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: adjustable rate, fixed rate, fixed rate mortgage, refinance, Introductory rate, Mortgages

Consumers warned against locking into costly fixed rate energy tariffs

With winter now upon us it is not surprising that many people are getting concerned about their energy bills, and this is made even worse by the fact that energy usage prices are set to soar with the energy giants increasing their prices and adding the financial burden that many households are already experiencing. Scottish and Southern Energy has already announced an increase of 9 percent from the start of December, which could see the average annual bill rising by almost £70 a year.

Officials have said that it is likely that more of the UK’s energy giants will follow suit and increase their prices. However, they have also said that consumers should resist the temptation to lock themselves into costly fixed price energy deals, as this way they could end up paying hundreds of pounds extra each year. It is claimed that fixed tariffs are around 27 percent higher than online tariffs, and this could add over £230 to the average annual energy bill.

EDF Energy announced yesterday that it would be freezing standard gas and electricity prices until March 2011. However, the annual cost of this comes to £1098 a year, compared to £867 a year for its best online tariff, reflecting a difference of 27 percent.

Ann Robinson from the price comparison service uswitch.com said: ‘Fixed tariffs can be expensive; it is only worth paying the extra if you are confident prices will increase by that much. There are two key steps to keeping a lid on your energy bills – make your home more energy efficient, and switch to a competitive energy plan so you pay less for the energy you use. This could save around £422 per year.’

Tags: officials, price comparison service, EDF, Ann Robinson, fixed rate, price, tariff, Renewable energy

Banks try to recover by making customers pay

It has been suggested that many banks and building societies in the UK are trying to rebuild their financial portfolios and profits by making customers pay, according to a recent report. Read more

Tags: fixed rate, percent, borrowing, banks, change, margin, cost of borrowing

Consumers should “research the market” when looking for a mortgage

It is important for consumers to shop around when looking for a mortgage, one property expert has claimed.

According to the Council of Mortgage Lenders (CML), buyers should do all the “obvious things” when looking for a mortgage with researching the market being one of them.

Sue Anderson, a spokesperson for CML, said: “Knowing the product range that is out there is obviously important for borrowers so that they can assess whether the person who is advising them is pushing them towards a product that looks suitable for them.”

Ms Anderson added that there are a number of ways that allow you to do this, such as checking the Financial Service Authority’s comparative tables, and the range of published sources on the web from various commercial providers”

In February 2008, the CML reported that there had been a move-away from fixed-rate products as consumers became increasingly attracted to tracker products.

Meanwhile, the mortgage market has been badly affected by the credit squeeze. In October last year, Moneyfacts reported that 40 per cent of mortgage products had “disappeared”.

Tags: credit, credit squeeze, fixed rate, finance, Mortgage loan, mortgage