Which is Better – Fixed Rate Mortgage or Variable Rate Mortgage?
To choose the right type of mortgage between a fixed rate mortgage and a variable rate mortgage (more commonly known as an adjustable rate mortgage or ARM); you need to understand the difference between the two. Fixed rate mortgages are that the interest rate remains fixed at a certain percentage over the life of the loan and therefore your monthly mortgage payment (principal and interest) never changes. With an ARM, the interest rate can and probably will change at periodic intervals during the life of the loan based on the market index your lender uses.
Know the positives and negatives of Fixed Rates mortgages
Fixed rate mortgages are some of the most common mortgages available on the market today. Since you always know what your monthly payment will be until the loan is paid in full, fixed rate mortgages are considered a safe and a predictable way to borrow money with little downside risk. Usually with this steadiness comes higher interest rates and, consequently, higher monthly mortgage payments.
Know the Ins and Outs of ARMs
Interest rates for ARMs are based on the market index. Your lender uses common indexes which includes the amount of money lenders pay on the money they borrow as determined by the FDIC, how much money the Treasury pays on the money it borrows, how much home buyers are paying on new mortgages nationwide etc.
Typically, interest rates for ARMs can fluctuate on a six-month, 1-year, 3-year or 5-year basis. With an ARM, there are limits on just how much the interest rate can change. These ‘caps’ has to be outlined in your contract and fluctuations in the rate can only be made based on those terms.
Know the Benefits and the Risks
The benefit of a fixed rate mortgage is that you always know what your monthly mortgage payment will be. The downside is that it’ is more difficult to qualify for this type of loan and typically, you are not able to borrow as much money as you can with an ARM. The benefit of an ARM is that the initial interest rate is often lower than a fixed rate which means your initial monthly payments are lower, and it’s a much easier mortgage to qualify for great for home buyers with lower incomes.
The downside of an ARM , however, is that your interest rate will fluctuate as your lender’s index rate changes. This could mean higher monthly mortgage payments – an important consideration in determining whether or not you can afford the greatest possible increase in the interest rate and ultimately, the greatest possible increase in your monthly mortgage payment.
By: Victor Thomas
Mortgage Rate Sheets
Rate sheets are detailed matrixes of a mortgage lender’s different loans. These sheets are detailed and complex, and usually only distributed to wholesale brokers and loan officers.
Rate sheets are now typically distributed electronically at the beginning of a business day. Some lenders republish their rate sheets throughout the day as interest rates change. Rate sheets typically do not guarantee rates, but are intended as guidelines.
Lenders rate sheet can be 15 pages or longer.
Lenders break these rate sheets down with a higher degree of detail.
The rate sheets allow a loan to be priced.
The rate will price a loan based on:
loan amount
number of days in the rate lock
loan program
cash out or no cash out
impound accounts or no impound accounts
credit score
property type
product descriptions
occupancy type
debt to income ratio
pricing specials
interest only options
prepayment penalties
states that the lender will loan in
differences in treatment of primary borrower and secondary borrower
The loan officer can assemble your loan in many different ways.
Your interest rate will be higher the longer you lock your loan for. A loan interest rate lock is a commitment from a lender to give you a specific interest rate for a certain time period. It “locks in” your interest rate for a certain time period. It is sometimes possible to extend this rate lock for a fee.
By: Ben Afzal
Get Affordable Fixed Rate Mortgage Loan Rates
A fixed rate mortgage loan is a mortgage loan where the interest rate on the note remains the same through the term of the loan, as opposed to loans where the interest rate may float.
Other forms include interest only mortgage, graduated payment mortgage, flexible rate including changeable rate mortgages and tracker mortgages, negative payoff mortgage, and balloon payment mortgage.
Take to consideration that each of the loan forms above except for a direct changeable rate mortgage can have a period of the loan for which a fixed rate may apply.
A Balloon Payment for fixed rate mortgage loan, for example, can have a fixed rate for the term of the loan followed by the ending balloon payment.
Terminology may differ from country to country: loans for which the rate is fixed for less than the life of the loan may be called hybrid flexible rate mortgages.
This payment sum is independent of the additional costs on a home some periods handled in escrow, such as property taxes and property insurance.
Thus, payments made by the lender may change over period with the shifting escrow sum, but the payments handling the principal and interest on the loan will remain the same.
They are described by their interest rate which including compounding frequency, sum of loan, and term of the mortgage. With these three values, the calculation of the monthly payment can then be done.
The fixed monthly payment is the sum paid by the lender every month that ensures that the loan is paid off in full with interest at the end of its term.
This monthly payment depends upon the monthly interest rate expressed as a fraction, not a percentage, i.e., divide the quoted yearly minimal percentage rate by 100 and by 12 to obtain the monthly interest rate, the number of monthly payments known as the loan’s term, and the sum lent known as the loan’s principal; rearranging the formula for the current value of an regular allowance we get the formula.
They are usually more expensive than flexible rate mortgages. Owing to the natural interest rate risk, long term fixed rate loans will lean to be at a higher interest rate than short term loans.
The change in interest rates among short and long-term loans is known as the yield curve, which usually slopes upward. The opposite situation is known as an inverted yield curve and is relatively infrequent.
The fact that it has a higher starting interest rate does not indicate that this is a worse form of borrowing related to the changeable rate mortgages.
If the rates rise, the ARM cost will be higher while the FRM will remain the same. In effect, the lender has agreed to take the interest rate risk on a fixed rate loan.
Some studies have shown that the majority of creditors with flexible rate mortgages save money in the long term, but that some creditors pay more. The price of potentially saving money, in other words, is balanced by the risk of potentially higher costs.
In each case, a choice would need to be made based upon the loan term and the likelihood that the rate will increase or decrease during the life of the loan.
By: Ricky Lim
Mortgage Loan Modification – Can You Do it Yourself?
The Treasury Department is encouraging homeowners to contact their lenders directly to apply for a loan workout. But homeowners are confused, how do you qualify for mortgage loan modification help? Is this something they can do themselves by contacting their lender or should they pay a company to represent them? How to get the information needed to make a wise decision?
Mortgage loan modification is Greek to most homeowners-and with good reason. In the past, loan workouts were only offered rarely and in the most dire of circumstances. Even then, the modified loans offered little in real relief to the borrower. Now, that has all changed. The housing crisis and mortgage meltdown has created a demand for streamlined solutions to homeowners stuck in loans they don’t understand and cannot afford. A mortgage loan modification can be a solution to struggling homeowners unable to refinance or sell their home.
But how do needy homeowners find out if they even qualify for a mortgage loan modification? Is it something they can do themselves or do they have to pay thousands to a company or attorney? How do you even know which company to hire? It is all very confusing and frustrating. The best step a homeowner can take is to learn as much as possible about the loan modification process. Before making a decision affecting home and family, some knowledge and preparation is the wisest move. There are a lot of companies out there ready to take money from vulnerable homeowners, and even attorneys have gotten into the act-with dubious advertising and overstated and unsubstantiated claims of success-what can a homeowner believe? Already struggling homeowners cannot afford to throw good money after bad with no results.
Mortgage loan modification is not brain surgery-but it does require some basic knowledge of the approval guidelines and how to complete the loan modification forms properly. Sitting down and figuring out a workable family budget so that the lender can verify the affordability of the new loan payments is the key to success. The banks are concerned about one thing-can the new payment be sustained so there will no future default? Homeowners who can prove this to their bank will have an excellent chance of being granted new and affordable mortgage terms.
An informed homeowner is hard to take advantage of. Knowledge and preparation is the key to being successful in obtaining a mortgage loan modification or hiring the best company to assist in the process. Borrowers who take the time to learn, research and prepare will find their time and effort rewarded. A mortgage loan modification is a solution many homeowners need to save their home and credit-and you can do it yourself successfully. Hundreds of thousands of borrowers have already received a loan workout using the Federal stimulus plan. Don’t waste thousands of dollars and months of your precious time-begin to today by learning the basics-then contact your lender and ask to be considered for a workout under the Home Affordable Plan.
By: Susan V. Gregory
Sorting Through Mortgage Elimination Programs
Mortgage elimination programs are all the rage these days. In the event that you don’t know what they are, it’s a really basic concept. You apply more money to the principal balance on your loan or you make payments at times other than once per month, and ultimately you lower you balance and pay your mortgage off sooner than the original term. It sounds great, but be careful what you read, because there are a lot of these mortgage elimination programs that either don’t make sense or just plain scams.
I clicked on a website gloating that it had a program that would eliminate your mortgage in under a year. Wow! A 30-year home loan eliminated in one year. Sounds great; you’re in, right? Not so fast. When I subscribed to a mailer to get more information, I received a very cryptic message that said the program was currently put on hold because the US patriot act makes it impossible to proceed with the necessary offshore banking transactions, which were necessary to make the process a success. Now, I’m not sure what all this means, but I do know I don’t want someone sending my mortgage payments to some offshore bank account. This sounds like something straight from a John Grisham novel.
I’ve already written about the inverse mortgage, which holds that paying one’s mortgage every three weeks instead of every four will help eliminate your mortgage in five years or less. Although the jury is still out on this program, I’ve done the math, and it simply doesn’t add up.
Finally, I’m still investigating a program called, Mortgage Cycling. Although I don’t know all the detail on this one, I do know that it involves taking a home equity loan and adding this money to your principal mortgage. Again, I’m not getting it. Why take more money out against your real estate, so you can pay it back on the same house. Isn’t this sort of borrowing from Peter to pay Paul?
At any rate, I’ll keep investigating. Meanwhile, beware of any mortgage elimination program. If you want a safe way to eliminate your mortgage more quickly, please refer to the wealth-building program, Winning the Mortgage Game.
By: Mark Barnes
California Jumbo Mortgage Loans
California jumbo mortgage loans are very large commercial or residential mortgage loans offered by many financial institutions in California. Generally, they are issued for an amount in excess of $200,000. Also called a non-conforming mortgage, a jumbo mortgage does not obey the rules set by Fannie Mae (Federal National Mortgage Association) or Freddie Mac (Federal Home Loan Mortgage Corporation).
Like a conventional mortgage loan, California jumbo mortgage loans are available as fixed rate mortgages (FRM) and adjustable rate mortgages (ARM). The formalities followed for obtaining California jumbo mortgage loans are similar to those of traditional mortgage loans. To get details about the loans, such as application forms, loan terms and interest rates, you can seek the help of a licensed mortgage broker.
Since jumbo mortgage loans do not conform to Fannie Mae or Freddie Mac terms, you can expect several associated risks. A California jumbo mortgage usually has a higher interest rate than conforming fixed rate mortgages do. To solve the problem of high interest rate, the lenders usually divide a jumbo mortgage into two separate mortgages. The new California conforming mortgage limits are determined in the month of January of every year. The amounts for California jumbo loan are calculated based on these limits.
The procedure for securing a jumbo loan online is similar to getting approved for a traditional mortgage when you use a mortgage broker. The benefit of California jumbo mortgage loans is that these allow a buyer to finance a highly priced primary residence, vacation home or investment property. At the same time, its higher interest rate may be a major drawback.
The customer must go through the legal terminology and understand what the action actually involves before entering into an agreement with a California jumbo mortgage lender. Just like a traditional mortgage, it is wise to compare rates and fees to find the best choice. Demand quotes from a mortgage broker before choosing a mortgage lender. Also, ask for information on the fees included in the mortgage, which must be disclosed according to the federal law.
By: Peter Emerson
New Mortgage Modification Options From Obama’s Stimulus
Amazing new stimulus programs now enable millions of homeowners to get a mortgage modification. This is all possible because of President Obama’s “Making Home Affordable” housing bailout plan. This plan enables many people to lower their monthly home loan payment, save money, or prevent their home from being lost to foreclosure or default. Here are some things homeowners should know about getting a mortgage modification with the Obama’s stimulus plan.
Getting a mortgage modification has long been a great option for many homeowners who have gone through financial changes. Some homeowners just want t o reduce the length of their home loan, and save money on interest payments. However, especially these days, many people need to get a mortgage modification to save money or prevent their home from being lost.
This mortgage stimulus program from Obama makes these new mortgage modification options possible. Over $75 billion is being pumped into the housing market to stabilize housing prices, and generate market activity. This money is also being used to give incentives to mortgage lenders and banks who are participating in Obama’s program. Whenever an approved lender or bank offers a mortgage modification option to a struggling homeowner that follows the stimulus plans rules, they receive a cash incentive.
Most every home loan modification will start with a trial phase. Whether or not you get a home loan modification with the Obama stimulus plan, this trial phase is usually necessary. During this period, homeowners have the chance to gather the need information and paperwork, any pending foreclosures are paused, and the mortgage lender or bank will evaluate if you are able to make the new home loan payment before your mortgage modification becomes permanent. This phase is a requirement from the Obama plan to help ensure that homeowners do not get themselves into the same situation in the future, and that the monthly mortgage payments are actually affordable.
Homeowners who want to use this program for themselves need to contact a mortgage lender or bank who is participating in the Obama stimulus program. Ask how getting a mortgage modification with Obama’s housing bailout plan can help you save money, and prevent your home from being lost. There has never been a program this big that has the potential to help so many people. Literally millions of people are eligible to use this program for themselves. Do not let your home get taken away from you. Do not keep paying more money than you have to every month to keep you home. Get a mortgage modification with the Obama “Making Home Affordable” plan and secure home, and your personal financial future.
By: Michael Petrone
201 CMR 17 Compliance Checklist For Mortgage Brokers! Are You in Compliance?
If you are a mortgage broker or mortgage originator doing business in Massachusetts you need to understand how MGL93H and Regulation 201.CMR.17 impacts how you need to handle personal information and manage your business in the future. Effective March 1, 2010 licensed mortgage brokers are responsible for the safety and security of any Massachusetts residents personal information that is collected, handled or stored by you or your staff. Your mortgage business must have a written plan, known as a WISP “Written Information Security Plan” in place and being followed, to not only protect the safety and security of the personal information of your clients, but also to protect your business. Below is a checklist to help you get organized and develop the plan you will need to comply.
The Commonwealth of Massachusetts enacted MGL 93H which defines security breaches and regulations for the safeguarding of personal information of any Commonwealth of Massachusetts resident. Regulation 201 CMR 17.00 implements the provisions of the law and describes what you need to have in place in order to achieve compliance.
What Does 201 CMR 17 Mean For My Mortgage Business?
201 CMR 17.00 sets the minimum standards for the protection of personal information of any Massachusetts resident. It does not matter if this personal information is stored in a filing cabinet, a desk drawer or on your network database, you are responsible for its safety and security as set forth in 201 CMR 17. Massachusetts, like many states is responding to the growth of identity theft and is putting responsibility on those businesses (such as a mortgage broker) to follow a set of requirements in order to effectively protect personal data from those that might use it inappropriately or illegally. As a mortgage broker these regulations impact how you do business and who you do business with. If your originators, processing staff or even others that may be involved with a loan transaction such as an attorney, real estate agent or credit bureau have access to or store personal information about your borrowers or prospects (that reside in Massachusetts) such as their name, along with:
Address Social Security number Credit card number Driver’s license information Other state issued identification information
then these regulations will affect them also and you are responsible for taking steps to comply and control the collection, handling storage and distribution of this personal information. This means that you need to protect yourself and your business and only share personal data with businesses that you verify are in compliance with 201 CMR 17.
This regulation is not just about clients and customers. If you are located in the Commonwealth of Massachusetts and have employees who reside in Massachusetts and you keep employment applications, a copy of a drivers license, a personnel file or payroll information on them than 201 CMR 17 applies to you and you must comply.
So What Steps Do I Take To Be in Compliance?
The key to CMR 201 17.00 is the development, implementation, maintenance and monitoring of a comprehensive written information security plan (WISP). This WISP is meant to address handling and storage of any records containing personal information. In addition to creating and maintaining a WISP, you will need to identify the components of the program. This includes:
Designation of one or more employees to maintain the wISP. Identify and assess reasonably foreseeable internal and external risks to the security and confidentiality of any personal information you handle of store Develop security policies and procedures for employees and the handling of personal information. Limit the amount of personal information collected to what is necessary to perform the transaction. Identify all areas, storage and devices used to store personal information and develop a plan for its security.
201 CMR 17.00 goes further to address Computer System Security Requirements. The Commonwealth of Massachusetts has outlined technology requirements in order to be compliant. These requirements should be discussed with an IT professional. They impact not only your server, but desktop computers, laptop computers, network scanners and copiers. Things to discuss include:
Securing user authentication protocols Securing access control measures such that restrict access to records as well as manage passwords and users. Encrypting data during transmission as well as any data on mobile devices such as laptops and PDAs. Ensuring that there are current versions of security software such as anti-virus on systems. Training employees about information security
A lot of publicity regarding the theft of personal information has been linked to laptop computers by the media. Personal information can be compromised and stolen while being stored on computers or transmitted electronically, but this critical data can also be stolen while sitting on a desk or in am unlocked file cabinet in paper form also. Even how you dispose of this information is important to consider, as you are responsible for even what you throw away into the dumpster. Shredding and a disposal service a key components of any effective Mortgage Company WISP. The goal of MA MGL 93H and 201 CMR 17.00 is to change how a business views personal information and important steps that need to be taken for its proper collection, use, storage, transport and destruction.
Securing personal information not only protects your clients, but also your business against fines and lawsuits and make sure you are in compliance with 201 CMR 17 and develop and implement a Mortgage Company WISP now.
By: Bill Sifflard
Texas Mortgage Leads
In Texas, mortgage leads play a key role in closing loans. They are more effective in promoting real estate business than other conventional advertising methods that are employed to attract customers. The generation of the leads is done through telemarketing. This technique ensures a secure and predictable stream of leads. Apart from the important function of generating leads, telemarketing lets internal loan officers concentrate more on closing the deals than in searching for and qualifying prospective clients.
Spending some time on research by visiting various sites is a good tactic when one is scouting for the best mortgage lead. This exercise is recommended before making a final decision on the mortgage. Mortgage leads meant for trading cost around $50 per exclusive lead, while a non-exclusive lead might cost around $25. Though some companies quote low prices for their leads to their clients, they may not generate valid leads all of the time. Usually, an exclusive lead proceeds directly from the consumer to the broker very quickly. This helps the broker to offer various alternatives for a mortgage.
Lead generation firms in Texas can provide leads by a daily batch process or through a “hot-transfer” process. The latter requires to first check if the lead is qualified. Once this stage is over, the call is transferred to the loan officer for further processing of the lead.
The lead-generation process practiced in Texas is a cost-effective means of reaching a large pool of prospective clients. These leads are available for Texas loan officers and brokers. Initially, the lead-generation activity was a highly specialized field that required vast knowledge regarding the practices of lending institutions. Hence, it was handled exclusively by professional mortgage brokers who stood between the customer and the mortgage lenders. The mortgage leads generation system in Texas does an efficient job of filtering exclusive mortgage leads from a large network of websites and marketing campaigns dedicated to promoting mortgage sales.
By: Eric Morris
What Is Private Mortgage Insurance?
Private mortgage insurance or PMI as is known is a form of insurance new homeowners are required to purchase. This is particularly so if their down payment is 20 percent or less of the property’s valued price or sale price. The main reason for private mortgage insurance is to protect lenders in the case the new homeowner defaults on their home loan.
Although private mortgage insurance has a bad reputation since it only protects lenders, it is actually a good thing. Reason is it has allowed millions of people to be able to buy homes with smaller down payments. Previously, these people would not have been able to afford a home had the down payment remain the same. Another important reason is private mortgage insurance can help you qualify for home loans.
Cost of Private Mortgage Insurance
The cost actually varies depending on the mortgage loan and the monthly down payment. Usually, it is half a percent. To calculate your private mortgage insurance, you can use this estimated formula:
Annual private mortgage insurance = 100 – (percentage of down payment paid) * (sale price of house) * 0.05
Let’s take an example. Suppose you brought a $500,000 house. You pay a 20 per cent down payment. So using the formula as above:
Annual private mortgage insurance = (100 – 20) * $500000 * 0.005 = $2000
Your monthly mortgage insurance will be around $167.
One important point to note is you should always keep track of your payments and notify your lender when you have reached 80 percent equity of your house. Even though the Homeowner Protection Act requires lenders to notify you of how long it will take you to pay, it is still better to keep track of it yourself.
There are some cases where lenders make homeowners continue their private mortgage insurance all the way through the lifetime of the loan. This usually applies to high risk borrowers. Therefore your payment history and credit rating such as your FICO score plays an important part as well.
Some people hate paying private mortgage insurance for years. There are some ways around it.
One way is to pay more interest on your home loan. Some lenders will waive the private mortgage insurance requirement if you agree to pay a higher interest rate. Since mortgage interest is tax deductible, it can be a good idea to go ahead.
Another way to avoid paying private mortgage insurance is to prove to the lender that the value of your home has risen. If the value of your home has risen significantly, your home have already have the 20 percent or more equity you need to cancel the mortgage insurance. However, it does take time for the lender to verify your claim, sometimes as long as a year.
By: Ricky Lim
