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    • Fixed Rate Mortgages: The Ups and Downs

      Date: 2010.01.31 | Category: Mortgage | Response: 0

      As the title of this article would suggest, I am going to take you on a journey through the ups and downs on fixed rate mortgages. When buying a house, especially the first one, I think that it is literally the most terrifying experience that I have been through, and I have combat experience as a military veteran. For those of you who find yourselves still anticipating the purchase of your first home, let me give you a brief rundown of what it is and what it isnt. What it isnt will be the easies to tell you about. It isnt like going to the store and buying what you want by swiping your card. It isnt even like buying a new car, although the new car buying experience is a little bit closer. It is like looking at dozens of houses that you hate in order to find one that you like, only to learn that it is 10,000 more than you wanted to spend. So you make an offer and wait to see if the seller takes the offer or sends back a counter-offer. Once the game of offercounter-offer is through you set up a closing date. At the closing you sit down and sign enough papers to make Leo Tolstoy quake in his boots. Once that hour devouring procedure is done, the house is yours and you are in debt for 30 years. Sounds appealing doesnt it? Well, actually, it really is. But, before you get to the point where you can sign all those papers, you have to decide on what kind of loan will be best for you. There are a couple of different options and, in this first installment, I will discuss the fixed rate mortgage.
      Overview of a Fixed Rate Mortgage

      As the name would suggest, the fixed rate mortgage is a loan that has constant payments. By constant I dont mean that they will be due every month (although they will), rather I refer to the fact that they do not change. If you get a fixed rate mortgage and the payments are 900 per month, they will remain at 900 for the duration of your loan. Nothing changes, it is set in stone, and you can set your clock by it, 900 a month for 30 years.
      Benefits of a Fixed Rate Mortgage.

      There are a number of benefits to having a fixed rate mortgage. I would like to discuss two of them, the planning power that it gives, and the financial liberty that you can take from it. Lets start with the planning power.

      Planning Power
      To take on the responsibility of a 150,000, 200,000, or even 1million pound debt is, as a mentioned before, very scary. But, to know that all you will ever be required to pay is 900 a month (or whatever your payments end up being. I dont in any way want to insinuate that all mortgage payments are going to be 900 if you get a fixed rate.) is a very comforting piece of knowledge. You can plan your budget around that amount and make sure that you can always afford it. It really helps things out to have that amount set in stone. The next thing that most people get out of a fixed rate mortgage is financial liberty.

      Financial Liberty
      What I mean by that would be best communicated in the description of a hypothetical scenario. Picture a young couple, just out of college, just married, and brand new at the jobs in their respective careers. They decide to take out a loan and buy a house. They, because of the salary restrictions that they are working with, can only comfortably afford 500 a month. They know that this wont get them the house that really want so they decide to stretch a lot financially and get a house that will run them 800 a month. After two years they both get promotions and their bills get easier to pay. After another two years they both move into management and get more promotions. Suddenly they find themselves in a position where they can actually comfortable afford to make 900 a month payments, and later on they can make 1000 a month payments, but they dont have to. All they are required to do is 800. Every amount of money that they pay over 800 in a month goes towards paying off the principle and this gets their house paid off much faster. When the house is paid off, there is 800 a month that is no longer being tied up in living expenses. You see, in a fixed rate, 30-year mortgage, it will take 22 years to pay half of the principle because so much of that money is going towards the interest. If you consistently pay more each month than the minimum payment you can pay off a 30-year mortgage in 20 years easily.

      Final Synopsis
      For the young, first time homebuyer with a solid income, a fixed rate mortgage is a pretty good option. It allows, as was earlier stated, predictability and the possibility for earlier financial liberation. For the older first time homebuyer this is the best option. The ability to pay off a mortgage in less than 30 years is something that becomes very important as retirement approaches. For the buyers that are on a much tighter, less predictable budget, this may not be the best option. In that case there are other mortgages that would be better suited for their needs. But, as with all mortgage and real estate decision, sit down with a professional who can assess your individual needs and come up with a plan that is right for you.

    • Fixed Rate Mortgage vs. Adjustable Rate Mortgage

      Date: 2010.01.24 | Category: Mortgage | Response: 0

      The most basic distinction between types of mortgages that are available when you’re looking to finance the purchase of a new home is how the interest rate is determined. Essentially, there are two types of mortgages – fixed rate mortgage and an adjustable rate mortgage. If you choose a fixed rate mortgage, the rate of interest that you are paying on your mortgage remains the same throughout the life of the loan no matter what general interest rates are doing. In an adjustable rate mortgage, the interest rate is periodically adjusted according to an index that rises and falls with the economic times. There are advantages and disadvantages to either, and no easy answer to ‘which is better, a fixed rate mortgage or an adjustable rate mortgage?The main advantage to a fixed rate mortgage is stability. Since the interest rate remains the same over the entire course of the loan, your monthly payment is predictable. You can count on your monthly mortgage payment to be the same amount each month. On the minus side, because the lending institution gives up the chance to raise interest rates if the general interest rates rise, the interest on a fixed rate mortgage is likely to be higher than that of an adjustable rate mortgage.A fixed rate mortgage loan makes the most sense for those that are going to settle into their home for many years. While the initial payments may be larger than with an adjustable rate mortgage, stretching the payments over a longer period of time can minimize the effect on your budget.An adjustable rate is one that is adjusted periodically to take into account the rise or fall of standard interest rates. Generally, the adjustable term is annual – in other words, once a year the lending company has the right to adjust the interest rate on your mortgage in accordance with a chosen index. While adjustable rate mortgages make the most sense in a situation where interest rates are dropping, though it’s dangerous to count on a continued drop in interest rates.Lenders often offer adjustable rate mortgages with a very low first year ‘teaser’ interest rate. After the first year, though, the interest rate on your mortgage can increase by leaps and bounds. Even so, there are limits to how much an adjustable rate can actually adjust. This is dependent on the index chosen and the terms of the loan to which you agree. You may accept a loan with a 2.3% one year adjustable rate, for instance, that becomes a 4.1% adjustable rate mortgage on the first adjustment period.Finally, there’s a new kind of loan in town. A hybrid between adjustable rate mortgages and fixed rate mortgages, they’re known as ‘delayed adjustable’ mortgages. Essentially, you lock in a fixed rate of interest for a number of years – say 3 or 7 or 10. At the end of that period, the loan becomes a 1 year adjustable rate mortgage according to terms set out in the agreement you sign with the mortgage or financial institution.

    • Fixed Rate Mortgage Advice

      Date: 2010.01.17 | Category: Mortgage | Response: 0

      One of the most important decisions you will make in your financial life is which mortgage you should get. For many people, the option of a fixed rate mortgage seems appealing. But what exactly is a fixed rate mortgage, and why do so many people choose this option? If you are new to mortgages then this article will let you know a little more about fixed rate mortgages and their benefits.

      What does fixed rate mean?

      A fixed rate mortgage is fairly straightforward, and does exactly as the name suggests. A fixed rate mortgage has an interest rate that remains the same throughout the mortgage term, meaning that your monthly repayments will remain the same, allowing for inflation of course.

      Why a fixed rate mortgage?

      Many people choose fixed rate mortgages because of the security and peace of mind that they provide. If you have a fixed rate mortgage, then you know your monthly repayments will not change, meaning you can budget effectively for both the short and long term. If you have a mortgage with a variable rate of interest then your payments can change depending on market fluctuations. This can leave you paying less, but often leaves you paying more each month. The best times to get fixed rate mortgages are when competition is high, and the fixed interest rate is lower than that of the tracker or variable rate mortgages.

      Are there any drawbacks?

      There are drawbacks to getting a fixed rate mortgage. The biggest drawback is that the interest rate is usually higher than that of variable rate mortgages. The added security comes at a price, in that you have to pay more in interest over the length of the mortgage. Also, the fixed rate is usually only fixed for a certain number of years, usually 2 or 3, after which the rate can be put up and then fixed for another period. This can mean that your mortgage will be cheap now, but in the future the rate could rise.

      Who should get fixed rate?

      Despite its drawbacks, there are many people that should definitely opt for fixed rate mortgages. If you are on a tight budget and have a fixed income each month, then you cannot afford for your payments to rise. Having a fixed repayment each month means that you know you can make the payment even if national interest rates rise. Also, if you can get a deal whereby the starting interest rate is lower than that of a variable rate mortgage or even the same, then opt for the fixed rate mortgage.

      How to decide?

      If you are still unsure about whether or not a fixed rate mortgage is right for you, then consult an independent financial advisor. They will be able to help you find the best deal, as well as tell you whether or not the base interest rate is going to fall or rise. This will determine whether a fixed or variable rate mortgage is best for you.