Smart Homeowners Learn Mortgage Basics with David Bach
Your home is most probably the largest investment you will make during the entire course of your life. Home mortgage loans are most often the largest financial decision a person ever makes. It is important to fully understand how mortgages work and their component terms. Failure to do so can prove quite costly. The first component is the duration of the loan. Mortgages most often have thirty year pay back periods. However, some newer exotic mortgages allowed for extension of this timeframe to up to fifty years. The long the loan term means the slower you are paying towards principal balance. This can prove risky. It is advised you stick with a 30 year term, and if you can afford the payment then seek a 25 year term. The next important facet of a mortgage is its associated interest rate. Interest rates for mortgages are generally tied to a prevailing market rate. If you have good credit this rate tends to be lower. Also, a higher down payment can translate to a lower rate. It is important to seek the lowest rate possible. Even a tiny bit lower rate can translate to significant savings over the long course of the loan. Some interest rates are fixed. This means the initial rate you have stays the same and never changes. This allows for effective family budgeting knowing exactly how much your housing expense will be on a continuing basis. The fact that is fixed doesn’t mean that you are stuck with it forever. At some point in the future if rates decrease it could be possible to refinance and thus lower your rate. Other mortgages have what is called “adjustable rates”. These mortgages have interest rates which fluctuate with the benchmark rate. Most often, they go significantly up from the initial rate you are given. Many borrowers are confused and think their adjustable rate loan is actually fixed. It is imperative you know for sure which yours is. If you unknowingly have an adjustable rate you could be in for a rude surprise which is best avoided. Some loans have what are called “teaser” rates. You are well served not to be teased in by these. The initial monthly payment amount on these mortgages are very low. That is the bait. Once they hook you, then the payment amount can radically increase. Many times so much so the borrower can no longer afford it. This is obviously a predicament you do not desire to find yourself in. Some mortgages have various fees and other charges termed “points”. Many borrowers focus solely on the interest rate and fail to take into consideration these fees and points. Make sure you read all the fine print. See exactly what charges are levied at closing. High points or fees can wipe out an otherwise attractive interest rate. Home mortgage loans can be confusing. If you don’t understand a clause then ask. If you still don’t understand, then ask again. Pay attention to the duration, the interest rate and ensure you understand if your rate is fixed or adjustable. Avoid high fees or points owed at closing. These simple steps can save you thousands over the time you own your home.
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David Bach helps you understand the basics about your mortgage; how much you can afford, how to get qualified, what term is best for you and much more. You’ll learn how to find a lender of integrity to help you make these important decisions and prepare you for the homebuying process and serve you after you’ve bought your home. Remember, homeownership is still the single most important investment you can make in your lifetime. Look for other webisodes in this series by searching for “Smart …
Help answer the question about best refinance home mortgage loan rate
Paid off 1st mortgage. Owe 90000 on a 2nd mortgage/home equity loan. Should I pursue a new loan to refinance?I am 46 years old. My husband is 50 years old. The rate is 9.25%.
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July 5th, 2009 at 11:03 am
Whether or not you personally can do any kind of refinance depends on your credit, income, and the value of the home.
If you're asking if no or low closing cost mortgages exist? Absolutely. Typically the rates are a little bit higher, but honestly your rate is really high right now, it should still be significantly cheaper than 12.75 even with the bank paying the closing costs.
By the way check your Adjustable Rate Rider from your original mortgage. Odds are there are caps on how much and how often your rate will adjust. If you're paying this loan off in the next few years it may not even be possible for it to adjust up to 18.75 that quickly.
July 5th, 2009 at 11:15 am
Right now rates are LOW, I would just refi instead of the HELOC that might cost you 7% on up. Why pay for 2 transactions.
July 5th, 2009 at 6:12 pm
It may be too late if you have missed mortgage payments already but find an FHA Lender for a refi. The FHA program is back in favor now that people are in ARM's that are about to explode on them.
There are still plenty of Subprime Lenders who refi on bad credit but if you can go FHA, that will get you into a 30 year fixed with a very good rate. Yes, you will have to pay PMI, but it will likely be worth it depending on what your payments will adjust to.
Best wishes!
Me2Me2Me3@yahoo.com
July 7th, 2009 at 8:14 am
because the loan was secured by real estate it is technically a mortgage. If you do refinance you will be looking at a either a new conventional mortgage or a new home equity loan.
July 7th, 2009 at 11:43 am
If you could get 6% on a cash out refinance without PMI and minimal costs, the new first mortgage would give you a lower average cost of funds and monthly payments.
On the other hand, if you have to pay a couple thousand in closing costs on a new first, the low closing cost on the 2nd might be better. It may really come down to how much additional borrowing you would be doing at the higher rate vs. what the difference in closing costs is.
To do a proper analysis, I would need more information. I would suggest calling a couple banks and having them put together some good faith estimates. The analysis is not difficult so any competent loan officer should be able to help you with it. Watch out for pressure to refinance the first. If you are only borrowing a few thousand on the 2nd (home equity), you are probably going to be better off going that route, the the LO may try to steer you into a new first as they can't make any money on a little loan.
Good luck.
July 8th, 2009 at 1:43 am
July 8th, 2009 at 7:00 am
Try to hold out for 4.5% fixed for a 15 year loan. There is always the possibility of a 3.5% rate if the economy does not recover by summer..
July 8th, 2009 at 7:24 pm
Honestly, no I don't. You have two years of security left at a rate that is currently pretty hard to find. If you are planning on being in your home only 3-4 more years, then find out what your adjustment cap is. All 5-year ARM's have an adjustment cap that limits what the loan can adjust to initially, and depending on what that is, you may find it in your best interest to ride it out until you decide to sell. You have to consider the cost to refinance versus the monthly savings you'll get by refinancing. So, let's say that you decide to stay in the home for three years. You're rate is fixed for the next two years, and depending on it's adjustment cap, let's say two percent, your rate would be fixed for the third year at 7.25%. Depending on the size of your loan amount, your payment may only increase by $100 a month. Let's say the cost to refinance is $2000, it would then take you 20 months to break even on your costs, and if you were only in the home for 12 more months it would not make sense to refinance.
If you would like further details, or if you would like me to take a look at it, email me directly, I would be more than happy to. Hope this helps.