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

Report claims lenders being less stringent over home loans

Whilst lenders have been exercising increased stringency when it comes to home loans and other types of finance since the onset of the global credit crunch a recent report has suggested that some lenders may be easing up on their lending criteria now. Read more

Tags: stringency, Real estate, housing, 100 percent mortgages, home loans, industry officials, Mortgages, Credit (finance)

Tracker mortgages ‘best bet’

Tracker mortgages are the “best bet” for those consumers who want to benefit from falling interest rates this year, according to finance experts.

Moneysupermarket.com said that while rates have been going down, increasing numbers of consumers have been reverting to tracker mortgages.

Louise Cuming, head of mortgages at moneysupermarket.com, said: “At the moment, the percentage of customers that are on trackers… although it’s only 24 per cent, that’s the highest it’s been since back in 2005.”

She added that trend for rates is going to be down, so these products are useful for those spenders where affordability is no issue.

However, moneysupermarket.com warned that tracker mortgages should only be used by those consumers who can afford to risk higher repayments in the future.

The most recent figures from the Council of Mortgage Lenders, for December 2007, show that 29,600 tracker loans were taken out by homebuyers – making up 24 per cent of all home loans.

A survey by Fairinvestment.co.uk last week revealed that 23 per cent of Britons polled would favour a tracker mortgage.

Tags: Mortgages, december, home loans, show, Business Finance

CML: Fixed-rate mortgages ‘most popular’ with FTBs

The number of people looking to take out fixed-rate loans has soared following fears that interest rates could rise next year, according to the Council of Mortgage Lenders (CML).

First-time buyers (FTBs) have been plumping for fixed-rate loans in February, with figures showing 87 per cent of those looking for a mortgage for the first time opting for this method of borrowing.

This figure is up from the previous record of 84 per cent in January and up from 82 per cent at the same point last year.

Excluding mortgages, home loans totalled some £10.7 billion – the lowest for 12 months – with February typically being one of the quietest months of the year in the property market.

Commenting on the latest figures, CML director general Michael Coogan said: “With the chance of at least one more interest rate rise this year, first-time buyers are taking the sensible option of taking out fixed-rate deals, and locking into the payment security they provide.”

He added that the figures reveal that first-time buyers are showing the ability and desire to plan ahead, based on the fact that they are “the most financially stretched group”, and are having to take careful steps to avoid any interest rate increases in future.

Tags: Michael Coogan, Danish mortgage market, mortgage lenders, Council, previous record, GBP, finance, home loans