Is it Time to Compare your Home Loan Options?

There’s a dinosaur living in my friend Angela’s house.

Actually, the dinosaur isn’t in Angela’s house – it’s the house itself, namely, the home’s mortgage loan. Angela purchased the home in 2006 for $146,900 at what she thought was a good interest rate of 6.75 percent. And although mortgage rates have dropped to just a fraction of that over the past six years, Angela’s never quite gotten around to refinancing.

Sound familiar?

Fixed-Rate Loans

It’s the loan your parents probably had: a fixed-rate mortgage. Whether it’s the traditional 30-year fixed or a loan with a shorter term – like a 10-, 15-, or 20-year mortgage – these are the good old boys of the mortgage industry, with 95 percent of homeowners using them.  You know the drill here: the interest rate you lock in to during the prequalification process is the rate you’ll pay over the life of the loan. No surprises, nothing unexpected.

Just how much can you save? Angela, for example, could save more than $300 a month on her mortgage payment by refinancing to a new 30-year fixed – and a whopping $55,000 in interest payments over the life of her new loan. If she took it down to a 15-year fixed with an interest rate below three percent, like her mortgage broker suggested, she would save more than $100,000 in interest by the time she paid off the loan.

Adjustable-Rate Loans

Just like fixed-rate loans, adjustable-rate mortgages, or ARMs, come with a variety of lending options as well. The best known ARM is the 5/1, but mortgage brokers also offer 3/1, 7/1, and 10/1 loans. The first number stands for the loan’s introductory period – which usually features an interest rate below that of fixed mortgages – and the second signifies how frequently the loan’s interest rate is recalculated, in this case once a year after the introductory period expires.

If my friend Angela were to pursue a 5/1 ARM with an introductory rate of 2.5 percent, her initial monthly payment would be just over $500; but she could ultimately end up paying an interest rate as high as 12 percent, translating to a monthly payment nearly 50 percent higher.

Interest-Only Loans

Interest-Only, or IO, loans are the most unconventional of all mortgages, held by less than one percent of all borrowers. For the first several years of your loan, you’ll pay absolutely nothing on your principal unless you choose to make additional payments on top of the interest owed. After that period, your remaining principal is amortized, which could lead to mammoth monthly payments.

What Makes Sense For You?

A mortgage broker can help you break down the numbers to see if you qualify for a loan. To see if a refinance makes sense for you, use a mortgage calculator. You can also take advantage of FHA, VA, or HUD-backed homes. If you have a good credit score and solid equity in your home, don’t be a dinosaur like Angela: refinance before today’s low interest rates become extinct.

Tags: refinance, home loans, adjustable rate, Introductory rate, fixed rate mortgage, Mortgages, solid equity

6 Common Credit Card Mistakes

Borrowing money is a necessity for many people and credit cards are one of the most convenient ways to help you manage your money.

However, while there is no denying that life would be much harder without your flexible friend, there are also a number of traps that consumers fall into that can increase the amount they end up having to repay.

1. Failing to shop around. There are so many cards on the market now but most people do not take time to find the lender that offers the best deal for their circumstances. Comparison sites such as Money Supermarket mean it has never been easier to find out what is available. There really is no excuse for just grabbing the first card you see.

2. Being seduced by offers. The credit card which promises 0% interest may be tempting but before you sign on the dotted line, take a good look at the small print. There could be extra charges for balance transfers and the ‘normal’ interest rate once the introductory period expires might be far higher than you are paying now.

3. Deciding to apply because of the special offers. Many lenders offer additional benefits such as points schemes or cash-back which are designed to persuade consumers to choose their card. However, while you might be delighted with what’s on offer, check the terms and conditions first or else you may end up paying over the odds just for a few freebies.

4. Having too many cards. Having a new credit card ‘just in case’ might sound like a great idea but it can actually reduce your credit score, even if you haven’t used it. Lenders look at how much credit you can access and having lots of cards available to you will reduce the amount of finance you will be offered if you are trying to get a loan or a mortgage.

5. Missing payments or paying less than the minimum is a terrible idea. Not only will you get slapped with substantial charges from your credit-card provider, but a negative entry will also go on your credit record, meaning you could either get charged more to borrow money in the future or even be declined.

6. Feeling compelled to spend. Having plenty of free credit on your card can seem like an invitation to spend money. However, reminding yourself that it isn’t ‘your’ money and not carrying your credit card around all the time can help to reduce impulse buys.

Credit cards get a terrible press and are often blamed for causing debt. However, if they are used carefully and in the right way, they can actually help you to organise your finances better. By taking care to avoid common mistakes you can learn how to make your credit cards work for you.

Tags: credit card tips, personal finance, Credit Cards, loan, credit crads

First time buyers still have options to help them get on the property ladder

Times are hard, and now we’re hearing that the UK’s economic recovery is ‘paralysed’ by Europe’s debt crisis. With the economy the way it is, first time buyers often write off the possibility of ever getting on the property ladder and believe they are set to rent for the rest of their lives. This is not the case anymore, with the government; various agencies; housing associations and property developers now offering a range of deals to help first time buyers get on that crucial ladder. Here are 5 tips that can help you keep those costs down…

Shared ownership

Shared-ownership is a terrific way into home ownership and is the main affordable housing scheme. If you cannot afford to buy outright, you can part buy part rent your home – you pay a rent on the share that you do not buy which is set at an ‘affordable’ rate. The bigger the share that you purchase, the less rent you have to pay.

The FirstBuy scheme

Saving for a deposit is something that holds lots of first time buyers back. Schemes like this give you a step up onto the ladder, by lending you some of the money through a shared equity offer. If you purchase your first home in England though the FirstBuy scheme, your deposit could be as low as 4% – there are online calculators to see the difference it could make. If you are looking in Scotland or Wales, there’s a similar scheme called Head Start.

Avoiding stamp dut

Not an offer as such, but a way to reduce the cost of purchasing your own home. If your home’s value is less than £250,000 there’s no Stamp Duty to pay if you complete before March 24, 2012. That could save you up to £2,500 when you move.

Family ownership with your parents

It is becoming increasingly popular for young single people to include their parents on their mortgages. Even if they just own 1% of the property this security enables you to borrow more money from the bank and buy a more expensive property.

Move to a cheaper area

This does not sound like a perfect solution but sometimes in life, we have to take a step sideways to move forwards. House prices in some areas are much cheaper. If you are willing to move to these areas then you can make buying a house a real possibility. You never know, you may make a hefty profit in the end. It is worth bearing in mind that cheaper areas do not always mean lower quality. For example, some areas are more expensive because they are close to good schools so it is worth researching prices in different areas.

Tags: Shared-ownership, deals, ownership shared-ownership, cannot, stamp duty, offer, something, Equity sharing