Mortage Lite

If you are comparison shopping for a new mortgage the number of choices can seem overwhelming. How do you compare loan offers when determining which is the better deal? Does the Annual Percentage rate give you enough information to make an informed decision when refinancing your mortgage? Here are several tips to help you comparison shop without overpaying when refinancing your home loan.

What is the Annual Percentage Rate?

Annual Percentage Rate or APR is supposed to give you all fees and costs associated with a loan offer expressed as a percentage. Federal Truth in Lending law require mortgage lenders to disclose the Annual Percentage Rate; however, this percentage rate is misleading for a number of reasons.

Annual Percentage Rate was intended to allow borrowers to compare loan offers from a variety of lenders. This APR would prevent lenders from disguising their fees or switching you to a higher interest rate. One problem with the Annual Percentage Rate is that nearly every lender out there calculates the percentage differently and may or may not include all their fees. Because there is not clear definition as to how lenders should calculate APR and which fees to include this percentage is completely useless.

Comparison shopping with the Good Faith Estimate will give you a better idea of what fees are included with your loan; however, the Good Faith Estimate is after all just an estimate. If the APR is useless and the Good Faith Estimate could change at any time, how are you supposed to comparison shop for a new mortgage loan? You can learn more about comparison shopping for the perfect mortgage while avoiding expensive pitfalls with a free mortgage toolkit.

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When you are looking at getting some extra money for whatever purpose you want you have two options, you can consider:

Taking out a second mortgage

Refinancing your existing mortgage

You shouldn’t look into taking out a second mortgage instead of refinancing, and this is why:

1. Second mortgages have a higher interest rate, this can be three times higher than your original mortgage. If you refinance instead then you can keep your current low rate, which will save you a lot of money in interest charges. So don’t take out a second mortgage, instead just refinance your existing one!
2. Home equity lines of credit aren’t really that great either, they are sold to you by people that ring you up on the phone. The idea and main selling feature is that you can use it like a credit card which is attached to your house. The people selling these can be very persuasive and will try to encourage you to use this line of credit time and time again.
3. Refinancing your existing loan is much better to keep some equity in your home. Not many loan companies will refinance your home back up to 100% of the value without making you take out a second mortgage. You certainly don’t want to sell all of your house back to the bank, if you do that you have no safety margin should anything go wrong.
4. Sales people like to sell you second mortgages because they get a lot of commission from doing so. Don’t believe everything they say, it’s likely that they will say anything to get the most commission possible! 5. Equity in your home is very valuable, sure it’s tied up and you can’t spend it. But it’s an investment, by releasing all of the equity in your home it can be very dangerous. Should you need any money in an emergency, you have nothing to fall back on. Plus if the house prices in your area fall you could be left struggling with negative equity, which is where you owe more than the house is actually worth.
6. The best piece of advice is this, if you don’t genuinely need something then don’t take out a second mortgage. If you can do without it then don’t consider a second mortgage, these should only be used for emergencies. Refinancing on the other hand can be used to release money for anything you might need it for.

I can’t stress this enough, the only reason you should use a second mortgage is if you’re in an emergency situation that cannot be resolved by other means. Do not use it for anything that isn’t essential.

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With the real estate prices sky rocketing, mortgage loans are a boon when it comes to purchasing your dream home. You can opt for a mortgage loan as a first time home buyer, or to move up, or to refinance an old mortgage, or to access the equity blocked in the house. Whatever may be the reason, it is important to have a basic knowledge about mortgage loans and its types.

Mortgage loan refers to a loan that is secured by a mortgage on real property. Since these loans are secured, the value of the property reduces the risk factor involved. Thus mortgage loans may be available at lower interest rates as compared to other types of borrowing.

Mortgage loans are structured as long-term loans and the periodic payments for them are calculated according to time value of money. The payment is generally through Equated Monthly Installments (EMIs) paid over the term of the loan. Over the period, the principal amount borrowed, would be slowly paid off through amortization.

It is very important to choose the right type of mortgage loan, like it is important to choose the right lender. Doing a little bit of homework will help you understand what the loan officer speaks, who most of the time otherwise seems to be speaking in an alien language.

There are two basic types of amortized mortgage loans viz.

1.Fixed Rate Mortgage Loans: In fixed rate mortgages, the interest rate remains fixed for the entire term of loan. Thus they are more predictable than other types of mortgage loans. Fixed rate loans are generally up to 30, 20, 15 and 10 years. The longer the term of loan, larger is the amount of interest paid than the principle, this means larger tax deductions.

Since the interest rate remains fixed, you are saved from paying higher rates as per market fluctuations. At the same time you might loose the opportunity of borrowing at lower rates if market rates fall. If the fall in interest rate is 2 points or more, and you plan to reside in the same house for at least 18 months more, you can opt for mortgage refinancing.

2.Adjustable Rate Mortgage Loans: Also called floating rate or variable rate mortgage, these loans are popular because of the lower interest rates at the beginning. Adjustable rates are a little easier to obtain since some risk is transferred from the lender to borrower. Also lower interest rates may qualify the borrower for a larger loan amount.

In Floating rate mortgage loans interest rate is generally fixed for a period of time, after which it periodically adjusts to certain market indices. The most common market indices used are Prime Rate, London Interbank Offered Rate (LIBOR) and Treasury Index (T-bill). There is a cap on the margin that restricts the lender from charging interest rates higher than a certain point. This safeguards the interest of the borrower to a certain extent.

If you want to borrow money for your business purposes; you can opt for commercial mortgage loan. Commercial mortgage is similar to a residential mortgage, except that the collateral security given will be a commercial building or other business property and not a residential property.

All types of mortgage loans are generally non-recourse. This means that in case of default in payment, the lender can only seize the collateral security to recover the loan amount. Even if the collateral is insufficient to reimburse the loan in full, the lender has no further claim against the borrower.

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Mortgage loan is the generic term for a loan secured by a mortgage on real property; the “mortgage” refers to the legal security, but the terms are often used interchangeably to refer to the mortgage loan. Mortgage loans generally refer to a loan secured by residential property, often for the purpose of acquiring the residence. Mortgage loans may be lower priced than other forms of borrowing because the value of the property reduces risk for the lender. There are many benefits of Mortgage Loans.

The first benefit of mortgage loans is that there are many types of mortgage loans and are available and used worldwide. The flexibility of interest rates also adds to the benefits of mortgage loans. Here, the interest rates may be fixed for the life of the loan or can be changed at certain predefined periods. The amount paid per period and the frequency of payments; in some cases, the amount paid per period may change or the borrower may have the option to increase or decrease the amount paid.

Another benefit of Mortgage loans is that there are a variety of ways in which you can repay a mortgage loan. The repayments may depend on locality, tax laws and prevailaing culture. The most common way to repay a loan is to make regular payments of the capital, also called principal and interest over a set term. This is commonly referred to as (self) amortization in the U.S. and as a repayment mortgage in the UK. A mortgage is a form of annuity and the calculation of the periodic payments is based on the time value of money formulas. Certain details may be specific to different locations: interest may be calculated on the basis of a 360-day year.

The main alternative to capital and interest mortgage is an interest only mortgage, where the capital is not repaid throughout the term. This way you can benefit more from Mortgage loans. This type of mortgage is common in the UK, especially when associated with a regular investment plan. With this arrangement regular contributions are made to a separate investment plan designed to build up a lump sum to repay the mortgage at maturity. This type of arrangement is called an investment-backed mortgage or is often related to the type of plan used.

Another important benefit of Mortgage Loans is that during your interest only period, your entire monthly payment is tax deductible. Interest rates on mortgage loans have record lower rates that can save you your money. Interest Only loans offer lower payments. Yet another benefit of Mortgage loans is that interest rates are tax deductible and are also made with flexible options with fixed rate or ARM’s.

Mortgage Loans have a number of loan options. You can easily find the right lending package for your individual needs, depending on your current and future financial situation. A Mortgage Loan also has the flexibility of lowering your mortgage duration so that you can become debt free sooner than usual.

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