The CML (Council of Mortgage Lenders) show that nearly 6 Million people have received mortgages that are interest only. Interest only mortgages means that your monthly payments are applied only to the interest accrued on the debt and not the actual debt itself. Additionally, the CML has found that many first time home purchasers are seeking interest only mortgages. The number of first time buyers that apply for interest only loans increases each year. Why such a boom in this type of loan? Well research has found that by allowing first time homebuyers to pay interest only, is the only way many of them can afford to buy a home.
An example of how an interest only mortgage works is say a homebuyer wants to borrow 100,000 for three years at a fixed rate of 4.99%. The estimated payment for this person would be about 600 to repay the loan. However, if you make this interest only, their monthly payment would decrease to only around 400. The general problem with this type of mortgage is that the borrowing homeowner would need to have some way of being able to pay on the capital of the loan. Otherwise, at the end of the loan term they will still be left with the same debt.
Years ago, a mortgage lender would require that anyone applying for a loan be able to prove that they would be able to pay their loan. Today, it is simply the matter of reminding the homeowner that they will need to pay off the capital. Typically, it is usually required that those interested in a interest only loan have some sort of investment, for example and ISA (independent savings account) that will go towards the capital when the mortgage terms end.
It is extremely important that you thoroughly consider all your means and put a great deal of thought in how you can pay off the capital of the loan. Many people rely on house prices to rise to help them, with lower wages and falling prices this will not provide a secure environment. This in the end could mean trouble for the homebuyer.
So, by now you are probably wondering what you can do to pay this loan off. You could consider a mortgage of repayment, a portion of every monthly payment you make goes towards the actual debt. This is more expensive than the interest only loans; however, it does help reduce the debt by actually applying payments towards it. If you do have an interest only loan there are a few things you may be able to do. For example, you could have part of your mortgage switched into a repayment mortgage or open an ISA and start saving month every month. This is tax-free and by saving, you will bid up funds to put towards the capital.
January 18th, 2011 in
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What Is A Reverse Mortgage And Should You Get One?
Who qualifies for a reverse mortgage?
You must be at least 62 years old and have equity in your home.
You have equity in your home if your home is worth more than you owe on it.
Heres how it works
When you bought your home, the bank loaned you the money to buy it and you paid them back with monthly mortgage payments.
A reverse mortgage is the opposite. With a reverse mortgage, the bank pays you a monthly payment from the equity in your home.
You repay the money when you sell your home, refinance, permanently move out, or pass away. At that time, you or your heirs must repay the loan plus interest in one payment.
How do I get a reverse mortgage?
Reverse mortgages are available through most major banks and lenders.
Heres what happens when you contact the lender:
An appraiser will determine the value of your home.
The lender will tell you how much you qualify for based on your age, the equity in your home, and the cost of the loan.
You decide how you want to receive the money.
You can receive the money:
As a lump sum
In monthly payments
As a credit line that lets you decide how much of the loan to use, and when to use it
You sign a contract. The contract will outline the payments you will receive and the amount you have to repay including interest.
Maintaining your reverse mortgage
To keep your reverse mortgage in good standing you must:
Pay your property taxes on time
Maintain and repair your home
Have homeowners insurance
Your lender can end the reverse mortgage and require immediate repayment if you:
File for bankruptcy
Rent out part of your home
Add a new owner to title
Take a new loan against your property
Things to consider
Reverse mortgages are more costly than typical home loans or home equity credit lines.
They also have higher interest rates and fees. Interest is charged on the outstanding balance and is added to the amount you owe each month. This means that your total debt increases each month.
Keep in mind that you are borrowing equity from your home. This means fewer assets for you and your heirs.
Shopping for a reverse mortgage
Shop around and get offers from several lenders. You should compare the terms, and look for a loan with the lowest interest rate, points and fees.
January 11th, 2011 in
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If you’ve picked up a newspaper or caught the news recently, you’ve probably encountered a story about mortgage rates and the Federal Reserve banking system. Like many borrowers, you might wonder how the Fed determines interest rates and how – in the event of a rate hike – your personal finances could be affected. Here’s a quick overview:
Banks, credit unions, and other lending institutions borrow money from Fed banks. Since they borrow these funds on a short-term basis, the institutions are charged at a discount rate that is set by the Federal Reserve Board. This discount rate has a direct effect on the “Prime Interest Rate,” the rate banks charge their top-rated commercial customers for short-term loans.
The Fed’s board of directors meets each month to set financial policy, adjust interest rates, and provide an economic forecast for the future. Since June 2006, the Fed has raised interest rates several times, a move designed to stabilize the economy that could translate to tighter cash-flow in your household. If you are juggling a mortgage, a home equity loan, and any amount of credit card debt or personal loans, this is probably a good time to assess the potential damage and, if necessary, refinance your existing mortgage.
Fixed-rate Mortgages
True, a 30-year fixed-rate mortgage may not be the most revolutionary option, but, in many cases, it is the smartest one. While the introductory rate on an adjustable-rate mortgage will probably be lower, payments on a fixed-rate mortgage won’t fluctuate, even if the Fed decides to increase the discount rate. For borrowers who want stability and are not planning to move within 5 – 7 years, the fixed-rate mortgage makes sense.
Adjustable-rate Mortgages
The chief advantage of an adjustable-rate mortgage or ARM is that the initial interest rate may be lower than that of a fixed-rate mortgage. However, the fact that your rate is adjustable means that you will likely see higher rates and bigger monthly payments, somewhere down the road. Some ARMs adjust on a monthly basis, but most adjust every 6 – 12 months, using a financial formula based on economic factors like federal interest rates.
Hybrid ARM
Many borrowers opt for the hybrid ARM, a mortgage that typically carries a low fixed rate for a set period of time (common hybrids are 11, 51, and 71), and thereafter has an adjustment interval of one year. Those annual adjustments are tied to federal rates. If you planning to live in your home for just a few years, the low introductory rates on a hybrid ARM might be a good bet, but beware the rate fluctuations to come.
January 4th, 2011 in
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Heres the first mortgage term you should learn Standard Variable Rate, or SVR. This is the interest rate you will be paying on the total amount you are borrowing. It is usually expressed as a percentage, and is different from an APR (Annual Percentage Rate). An APR includes all costs associated with the loan, such as interest, fees, any compulsory insurances etc.
While interest rates can vary quite widely across the board, all lenders will have a Standard Variable Rate. Its the default rate for their mortgages, and can provide a good indication of whether they are offering good deals. Comparing different lenders SVRs is one way to get an idea of who has lower rates generally though there will be exceptions to this rule.
This rate fluctuates, going up or down according to the economy and the lender. The biggest factor that effects SVRs is the Base Rate set by the Bank of England. In recent years this has been kept relatively low, and mortgage interest rates have been particularly good for borrowers. However, this could change and you should bear in mind that rates could go up in the future.
Many mortgages start off with special introductory rates, and then revert to the SVR after a set period. These include capped and collared mortgages. There are also fixed rate and interest only mortgages available, which are covered in more detail further on in the guide. When considering mortgages with special introductory rates, you should also take into account what the SVR is likely to be once your initial period is over. Many mortgages come with the condition that you stick with the same one for several years, even after the special offer period is over. There will often be penalties if you want to change mortgage within this tied period.
Interest calculation, interest charging
Be aware that there is a difference between interest calculation and interest charging. Some mortgages calculate interest daily, which works out as fairer for the borrower as your overall balance is reducing every month, and therefore the interest will be reducing too (even by a tiny fraction, every little helps!). Other lenders calculate interest monthly or annually, although annual calculation should be avoided if at all possible, as you will be paying the same interest for a whole year despite your balance having been reduced by your repayments. You should also ensure that your interest is charge in arrears, rather than in advance.
December 28th, 2010 in
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Why Get Mortgage Refinancing? If you already have a mortgage loan you are no doubt aware of the steady decline in mortgage rates over the years. Don’t you wish you had a way of making use of the dip in interest rates? Well that’s exactly what we offer you. A home mortgage refinance loan gives you the chance to start saving money right away and throughout the entire term of the loan. That adds up to an incredible amount of money over the length of the loan. Think of all the uses you can put that money to like getting a home improvement done or saving up for the kid’s college education.
What Does a Home Mortgage Refinance Loan Involve? Mortgage Refinance is a simple procedure which involves getting your old mortgage refinanced at the current rates of interest. This way you actually spend more into paying off paying the main debt rather than giving away a substantial portion of the money in the form of interest. Just to get an idea of the incredible savings that you are in for, just look up the current interest rates and compare them with the ones that you have on your mortgage. A simple calculation will reveal what a huge amount you stand to save by the end of the loan term, with our mortgage refinance schemes. The mortgage brokers or financial agents do all the legwork so that you can evaluate the information at your convenience and contact them online. The participating lenders in the directory offer the best rates on fixed rate mortgages and adjustable rate mortgages.
December 21st, 2010 in
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Whether you are a first time home buyer, or you have been purchasing real estate for years, one of your main goals other than finding the perfect piece of property is to make sure that your mortgage rate is as low as possible. Anyone who has had to navigate the tricky waters of the mortgage markets knows that rates can vary day by day and knowing when to lock in the rate can save you thousands over the life of the loan.
When looking for a mortgage one of the most important things to keep in mind is that competition is key to getting the lowest rate. Many first time home buyers make the mistake of not shopping around for a mortgage. They take the first offer that is presented to them and often end up with a rate that can be as much as one or two full points higher than rates for others with a similar financial background. They think that their real estate agent is there to help guide them to the best choice – when in reality they are there to earn their commission. The best advice for new home buyers is to always make sure that you separate your financial transaction of buying the house away from the process of finding a home. The rule of thumb is you should compare rates from at least three different providers, more if you have the time.
Even experienced real estate buyers can sometimes end up over paying their interest. The biggest gotcha is not locking in your rate when you had to the chance. This is especially true in times of economic downturn or when there is uncertainty in the credit markets. Often you have less than 48 hours to lock in a rate once presented to you by your lender. If you are uncertain whether rates are going to go up or down after you lock in a good rule of thumb here is to watch the 10-year Treasury note. Mortgage rates tend to follow the yield for the 10-year note more than they do any other short-term investment, including Fed rate adjustments.
When you do decide to lock in a rate make sure that you get it in writing, including a full disclosure of the terms. Oral agreements won’t hold up should you need to pursue legal action. A written agreement protects both you and the lender from any miscommunications. You will know exactly what you are getting on what terms and how long the rate lock is good for. Typically, you want to aim for 30-60 days to give you enough time to find the house that is right for you. However, 30 days is becoming more standard as the rate markets continue on their rollercoaster ride.
You might also want to consider asking about a float-down agreement to lock in the rate. Under this agreement the lender keeps the rate at your locked in value should rates go higher, but if they decrease they lower the rate to match. The only drawback to these agreements is they can be expensive and depending on the size of the mortgage note the cost to enter into such an agreement may very well offset any savings you would gain unless the mortgage rate declined by more than half a point or more in many cases.
Locking in a mortgage rate is the best way to get the mortgage you want at terms you can agree with. It lets you focus on finding the perfect home of your dreams instead of worrying about fluctuating mortgage rates.
December 14th, 2010 in
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Before you start your search for the perfect new home to purchase you will want to think about financing. There are many things to consider shopping around for a mortgage.
One of the first things to consider when shopping for a mortgage is what length of time would you like the mortgage to be. Would a 40 year mortgage be more advantageous then say a 30 year mortgage for example. As prices for new homes are on the increase a 40 year mortgage can make the monthly payments lower then a 30 year mortgage making it possible for some home buyers to afford a slightly more expensive home. While this may seem like a great deal 40 year mortgages also come with a couple of disadvantages:home buyers will end up paying more interest and they will start building equity at a much slower rate then if they had a 30 year mortgage. If you choose to go with the 30 year mortgage your monthly payments will more then likely be larger then a 40 year mortgage but you will also be able to start building equity at a faster rate.
Once you are sure about the length of time you want your mortgage to be the next thing to look into is should the mortgage be at a fixed or adjustable rate. What is the difference between the two you might ask? Basically if a home buyer were to get a fixed rate mortgage the interest rate at that time would be locked in for the entire life of the mortgage. Because of this stability fixed rate mortgages are the most popular with those seeking to purchase a new home. Now if you were to get an adjustable rate mortgage the interest would not be locked in and would go up and down as the market dictated. So your initial monthly payments could start out being lower but have a great chance of eventually increasing.
Other things to keep in mind while shopping for a mortgage are what will the closing costs be abd will they end up being an out of pocket expense for you. You will also need to find out if you or the mortgage company will be covering the costs of court fees, titles changes and other aministrative issues that go along with purchasing a home.
Once you are well informed about the mortgage process and have weighed the pros and cons of which type of mortgage will work best for you, you will be well on your way to buying your new home.
December 7th, 2010 in
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With the concept of vanity, many people are now despising the fact that whatever is beautiful are the only ones that are accepted in the community. Hence, they uphold the rights of equality and contend that life will never be balance without the negatives live side by side with the positives.
Same thing goes with people who have bad credit. The problem with most people is that they look down on people who have bad credits as if they are the meanest and the most unworthy person here on earth.
For this reason, many people, institutions, agencies, businesses, and other ventures to give these people who have bad credits a second chance to live their life to the fullest.
Today, many people who have bad credits are now enjoying the benefits that most people who have good credit standing are enjoying.
In fact, when it comes to owning a home, which is one of the necessities of human survival, people who have bad credits can get a loan for them to be able to obtain a home mortgage.
However, like any financial decisions, people with bad credits who seek to find any possible home mortgages, must try to saturate the market in order to arrive at the best deal available. This is because most lenders may approve a home mortgage application of a person who has bad credits, but may impose higher interest rates, big monthly payments, shorter term, and stricter regulations.
In most cases, people with bad credit work hand-in-hand with a sub prime lender. It refers to those who offer lending options to people who do not have good credit standing. They are the ones who are willing to take risk when everybody seems too hesitant to do so.
However, before you decide on getting a bad credit loan mortgage for your home from these sub prime lenders, there are certain guidelines that you may use in order to arrive at the best rate. Here is how:
1. Bad credit loans mortgages usually offer higher rates
In many instances, lenders who give bad credit loans or home mortgages may provide higher interest rates. However, their rates may still vary from one company to another. Therefore, it is necessary that the debtor should analyze the deal before they arrive at a conclusion.
2. Shop around and compare
If many lenders have high interest rates, the best thing that you can do is to obtain a bad credit loan mortgage with the lowest among those that are available in the market.
You can only identify the item by shopping and comparing rates and benefits. Try it. You will be on your way to your bad credit loan mortgage.
3. Know the rules
In this kind of game, you should know how to play by the rules. Because if you do not, chances are, you may lose.
Hence, be very careful about rules and terms of the lender concerning your bad credit loan mortgage.
The problem with most people is that they neglect this piece of document, in which they do not just realize how important it is to know whatever was stipulated therein.
4. Be wary of fees, rates, and charges
You should know the rules that go with these three variables.
What usually happens is that a person is buried deep in debt not because of the principal loan amount but because of the accumulated interest rate charges and fees. Therefore, it is best that you have known the exact rules in order to avoid getting charged with late penalties.
5. Know your situation
Even if you have bad credit, but you know that you can afford to make bigger monthly payments to have lower interest rates, it would be better. This will make your repayment for the loan easier and faster.
This goes to show that the result and consequences of getting a bad credit loan mortgage are all dependent on the kind of situation that you have right now.
6. Have a budget and stick to it
The problem with most people who have bad credits is that they get so overwhelmed with the fact that they get a bad credit loan mortgage that they tend to neglect to have a budget for the item that they want to purchase, say, a home. In addition, even if they have a budget, they tend not to conform to it.
Therefore, it is important to stick to your budget in order not get into trouble in case things get out of hand.
7. Research! Research! Research!
It is the best thing that you can do. In fact, it is the most important thing that one should do especially if it involves financial decision-making.
Whether you have bad credit or not, the fact that it is your money that you use in order to pay those monthly financial obligations, it is important to know all the important details about a loan.
Otherwise, you will just end up losing everything.
November 30th, 2010 in
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Planning for retirement can be a daunting task, long-term care, investments or annuities, lack of retirement income. These all lead to unnecessary frustration. A reverse mortgage could settle some of that headache. Since most seniors will have need to reduce their current spending while retired, a reverse mortgage may provide the added cushion most people feel they need even before retiring. Social Security, IRA’s, 401k’s, and other methods of retirement income usually provide enough for living expenses and recreational activities, but do not leave much room to improve your financial future. A Reverse Mortgage is an increasingly popular solution to access a large amount of tax-free funds to safely allocate for higher interest investments and securities.
Reverse Mortgages are federally regulated and guaranteed financial vehicles that allow someone age 62 or older, to pull out equity locked in most senior’s largest asset: their home. A Reverse Mortgage will provide a percentage of the home’s appraised value, up to 60%, in a variety of different payout methods, but the borrower is not required to make a single payment as long as they continue to live in the home. All repayment, closing cost, and interest are repaid when the senior either moves or the home is sold, so it produces a large amount of capital with absolutely no risk of default or foreclosure on the home.
One of the key benefits to the reverse mortgage is that the funds are completely tax-free. A reverse mortgage will also not will NOT impact social security or Medicare benefits in any way. A reverse mortgage becomes even more impactful when used as a revenue generator by increasing your investment portfolio. For example, a couple who are both age 65, with a home value of 200,000, zero mortgage, and are looking to either purchase an immediate annuity or a joint long-term care insurance policy. A reverse mortgage could potentially provide over 100,000 to fund the annuity or a single premium insurance policy, with interest growth and a long-term care rider.
The true power of the reverse mortgage as an investment tool lies in two aspects of the product. The first is that any funds generated from a reverse mortgage are completely tax free, and will not affect the tax bracket of the applicant. The problem to the senior or anyone for that matter, is that they have to remove themselves from the asset they are liquidating in order to access the proceeds. Not with a reverse mortgage! A reverse mortgage is a true win win.
A reverse mortgage lets you unlock the value of your single largest asset without having to dispose of it or pay for it in any way. As more and more seniors reach their mid to upper 60s and 70s, they will look to increase the pounds available to them. Once again, this is why a reverse mortgage is going to continue to be a popular financial strategy in the years to come.
November 23rd, 2010 in
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Recently Dutch employers attacked oppenents of the mortgage allowance frontally. A memorandum of the Confederation of Netherlands Industry and Employers (VNO-NCW) and the small and medium-sized enterprises sector (MKB-Nederland) states that every intervention is bad for the economy. Chairman Bernard Wientes says abolishment of the mortgage allowance will harm the economy, the construction sector in particular. Up till now, only the left wing parties want to abolish the mortgage allowance.
Labour leader Wouter Bos (PvdA) says he wants restrictions but not abolishment. He repeats that PvdA wants to limit the rate to 42%. The millionaires must hand in, not the man average in the street. Earlier however, a report of the PvdA states this limitation to 42% would be the first step towards abolishment.
The next step would be a compensation for the expenses of living. Like the rental subsidy this would be primarily for the lower incomes. But the employers make out a case for the opposite:
-people with 52% mortgage allowance also pay 52% tax
-the cause of the shortage on the house market is lack of houses and circulation
-many home owners have fixed their interest rate for a long time
-renters are favoured over owners
-abuse of the mortgage allowance is already dealt with
The Dutch government dealt with the allowance in various ways. First of all, home owners can only offset their mortgage interest of the main home. Secondly, theres a maximum of 30 years. Third, when you raise your mortgage, the extra sum can only be offset when it is actually used for home improvement.
Wientjes concludes his plea with a final argument. People with higher incomes will have to buy cheaper homes when the allowance is restricted, which in turn will lead to shortage and price increase in the lower segment.
This will certainly not be the last time the M-word causes exitement in the Dutch public debate.
November 16th, 2010 in
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