Archive | August, 2009

Mortgage Options for a Refinance or Purchase

By on August 27, 2009 in Info

Conventional Mortgages
Conventional mortgages are arrangements that meet certain federal standards.  A conventional mortgage can either be written as a fixed rate mortgage or carry variable structure.  Fixed rate mortgages have fixed, unchanging interest rates during the term of the loan, and the monthly payments are the same during the duration of the mortgage.  Variable interest rates result in varying amount payments over the course of the mortgage based on the changing standard rates of interest.  The borrower can benefit from this kind of loan if the standard rates of interest shrink during the life of the mortgage.  In fact, conventional mortgages with a variable rate may be good deals when projections show the interest rates are unmoving during the course of the loan.  Numerous companies offer conventional mortgages to first time home buyers, and some offer mortgage-backed securities, which are bundled mortgage offerings.

Adjustable Rate Mortgages
Adjustable rate mortgages have flexible interest rates, where the percentage rate changes based on an index to benefit the lender.  These are an extremely common type of mortgage in Canada, the United Kingdom, and Australia as well.  Five types of indexes calculate the interest rate on adjustable rate mortgages: the Constant Maturity Treasury, the 11th District Cost of Funds Index, the National Average Contract Mortgage Rate, and the London Interbank Offered Rate, and the 12-month Treasury Average Index.

Such mortgages are used by financial institutions that cannot necessarily afford the risk of fixed loans.  For example, for a bank that offers loans to individuals without credit history, this would be a risky investment for them due to the possibility of the borrower not being able to pay his debts.  Banks funded by customer deposits only may also utilize adjustable rate mortgages.  These mortgages, though risky to the borrower, can still be helpful, as in the case of the index falling, the borrower could pay less than he would on a conventional mortgage loan.

These loans often come with a cap or limitation on charges that control the lifetime changes of the interest rate.  This both ensures the lenders have a fairly safe transaction while protecting the borrowers.  Also, hybrid adjustable mortgages can protect the borrowers.  Here, interest rates become flexible only a certain period of time, which gives the borrower time and opportunity to deal with the rate change.

Two-Step Mortgages
Two-step mortgages have one interest rate for the first part of the mortgage term and a second rate for the second part.  The term for the first rate tends to run five to seven years and the second interest will carry through the remainder of the mortgage length.  Generally, the interest rate is below the market interest rate for the initial period and then increases during for the second period.  Such mortgages are appealing in three scenarios: (1) when interest rates are high early on but expected to drop; (2) when the borrower cannot afford higher payments now but will later on; and (3) when the borrower will likely not own the home beyond the first five to seven years

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Receiving or Assuming a Mortgage

By on August 19, 2009 in Info

Mortgage lenders
Mortgage lenders offer mortgage loans to those who want to purchase property.  Because very few people can afford to pay cash for property, they must rely on secure mortgage loans from mortgage lenders.  These financial institutions use their assets to offer loans, and they rely on the borrowers to repay the loans over a period of time.  Should the borrowers fail to do so, the property will be in foreclosure, which is where the property is confiscated and sold at auction in order to recover the debt.

Banks are the most common mortgage lenders, as they provide many loans for land, commercial property, and residential.  Credit unions offer mortgages as well.  To apply for a mortgage, borrowers can work with mortgage lenders, work directly with banks, or seek out mortgage brokers who are financial professionals with access to numerous lenders.  Borrowers can also meet with loan officers on their own to find out where they can obtain the best rates.

The mortgage lenders research loan applicants to review their qualifications.  These lenders look at issues such as the borrowers’ income levels, credit history, and size of the down payment.  Lenders will offer loans at specific interest rates and terms to strong candidates, and the borrower will then decide if this is an attractive deal.  Mortgage lenders charge origination fees on the loan in addition to the interest that accrues with the loan.  As such, a lender must balance the risk and benefits of the borrower, as he is looking for a candidate who can make mortgages on time during the life of the loan.

An Assumable mortgage
Assumable mortgages allow a homeowner to assume the existing mortgage when purchasing property.  This mortgage normally includes clauses that outline requirements to be met for the mortgage transfer.  They require both the seller and entity holding the mortgage to agree the homeowner has good credit and is not a risky investment.  The homeowner must demonstrate he is financially stable and that he has the resources to make payments on time.  Additionally, most financial groups have minimum requirements for homeowners’ credit ratings prior to issuing a mortgage in order to ensure the debt will be paid until completely discharged.

One of the benefits of an assumable mortgage is the relatively short waiting period for approval.  The seller can also recover the equity paid into the property as well.  By allowing a person who has the proper resources and credit record to assume a mortgage assures the finance company that there will likely be no concerns of future foreclosures, which results in future savings in time and money if a foreclosure were to occur.

While some lenders will convert standard mortgages into assumable mortgages, this is not common as not all mortgages have this clause.  Individuals who want to market their property as coming with an assumable mortgage should look over the mortgage contract very carefully.

 

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