Archive for January, 2007

You own property and you have purchased a home loan to finance it. After a few years, you feel that you should shift to a lower rate of interest in order to take advantage of falling rates or you probably have other commitments that need more urgent resources. Looking around for refinance loan options could be the sensible approach in such situations.

Mortgage is a claim of the lender on the property of the borrower or purchaser. The purchase cost of the property is the starting point for computing the loan. Add upfront costs, insurance, title inspection, taxes and maintenance. Now add the interest due to the lender for the term of the loan. This would be the total value of the mortgage and working backwards you would arrive at the monthly outflow of repayments.

Often borrowers buy a home loan and realize after a few years that they could benefit from lower interest rates spurring the retail finance segment. Refinance loan options enable the homeowner to substitute high mortgage outflows with lower ones on account of lower interest rates. Besides, refinancing helps in the following ways:

Ø It is ideal for leveraging the equity in the property. If the value of the property has appreciated significantly, refinancing your mortgage would bring attractive benefits. Your monthly mortgage dues or the term of the loan could be arranged according to your needs.

Ø Besides purchasing property, you probably have other financial objectives too. Lower outflows means freeing of cash that could be invested productively.

Ø It is a good method to consolidate debt and release funds for emergencies like medical expenses, college admissions etc.

Ø It is an ideal protection against inflation. If you saved your cash resources, it would be an inefficient method. On the other hand, higher equity in the property brings more funds into your hands for which you pay in uniform monthly outflows over a long period in the future.

Shopping for refinance loan options calls for adequate homework. Estimate realistically your need for refinance and determine the monetary value. Compare equity in your property as well as your future probable income flows. Now enquire with different lenders and obtain quotes for comparisons. Credit agencies could help you compare refinance loan options and decide on one just suited for you. Do not hesitate to negotiate on the interest rates and other hidden costs.

Search Images

You have always wished to have a place to call your own. You have bought or intend buying property either to provide a safe shelter for you and your family or to earn rental income from it. But, the commitment in monetary terms need not put you off. You can compute the upfront costs and the total investment required. Then, you can fix your mortgage outflows.

If you are already a homeowner, chances are you would like to lower your monthly mortgage payments keeping up with the falling mortgage rates. Applying for home refinance is the best way to achieve this.

Mortgages are a significant source of revenue for the lenders and they are relatively safe. Moreover, offering attractive mortgage rates keeps the pressure on real estate prices low. Therefore, there is a boost to the real estate industry as seen in countries like the US, UK and Spain.

For the borrowers too, mortgage is an easy and systematic method of acquiring a valuable asset, namely their dream home. It is their best bet against inflation. Often, however, when mortgage rates fall as a result of increasing liquidity in the system, those who purchased high interest mortgages would like to move to lower rates. Home refinance is the chosen route for this transition.

Refinancing an existing loan has the following benefits:

Ø It lowers your monthly outflows on account of mortgage payments.

Ø It unifies or consolidates debt under one account making computation of mortgage dues or remaining period more realistic.

Ø It releases surplus cash that could be used for other personal commitments.

Getting home refinance is largely an effort at comparing equity in the property with the existing mortgage interest rates. Refinancing allows you to leverage the equity in your property to obtain more attractive quotes on rates. Besides the lower interest amounts, you would also save significant amounts in other costs if you bargain hard. The dollars saved in lower outflows mean you would have ready funds for emergency needs or better investment.

Most lenders allow the option of rolling over subject to differential costs for the roll over. Some important points with respect to home refinance are as follows:

Ø Refinancing brings future benefits while there are current costs. Therefore, the farther your time horizon, the larger the refinancing benefits. Similarly, shorter the remaining term of your existing loan, lower is the benefit accruing from refinancing.

Ø If there is significant equity in the property, you could avoid paying mortgage insurance.

Search Images

Home mortgage is catching up these days. A dream home is a desire of every married couple. The very first step towards settlement of ones life is when an individual purchases a home. Purchasing a home is a big investment for a lifetime. Many people have to save for years before they can consider buying their dream home. However, with more and more banks offering home loans this situation has improved manifolds. Banks give loans for the home an individual plans to purchase. These loans range from 90% to 100% of the properties value. The loans are available on 0% interest plans and installments are spread over a time period of 5 years to 25 years depending on the amount of land and the individual’s loan repayment capacity. Not all kinds of properties could be purchased on bank finance. Every bank has its own rules and regulations about what kinds of properties would be financed via them.

There are a number of real estate agents and construction companies that would help home mortgage. These real estate agents have entanglements with various established banks that offer home mortgage. Real estate agents can guide you with the right kind of property that could be purchased based on your repayment capacity. When you approach a bank for home mortgage there are several factors based on which your loan would be approved. The prime factor would be your employment status. You should be a full time employee or a tax paying business owner or professional. The amount of home loan that you are entitled to depends on your income. It is essential that you have a secure source of income that allows monthly clearance of EMI. The EMI’s can be later adjusted when an individual has surplus income. You may also pay the some of the EMI’s and readjust the repayment duration or EMI value via bank. It is essential for an individual to talk with the bank in detail and know the banks procedure and terms before taking a bank loan.

Many people wonder about the situation when they are unable to pay the home mortgage amount at the end of the loan tenure. Under such situation there are two options available with the owner either to under go legal proceedings or to sell the property before the tenure for payment gets over and repay the amount back to the bank. Some individuals also try extending the repayment duration but that depends upon the individual records and bank’s policies.

Search Images

It is the dream of each and every person to own his/her own home. The tastes are varied. Some prefer small individual homes. A few others relish apartments. There are some that fantasize about huge, sprawling bungalows, with swimming pool, mowed lawn, kitchen garden, etc. Ultimately, everything boils down to money. You get what you pay for. It is obvious that very few people have the money to pay the entire amount of the property upfront. Home loans play a very critical role in this.

The type of the house that you desire, its cost, prevailing and possible future interest rates, and period of repayment usually decide which is the most ideal home that suits the budget. Certain other costs like land registration fees, local taxes, appraiser fees, home loan processing fees, loan documentation fees, insurance premiums, etc. could also create significant impact on the decision. It is very much necessary to analyze all these factors carefully before determining the type of home loan one should opt for.

After deciding on the house that a prospective homebuyer wishes to have, he/she has to evaluate the interest rate and the period of payment that would best suit the income level. Usually, home loan lenders offer two types of interest rates, fixed interest rates and variable interest rates. Fixed interest rates are preferable when the rates are very low. Then, the only way the rates can go is upwards.

However, the prevailing interest rates are hovering just below historically high levels at around 6.5%. The U.S. Federal Reserve was maintaining its overnight interest rate at 1% prior to June 2004. Subsequently, to combat inflationary trends, the Fed hiked the rates 17 times consecutively from June 2004 to June 2006 by a quarter of a percentage point every time. At present, the Fed rate stands at 5.25%. As such, there is very little chance for the rates to rise much higher in the next few years. It is obvious that nobody can predict exactly the interest rate fluctuations over the next several years. Still, the probability of the rates getting lower in future is more. Hence, the variable interest rate would be the most suitable option now for home loan borrowers.

An analysis of the rates offered by various home loan providers in the United States reveal that a 15-year fixed mortgage loan carries an annualized interest of around 5.330%. A 30-year fixed mortgage loan is charged 5.785% interest. On the other hand, a 12-month MTA adjustable rate mortgage (ARM) loan interest is 2.925%, and a 3-month COFI ARM rate is 2.621%. Adjustable rate mortgage loans are available from 1 to 10 years. That is, the loan would carry a fixed interest for a period of 1 to 10 years as per the agreement. After that period, the loans would have variable interest rates. In the present scenario, ARM loans would be the best option for a home loan borrower.

Search Images

Home mortgage loans are the norm in the United States while going in for purchase of new homes. Apart from the loan amount, the interest rate and the period of repayment are the other two dominant factors in this process. Interest rates are of two types. One is the fixed interest rate and the other is the variable interest rate.

When a borrower opts for a fixed rate loan, he would be paying the same amount of interest for the entire period of repayment, irrespective of variations in interest rates in the market. Let us take a possible scenario. A homeowner has taken a home mortgage loan for $100,000 in January 2003 for a repayment period of 30 years. Prior to June 2004, the United States Federal Reserve had kept its overnight interest rates pegged at 1%. Hence, the borrower would have obtained the loan for an effective annualized interest rate of around 2% to 3%. After June 2004, the Fed had increased its overnight call rate 17 times consequently till June 2006. The overnight call rate of the Fed now stands at 5.25%. As such, the home mortgage loans granted at present carry an effective interest rate in the range of 5.8% to 6.5%. Under the circumstances, the said borrower is not at all affected by the rise in interest rates. Fixed rate loan has been the wiser decision.

Compared to a person who had taken a fixed rate loan, a borrower opting for a variable interest rate January 2003 would be forced to pay a much-higher-than-planned interest rate now. The monthly installment amounts would increase proportionately and the borrower might find it difficult to meet the higher installment amounts.

Economists forecast that the Fed is most likely to keep the interest rates unchanged at 5.25% for all of 2007 and most part of 2008, in the absence of any drastic upheavals in the financial markets or the economy. Some economists are of the view that the interest rates might be cut in the latter half of 2007. As such, it would be prudent for a borrower going in for a mortgage loan now to opt for variable interest rates, in the hope that the rates would become lesser over the next few years. A person with a fixed rate loan might find out over passage of time that the interest rate being paid on the loan is higher than the interest rates prevailing in the market at that time.

However, all this is based purely on speculation. There is no guarantee that the interest rates would go down or remain stable over the next several years. The interest rates might even be hiked further. It would be up to the individual borrower to ponder over possible future market scenarios, his probable income in the coming years, the appreciation or depreciation of the property value, and other such related factors, before arriving at a decision about opting for a fixed rate loan or a variable rate loan.

Search Images

When a person obtains a secured loan with the intention of replacing or consolidating other secured loans procured with the very same assets, the transaction is termed as refinancing. A home mortgage loan refinancing is the most common example of this. Such refinancing is invariably resorted to for a few reasons that provide some amount of financial relief to the borrower.

A debtor desiring to get his interest payment costs to be reduced goes in for refinancing. A person who wishes to pay off certain other debts owed by him plans for such refinancing. A borrower who wants to increase the period of repayment in order to reduce the monthly installments paid arranges for a longer-term loan. One who would like to dispose of a portion or the all of the property also resorts to such refinancing.

Interest calculation is one of the most important factors that has to be taken into consideration in refinancing process. There are several refinance calculators that are in practice. An understanding of these refinance calculators will provide the borrower with a clear idea of what he/she is getting into and plan for easy and hassle-free repayment. The effective interest rate is termed as annual percentage rate (APR). The APR also takes into account the total loan amount as well as the one-time fees like processing fee, documentation charges, etc.

Let us consider an example of an effective annual interest rate of 10% to understand refinance calculators. This interest rate can be expressed in more than one way. A lender might say the effective monthly interest rate is 0.7974%. Otherwise, he might mention that the annual interest rate compounded monthly is 9.569%. Alternatively, he might reveal that the advance annual interest rate is 9.091%. It has to be understood that a few lenders would try to express the effective interest rate as 9.1% annual rate in advance, to make the rate look cheaper. In cases where the interest rates are much higher, such a way of mentioning could give the impression of a large difference in the actual rate charged. The borrower should not get led away by this and be very clear about refinance calculators.

To cite a few more examples to clarify this, let us assume that a loan of $100,000 is repaid in 12 monthly installments of $8,771.56. The total amount paid would be $105,258.72. This does not mean that that effective APR is 5.26%, simply because the principal amount was being repaid every month and not at the end of twelfth month.

Further, let us assume that the loan of $100,000 includes a $1,000 processing fee, and that the monthly installments are $946.01 for 240 months at an interest rate of 9.569% compounded monthly. In such a case, the effective APR works out to 10.31% and not 10%.

From the above, it is obvious that a borrower should make a careful analysis of the various interest rates offered by understanding the underlying principle of refinance calculators to arrive at an informed decision.

Search Images

When you acquire a 20 year fixed rate loan, you pay the similar interest rate for the complete life of the loan. Moreover, homeowner’s insurance payments and your property tax will change, and your bank may perhaps require you to put together these payments with the loan payment. Nevertheless, you know what your interest payment and principal will be on condition that you maintain that loan. Nearly all-permanent rate mortgage loans are set for 30 years, even though you can obtain them for 20 years which is also known as 20 year fixed rate loan.

The big disadvantage to 20 year fixed rate loans is that they in general have bigger initial interest rates compared to Adjustable Rate Mortgages. You meet the requirements for a home loan referred to your ability to clear the initial payment amount, so it is more often than not more tricky to acquire a 20 year fixed rate loan.

A 20-year fixed rate loan shields you from hiking costs of money. Keep this in mind, if rates go up, then your payment will remain the same. However, if rates go down, the payment will still remain the same. On the other hand, you can refinance your property and get these lower rates for yourself.

There will be closing costs whenever you refinance, but there will be two major reasons on why this should not worry you very much. Firstly, as noted previously, costs for 20 year fixed rate loans are frequently lower. Secondly, if you have verified to the bank that you are a first-class credit risk and if your loan is excellent for them, the bank will try hard to maintain your business. At this time, the bank wants you. The bank’s business depends on keeping and getting good customers. For that reason, if you refinance your property at the same bank that is your mortgage, you will most likely save a bit of money.

Furthermore, it might be the best, or in other word, least expensive, to acquire Adjustable Rate Mortgages or any changeable rate type loans if you have plan to repeatedly sell and buy your properties. If you plan to furnish and decorate your new home gradually just the way you prefer, and wish to form a relationship with your neighbors - mainly enjoy your pleasure of ownership there for few years, the long-standing security that a 20 year fixed rate loan offers is definitely for you.

Search Images

Buying a dream home is a desire that many of us have. Fortunately in the United States the Government and the lending institutions offer individuals many schemes to buy a home. HUD is the government organization that helps individuals in buying a home. Lending institutions support the initiative by advancing money to individuals under a term of 15 years or 30 years. The interest rates charged by the institutions is also moderate that helps us to plan whether we want to take a loan for 15 years or 30 years. The present interest rate for a 15 year loan term is 5.75% and the rate for a 30 year loan is 6.05%. If we consider the rates for a 15 year term for the last one month, three month, six month and one year it was 5.71%, 5.9%, 6.08% and 5.52%. For a 30 year loan the interest rates for similar periods were 6.01%, 6.22%, 6.43% and 5.93%. Analyzing this data we find that the interest rates have moved in a range of 0.56% for a 15 year loan term and 0.5% for a 30 year loan term. It needs to be noted that the interest difference accrued on these figures may be substantial for a loan of 15 or 30 years. Hence we should be very careful when we approach a lending institution for a loan. The Interest rates vary because of the demand and supply requirements of the economy and the rates are fixed by the Federal Reserve to offer the optimum rates to the citizens.

There are some suggestions that we should keep in mind when shopping for a mortgage. Some of these are checking the house loan rates from a large number of institutions before finalizing on one, checking our credit history before applying for a loan because an unhealthy credit history may disqualify us from getting the sanction. Other points we should keep in mind are not to spend money beyond our means on a property and planning for unexpected disasters such as fires, layoff from the job or other natural calamities.

For buying a house we must try our best to avoid interest only loans which were introduced in late 2001. Under interest only loans you pay only the interest for the first five years and things can really get expensive.

If you are planning a mortgage ensure that you get the best deal for yourself and plan the term and rates that suits your requirements. Otherwise repaying the mortgage can be a difficult task.

Search Images