position and future goals.
Before you decided on which mortgage is best for you, you will need a mortgage lender approval who based on your credit rating will offer you a loan that he feels is within your reasonable risk limits. The mortgage lender will take into consideration your ability to pay and then adjust your interest rates, points, terms etc accordingly. Only after this will you be able to select a mortgage that fits your requirements both, personally as well as financially. You can go in for mortgage refinancing at the end of the term if such a need arises.
The basic features while considering the selection of a mortgage are as follows:
1) Interest rate Ė fixed or variable:
In a fixed rate mortgage your interest rate will not change during the entire duration of your loan. This will enable you to know exactly what your periodic payout is and how much of the mortgage will be paid off at the end of the term.
Federal Housing Administration Insured Loans (FHA)
Veterans Administration Loans (VA)
Farmers Home Administration Loans (FmHA)
With a variable rate, the interest will vary periodically during the life of the loan, depending on interest rates in financial markets.
2) Duration of mortgage: short term or long term
The duration of mortgage is the length of current mortgage agreement. A mortgage typically has duration of six months to ten years. Usually, if the term of the loan is short, the interest rates will tend to be low. A short term mortgage is for two years or less and is appropriate for people who feel that the interest rates will drop in the future, especially when it is time for renewal. A long term mortgage is for three years or more and most suited for people who believe that current rates are stable and reasonable and want the security of budgeting for the future. After the expiration of the term loan, you can either go for a renewal in mortgage at the current rates or repay the balance principal owing on the mortgage.
3) Open or closed mortgages
Open mortgages are typically short-term loans and can be paid off at any time without penalty. Homeowners who are planning to sell in the near future or require the flexibility to make large, lump-sum payments before maturity choose these kinds of mortgages. Closed mortgages are committed after taking into consideration specific terms. If you want to pay off the mortgage balance you will have to wait until the maturity date or pay a penalty.
4) Conventional or high ratio
A conventional mortgage is one that is not more than 75% of the appraised value of purchase price of the property. The balance amount is paid through your own resources and is known as down payment. If you have to borrow more than the stipulated 75%, then you will need a high ratio mortgage. If the down payment is less than 25%, the mortgage will have to be insured. The insurer will charge a fee which will depend on the amount you are borrowing and the percentage of your down payment. Fees range from 1% to 3.5% of the principal amount and can be paid up front or added to the principal amount of the mortgage.
Paying Points on Mortgage Loans:
Paying points on mortgage loans lowers the mortgage rate on your loan. Typically, one point is one percentage of the total loan paid up front, usually at the time of closing. The factors determining whether you should pay for points will depend on:
The tenure of your stay- If itís a short-term stay, paying points does not make sense as you pay more in points than you save in interest. If you plan to stay for 10-20 years, points will pay off over time.
Deduction in tax- Paying points on a new residential mortgage allows you to deduct the money paid on that yearís income tax return.
Not every mortgage is in consonance with your specific needs, but once you determine your goals both personal and financial, you will have the ball rolling. To keep monthly housing costs down, ensure that:
Your down payment is as large as possible
Mortgage should be a long term one
Select a mortgage with a low interest rate
Keep the payments within your budget
William Brister http://www.mortgageproguide.com - Find the best mortgage options to fit your financial situation and housing needs
Money Myths That Need Busting
By Martin Lukac
There are many ideas floating around out there about money. So many of them are off base by just enough to cost you money. Here are a few of the most common money myths that aren't always correct.
1. The savings account myth.
Having a savings account doesn't really mean that you are saving money. It is a great place to have your emergency money, and it is earning you a slight amount of interest. However, if you have high debts with large interest rates, you are losing money by putting it in a low-interest savings account. You should be paying off your debts first. Plus, if the account is earning very little, inflation could actually be higher than the interest you are earning. In the long run, the investment really isn't working for you, it is costing you.
2. The big sale myth.
I know plenty of wives that use this one. If you buy something on sale, you must be saving money. Not really. The item must have been something that you would have purchased had it not been on sale. You can't purchase something just because it is on sale and save money. You had already decided not to purchase it at full price. This truth has a few exceptions. If you put the difference in a savings account, you are motiviating your savings through a sale purchase.
3. The refinance myth.
You do not save money by refinancing your house every time. Most people will refinance for a lower interest rate, but a 30-year term again. If you had already paid five years toward your mortgage, you are basically extending your mortgage to a 35 year mortgage. You are likely to pay more over the long run than you will save in interest rate.
4. The credit card myth.
Zero percent interest credit cards are a great hook for consumers. If you have a credit card with 0% interest you can save money if you already have the money you would have purchased the items with in an interest bearing account. If you don't, you aren't saving anything. If you don't have the money to pay off the card when the introductory interest term is over, you are spending money to spend money.
And the only way you save with a cash back credit card is if you pay the balance off in full each month and there is no yearly fee for the card. If you carry a balance, your interest will be higher than the cash back.
5. The more money myth.
Making more money will not mean you save more money. It only means that you will have more money to spend. Most people spend more as they make more. They don't really ever save.
Martin Lukac represents http://www.RateEmpire.com and http://www.1AmericanFinancial.com, a finance web-company specializing in real estate and mortgage rates. We specialize in daily updates, mortgage news, rate predictions, mortgage rates and more. Find low home loan mortgage interest rates from hundreds of mortgage companies!