There are a variety of loans available to consumers who wish to buy a home. Out of this variety there are two major choices that most consumers will choose from. These choices are the interest only loans and the traditional loans. What’s the difference? Let’s look at these a little more closely.

An interest only loan is not a type of mortgage. This is only an option that can be attached to a mortgage. Although the interest only loans are not less costly to amortize, more than 31% of all homes in the U.S. have been issued with interest only loans. Many of these loans include refinancing as well. Interest only loans may be attractive to the first time home owners by offering low monthly payments for up to seven years, thus allowing people the opportunity to buy a home at prices they would be able to afford. During the first few years, the borrower may not have to pay down the balance of the loan, making the payments easier and seemingly more affordable. Unfortunately, once the borrower starts paying on the principle, they may be shocked to see the payments rise significantly. If the price of the home begins to stagnate or descend, the borrowers could find themselves between a rock and a hard place as the risks of default begin to increase.

Investors often flock to the interest only home loans when they have intentions on selling the property in a few years for a profit. Otherwise, first time home owners may need the interest only loan in order to qualify for the home they would like to buy. In today’s mobile society where some home owners tend to change residences every seven years, the lower monthly payments with the interest only loan can make sense. But if the home decreases in value over this time, the home owner may decide not to sell and will be left with the high back end payments they didn’t mean to make.

Many lending institutions may charge higher rates to the interest only loans because of the high risks of default. Interest only loans may seem borrower friendly on the surface and most lending institutions will be more than willing to accommodate you on this kind of a loan. But – Buyer Beware! Interest only loans are starting to drop in popularity due to the long- term interest rates dropping to record lows. These low rates are causing people to rethink their interest only loans and having them want to get out of the interested only loan and into a long term loan at a fixed rate.

As an alternative to the interest only loan, a more traditional home loan such as a fixed rate mortgage can offer the predictability of a fixed monthly payment with a choice between a 15 to 30 year loan terms. These fixed rate loans are available for both purchasing a new home or refinancing a home.

The fixed rate mortgage is a traditional loan that offers a fixed interest rate over the entire life of the loan, which can run from 10 to 30 years. With a fixed rate loan, the monthly payments for principal and interest will never change, although your property taxes, insurance and escrow may change each year. Down payments required for these fixed rate loans may be as low as 5%. This is a good deal for those who wish to have predictable mortgage payments over the entire life of the loan.

There are also those adjustable rate mortgages (ARM) that basically start at a low interest rate, with even lower monthly payments. But the interest rates and monthly payments can fluctuate regularly depending on the current market interest rates. The ARM loans have become increasingly popular with those buyers who are expecting an increase in their income over the next few years so they can buy more home on their current lower income. Confidence in their increasing income can make the higher payments more affordable, especially if the interest rates go up in the coming years.

While you are shopping for a mortgage, take advantage of the online tools that can help you learn more about the variety of mortgages offered and choose carefully what kind of mortgage loan will work in your best interests.

If you’ve been trying to buy a house you may have noticed there are a lot of numbers to consider: the price of the house, your savings, the amounts of the down payment and monthly payments you can afford, as well as a host of other figures and fees. Trying to find a mortgage that meets your needs is another numbers game, but this one can work in your favor.

You may not realize it, but there is great variety available to home buyers shopping around for a suitable mortgage. Different banks, brokers and other lending institutions all offer their own mix of short-term and long-term mortgages, as well as both fixed rate and adjustable rate mortgages.

So how do you know which combination is the best for you? That depends on your circumstances.

Traditional fixed rate mortgages allow you the security and stability of knowing that your mortgage interest rate will not fluctuate with market conditions. This means that if interest rates spike, you will be protected. Conversely, if interest rates drop, you will not be able to take advantage of the potential savings without transferring your mortgage to another institution or making other possibly complicated arrangements.

Adjustable rate mortgages (also known as variable rate mortgages), are different than fixed mortgages in that the interest rate you pay on the outstanding principal of your loan fluctuates according to changes in the posted index rate. There is a certain amount of risk involved with an adjustable rate mortgage in that you may end up paying more money in the long run if interest rates rise and stay high. You also have the potential to take advantage of savings if interest rates fall. An additional bonus to adjustable rate mortgage is the lower initial interest rate. You may be risking higher or unstable payments, but you are rewarded with a lower interest rate when your loan is at its fullest point. Unless interest rates rise dramatically, this advantage is likely to save you more money than if you had chosen a fixed rate mortgage.

There are advantages and disadvantage to securing an adjustable rate mortgage loan. However, you may find an adjustable rate mortgage worthwhile if you intend to pay off a large portion of your outstanding balance early into your loan period. By doing so, you reduce the bulk of your loan while paying the initially lower interest rate. An adjustable rate mortgage may also be the best choice for you if you anticipate greater future income or if you intend to pay off the entire mortgage loan quickly – again due to the lower initial interest rate. Even if rates were to increase early into your mortgage period, the fluctuation would unlikely be so great that it negated the difference in interest rates between a fixed rate plan and a variable rate plan.

You can reduce the financial risks associated with an adjustable rate mortgage by asking your lender about interest rate ceilings or caps that protect mortgage holders from sharp increases in the amount of money they must pay each month (or whatever their payment period is: monthly, weekly, bi-weekly, etc.). The overall ‘ceiling’ restriction is legislated in almost all cases, and it limits the total possible interest rate increases over the period you hold the loan. Periodic caps help control interest rate hikes between adjustment periods.

Your lender may also be willing to consider payment caps, which stabilize your monthly or periodic payments so any interest rate fluctuations are worked into your payment by way of adjusting the ratio of principal to interest each payment covers. This is a great option if you have limited income flexibility, but could result in a negative amortization period over the long haul. This happens when the balance of your mortgage is actually growing rather than shrinking because your regular payments are not large enough to pay all the interest plus a portion of your outstanding principal.

A final option to consider is arranging to have the ability to convert your adjustable rate mortgage into a fixed rate mortgage at a designated time. You may pay a fee for converting your mortgage, but if you find yourself in a situation where interest rates are rising rapidly, it may be worthwhile to stabilize your payments and balance by switching to a fixed rate plan.

Speak to your financial advisor to find a mortgage plan that fits your budget and your needs.

The world of mortgages can be very overwhelming when you first look at all of the options. There are so many terms, regulations, different fees, options, and different forms that it can become very confusing. But with a little understanding and research on exactly what mortgages are all about, you will find that it will be a lot easier to apply and get the home of your dreams. Below is some information on mortgages and some of the things that go along with them, like fees and terms, to help give you a little understanding on the subject.

Types of mortgages:

There are many types of mortgage options available. The three main types are fixed rate, convertible and special loans.

The fixed rate home loan in which you have options like:

30year loan – where you pay a fixed fee over the course of 30 years.

15 year loan – where you pay a fixed fee over the course of 15 years

Biweekly – where you pay your repayments every two weeks.

Adjustable rate mortgage or ARM – where you pay you variable amounts each repayment, they are based on the interest rate.

Convertible loans that include:

Hybrid and convertible ARM – where you can covert between a fixed rate or an ARM

Interest only loans – where you only pay the interest each payment until you are able to put down a lump sum.

Balloon loans – where you pay only the interest and at the end of the term you pay the total amount due all in one large payment.

Reverse mortgage – for equity rich seniors and don’t have to make any repayments until sale of the house.

Buy down loan – a loan that works on points to lower interest rates.

And the last category of loans is special loans:

FHA loan – for first home buyers and people with credit problems.

Veteran Affairs mortgage loan – only for people and widowers of the armed forces.

With all these mortgage options and more there will definitely be one that will suit your needs.

Fees:

There are many types of fees when it comes to mortgages, some of these fees and what they are for include:

Appraisal – where you pay for a person to do an appraisal on what your completed home’s value will be.

Organization – a fee that pays the lender and their workers for processing your application and other related duties.

Down payment – what you put down on a deposit on your home, this is usually about 1–20%

Closing costs – this pays for the transfer of your ownership of the home, this is usually 1-3% of your loans total but it can vary.

Other terms:

There are many other terms that you should know when going into the mortgage field. Below are some of them and what they mean.

Points – these are used to lower your interest rate and are usually done by a lump sum payment at the closing.

Good faith estimate – this is when you are given that total in amount of fees you will have to pay when it comes to the closing.

Loan locks – this is where you and the mortgage company or lender agree on a set interest rate at the beginning of the mortgage process, if you don’t lock your loan the interest rate can increase or decrease.

A truth in lending disclosure – this form gives you the complete cost of your loan in both a percentage and dollar form.

Pre qualifying – this is where you qualify for a loan before you actually go for one, it is a good way to review your financial status and lets you determine what amount of loan will suit your budget.

PITI – this means principle (amount of your loan), interest, taxes and insurance, all of these things are crucial to your mortgage and your repayments.

Escrow – this is where money and important information is held by a third party while two people are in a business transaction.

There is so much information you need to take in when you go into the world of mortgages but hopefully the above has given you a little bit of understanding of what it is all about. This should help you ease into the mortgage field a little easier. A financial professional or your lender will be happy to go through all the details with you when you are having trouble.

Adjustable rate mortgages, or ARM's, are useful types of mortgages with set plans and terms which may help you in deciding which type of loan to get when buying or refinancing a home. An ARM is flexible and changes during your term of mortgage depending on certain guidelines and adjustments. An ARM will generally start at a lower than fixed rate mortgage, then begin to fluctuate throughout your loan term. If you decide to get an ARM when getting into a loan, there are several things to know that will help decide if it is right for you.

The first thing that applies to adjustable rate mortgages is that it is based around the ideal of lowering mortgage payments when fixed rate loans begin to rise. By doing so, mortgage lenders are able to offer lower prices for those who have a mortgage. One of the principles that apply is that there is a fixed period term, where the rate will have to stay the same. Depending on the type of ARM you are thinking about getting, this rate can last anywhere from the first month you decide to get the loan to up to ten years. The thing to consider with the fixed plan is how long you will be in your home and how this fixed rate will affect you with changes.

A second part of an ARM loan is the index. This is tied to the interest rate and helps to determine the adjusted rate. The indexes can come from several different sources. These include the 12 MTA, which is a one year treasury guide that is available. Another is the LIBOR, or London Interbank Offering Rate. These are updated every one to six months. There is also the Cost of Funds Index (COFI), Cost of Savings Index, (COSI), and Cost of Deposit Index (CODI). These are not recommended before the others, as the indexes seem to fluctuate more than necessary. A last way to find an index is through a bank prime rate. These, however, are based mostly around home equity lines of credit. The way that indexes work is that each set index has a margin. The margin determines your interest rate after the fixed period. These will vary widely depending on the index and lender that you have. The index will then tell the percentage of the adjustable rate in which you will have to pay. By knowing the index that the lender is using, you can find a lower adjustable percentage rate for your mortgage.

A third part to ARMs is the caps. This restricts the rate change to move no less than two percent, and no higher than six percent. This allows you to not have to pay high rates at one period of time because of the index and margin guides that are available. There are also start rates that are applicable with ARMs. These will vary by lender and index, and will most likely depend on how much you put as your down payment and what your credit rating is.

ARMs are helpful in offering you four different types of payments based on the index and caps. The first type is the minimum payment option. This is the lowest of the options. You do not pay the principle or the interest on the loan. The interest that is then not paid is simply put into an interest due, which increases the loan balance. This is also known as deferred interest or negative amortization. The next option is through the interest only payment. This will allow you to defer interest without having to make a principal reduction payment. The interest only payment will always have a restricted amount of time for you to pay the loan. The next type of ARM is a 30 year payment. With this type of payment, every payment will go towards principle and interest at a consistent pace. The fourth type of payment is the fifteen year payment. This is the same type of ARM as the 30 year option, but it is paid at an accelerated pace.

By using ARM as an option for a loan or for paying off a mortgage, one is able to see more flexibility in their payments, which can help them with finances and to pay off a loan with more ease. Before getting into an ARM loan, it is important to know what types of rates and terms apply so that you can get the best deal.

4 Tips to Make You More Aware

Everyone wants to buy their own home and the most convenient way to do this in a “rush, rush world” like today, is by applying for a mortgage loan. The mortgage loan business is a big one. There are hundreds if not thousands of them trying to lure you in, but you have to beware and watch out for crooked mortgage companies. These crooked companies are out there and won’t care if your loose your home, your savings or even if you go bankrupt. They especially like to prey on the first time home buyer. These companies are looking out for themselves not you, so when you start your hunt for a mortgage make sure you don’t fall into their trap, no matter how seductive their deals may sound. Here are a few tips to help you point out a crooked and fraudulent mortgage company.

1. Be aware if the lender doesn’t give you a good faith estimate of what the closing cost will be. Under The Real Estates Settlement Act they must provide you with this information within three days once you have applied for the loan. An honest lender will give this to you without a problem as they have nothing to hide. Some of the really good lenders will even give you a good faith estimate on your pre–qualifying information. Also watch out for any company that won’t give you information on any of the costs up front, such as interest and other fees.

2. Beware if the lender says it is ok for you to lie about any information, especially about your income on a mortgage loan to increase your chances of approval. Any sort of lying on any loan form is classified as fraud and is a criminal act. Besides if a lender does encourage you to do such a thing, use your common sense, if they give you the leeway to do it, then they will probably have no problem committing fraudulent acts upon you.

3. Beware of interest rates that are amazingly low or incredibly high. Low interest rates can be very tempting, especially when they beat everyone else by two or three percent. You may think that this will save you money, but in the long run it will only cost you more because most loans with a low interest rate like these tend to increase significantly throughout the time line of the loan. People with a less than perfect credit rating usually fall needlessly victim to high interest rates that are usually two or three percent higher than everyone else. There are many places online that offer to check interest rates against your credit and can give you an accurate estimate of how much you should be paying.

4. Be aware if you feel pressured into applying for a mortgage loan that you don’t understand, can’t financially afford or if you are told that you are only going to get the loan through that certain company. If you do feel unsure of anything with a loan, ask them to explain it to you in detail or go to someone else who you can trust. You may want to speak with a lawyer and ask them to go through the loan with you. If you are being pressured to go with a certain company for a loan, then don’t do it. If they can offer you a loan then so too will other companies and without all of the pressure.

When seeking a mortgage loan, make sure that the contract does not differ from the original contract. Companies that ask for more signers, credit insurance, or prepayment penalty fees are probably looking for ways to make money off of you and don’t have your best interest in mind. In this case, you should take your business else where.

These are just some of the things you should look out for when mortgage loan hunting so you are not caught in a trap by a corrupt company. If you are ever in doubt, don’t use the company, as there are many more to choose from that will be happy to take your business and will offer you assistance with anything you are unsure of.