Home Loans and Mortgages ? The Selection Can Be Bewildering -

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Home Loans and Mortgages ? The Selection Can Be Bewildering

Home Loans and Mortgages ? The Selection Can Be Bewildering

For years, when someone wanted to purchase or refinance a home, the choices were simple. The buyer chose either a 15-year fixed-rate mortgage or a 30 year fixed-rate mortgage. That was it. Of course, those were also the days of twenty percent down payments, which seriously hindered the ability of many Americans to obtain the loan necessary to buy their own home. In recent years, more flexible loan types have become available and down payment requirements have been relaxed. There are now far more choices of loan types available for the borrower than ever before. That can be a mixed blessing, however, as prospective borrowers now have to do a tremendous amount of homework in order to determine which type of loan might be the best choice. The selection of loan types that are currently available can be quite bewildering, and the wrong choice could cost the prospective borrower thousands of dollars over the term of the loan.

The standard 15-year and 30-year mortgages are still quite popular. Each provides the stability of a fixed interest rate and a payment that will remain the same throughout the duration of the life of the mortgage. When interest rates are near historic lows, as they are today, these traditional choices work well for most buyers. Buyers who find a 15-year or 30-year mortgage to be within their means would probably benefit from obtaining such a mortgage now.

In recent years, as home prices have increased faster than wages, the lending industry has created more flexible types of mortgages designed to help buyers who may have trouble with traditional loans obtain financing. These types of loans tend to have adjustable interest rates:

The Adjustable Rate Mortgage, or ARM, has a rate that adjusts over time as spelled out in the mortgage agreement. Typically, the rate at the time of singing the loan is lower than that of a traditional mortgage, perhaps by one percent or so. The difference is that the rate can adjust over time as the market changes. The loan agreement will spell out how often the rate may change and how much the rate may change at one time. The agreement may also indicate a maximum interest rate that may be charged over the life of the loan. These types of loans are ideal for buyers who do not intend to stay in their home for more than a few years, or buyers who are purchasing in times of high interest rates, when there is an expectation that rates will drop over time.

Convertible mortgages are ARMs that offer the buyer an opportunity to "convert" the adjustable rate loan to a fixed rate loan after a certain period of time that is spelled out in the loan agreement. There is a fee charged for converting the mortgage, but the fee is typically less than the fees associated with refinancing the mortgage altogether.

Two Step mortgages offer an initial rate that is lower than the rate for fixed-rate mortgages for the first few years of the loan. After a set period of time, the rate increases to a fixed rate. This allows buyers to pay less during the early years of their loan, when they may earn less or need extra cash for home furnishings. The disadvantage of this type of loan is that the increase in the interest rate can be substantial, and may make the payments unaffordable for some buyers..

These are just a few of the types of loans that are currently available in the market. There are probably dozens of variations on ARM loans, and prospective buyers should study their options carefully before agreeing to a loan. Making the right choice could save buyers thousands of dollars over the life of the loan. Making the wrong choice could leave buyers with a loan that they cannot afford to pay. A little time spent on research is time well spent.

Charles Essmeier is the owner of Retro Marketing, a firm devoted to informational Websites, including End-Your-Debt.com, a Website devoted to debt consolidation information and HomeEquityHelp.net, a site devoted to information on home equity loans.

In The News:

ABC News
US mortgage applications hit 8-year low
Times Online, UK - Aug 20, 2008
... mortgage applications fell to an eight-year low last week as Americans delay or abandon purchases and fewer people seek to refinance their loans. ...
US MBA's Mortgage Applications Index Fell 1.5% (Update1) Bloomberg
Mortgage application volume hits multiyear low The Associated Press
Mortgage volume fell 1.5% last week: MBA MarketWatch
USA Today - International Herald Tribuneall 242 news articles

The Money Times
Mortgage Rates for Best Borrowers Rise as Bonds Slump (Update2)
Bloomberg - 1 hour ago
21 (Bloomberg) -- A decline in mortgage bond prices is raising interest rates on US home loans, even for borrowers least prone to default. ...
Fannie, Freddie: Plunge then rebound CNNMoney.com
Business Highlights Forbes
Freddie and Fannie Bail-Out Imminent Sovereign Society
FT Alphaville - Forbesall 1,798 news articles

Housing And Economic Recovery Act
Mondaq News Alerts (subscription), UK - 7 hours ago
The Act also expands the target population served by the FHA and creates the "Hope for Homeowners" voluntary FHA-insured mortgage refinance program. ...

COMMENTARY: FHA is riding to the rescue, taxpayers beware
Reuters - 3 hours ago
(Ann Schnare is an economist specializing in housing and mortgage finance. She was former senior vice president for corporate relations at Freddie Mac and ...
Consumers feel fallout from Fannie, Freddie CNNMoney.com
all 45 news articles

Housing market keeping couples together
Chicago Sun-Times, United States - 3 hours ago
If one wants to keep the home, it's difficult to refinance the mortgage so the departing spouse can be cut loose from the debt. And evaporated home equity ...

The Money Times
A Treasury bailout of Fannie and Freddie is all but a foregone ...
FT Alphaville, UK - 11 hours ago
Failure to refinance would be an immediate signal to the Treasury to step in; it would force its hand. Mish Shedlock notes that $225bn is an aweful lot to ...
Rising Cost of Debt Stokes Fears Wall Street Journal
Freddie And Fannie Bailout Fears Mount Investor's Business Daily (subscription)
all 282 news articles

Boston Globe
THE ASSOCIATED PRESS
Newsday, NY - Aug 20, 2008
They can't refinance because housing prices in those markets have nose-dived, and lenders are now demanding full documentation of income and assets. ...
FDIC to offer better terms on thousands of IndyMac mortgages MarketWatch
FDIC Details Rescue Plan for Homeowners With IndyMac Mortgages ABA Journal
all 348 news articles

Combating the mortgage crisis
Bridgeport News, CT - 3 hours ago
She is based in Bridgeport and currently has 70 clients trying to refinance with her assistance. â€œWe have relationships with the lenders,â€ Latorre said. ...

HeyJoJo.com Relaunches Contact Management Solution and New Social ...
PR-CANADA.net (press release), Montenegro - 4 hours ago
â€œI made $45000 in commission income on $5000000 in refinance volume. I could not have taken advantage of this opportunity without HeyJoJo.com,â€ said ...

Buyers flock to FHA, government-backed loans
Inman.com (subscription), CA - Aug 18, 2008
... by raising loan limits and creating new products that allow borrowers who are behind on their existing mortgage refinance into more affordable loans. ...

mortgage refinance - Google News

Home Loans and Mortgages ? The Selection Can Be Bewildering

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