Understanding Home Mortgages & Personal Loans

Do you homework before you venture into the confusing world of mortgage financing.  A poor choice of fixed versus variable, long versus short, etc., can cost you more than the extra fees or percentage points you might pay to get the right loan. Knowing and understanding the mortgage products that are available out there is wining half the battle The following are some of  the common home loan products available.   Fixed Rate: Fixed-rate loans dominate the market more than ever right now, and for good reason: They're cheaper than they've been in three decades. The percentage difference between variable-rate and fixed-rate loans has narrowed, too, and the spread usually isn't enough to justify giving up all those years of fixed-rate security.  Long-term, fixed-rate loans are good for people who can comfortably qualify for the loan they want and who expect to stay in their homes for many years. But how long do you pay? Many baby boomers are now refinancing mortgages with 15-year fixed-rate loans, assuming they'll make their last payments by retirement. Get a FREE Fixted Rate First or Refinancing  Mortgage Quote Here www.newjerseymortgagebrokers.com www.fivestarhomemortgages.com www.forsalebyownernewjersey.com   Adjustable-Rate Mortgage: Borrowers who are willing to sacrifice the long-term security of a fixed-rate loan can get a lower interest rate and start with lower payments if they take an adjustable-rate mortgage (ARM). That's a particular benefit for two types of borrowers: those who expect to move within five years, and those who may want the slightly lower rate to help them qualify for the loan that puts them into the house of their dreams. ARM borrowers, however, sacrifice simplicity. The interest rates on these mortgages rise and fall along with market interest rates, and if you're not careful, you can find your monthly payment rising higher than you can afford variables determine whether an ARM is a good deal. Here are the most important ones:

Index: Interest rates on ARMs are linked to several common money-related indexes that lenders use. Most common is the rate on one-year Treasury securities, but many mortgage lenders offer their customers choices. Two popular options are the often-lower (but more volatile) London InterBank Offering Rate (LIBOR) and the slightly higher but less volatile Cost of Funds Index for Western banks in the Federal Reserve's 11th District. The Wall Street Journal prints most of these rates; ask your lender where else you can look up such figures. There's no clear-cut winner; choose the index that offers you the best rate with the least volatility. You might have to accept a little more volatility if you want to get the lowest rate.

Frequency: How soon and how often will your rate adjust? If you expect rates to rise, you'd rather have a slower adjustment period and a longer stretch of time before it starts adjusting. Most common today are ARMs that adjust every year; you also can find those that adjust every three or even every five years.

Rate Cap: Most ARMs carry limits on how high their rates can be adjusted at any one time and on how high they can go overall. To evaluate an ARM, assume skyrocketing interest rates, just to make sure you can afford the bad news. A typical structure today includes a 2-percentage-point cap on annual increases, with a 6-percentage-point cap over the life of the loan. If you start with a 6 percent loan, for example, it could go up in 2 percent increments per year to 8 percent, 10 percent, and 12 percent. Once it hits 12 percent, it could go no higher. Of course, that rate would be lofty enough to double your interest.

Balloon Mortgages: These loans often carry monthly payments as low as those of 30-year mortgages, but they'll usually come due for payoff in five or seven years.

These can be great loans for homeowners who know they won't be staying put, but who like the certainty of a fixed rate. They're risky for someone who stays in a home beyond the term of the loan, because then the homeowner will need to find a replacement mortgage, move, or make that big balloon payment.

 

Hybrids: When you cross a balloon mortgage with a fixed- or adjustable-rate mortgage, you get a hybrid. These loans stay fixed for five (also known as 5-1 mortgage) or seven years (7-1 Mortgage), then convert to either fixed-rate or variable-rate mortgages. They have lower rates than fixed-rate mortgages but carry the risk of having the last 23-25 years of the loan being an unknown.

 

No Closing Cost Loans: As they say, there is no free lunch, "no" closing costs loans does not really mean loans with no closing costs. It is just that in the case of no closing cost or penny loan, the closing costs are rolled into the rate of the mortage or into the total amount of mortagage you are going to owe.  So, you pay one way or the other.

Low-Doc or No-Doc:  If you're self-employed or have a complicated financial situation, you might shoot for one of these loans, especially if you're in a hurry to get into a particular house or if your income is rising rapidly.Instead of asking for tax returns, business statements, and other paperwork a borrower might be expected to provide, low-doc lenders are willing to make the loan fast and easy. But it comes at a price -- maybe one-half percent more, or even a full percentage point.  These loans are for borrowers with good credit ratings who are shopping for loans worth 75 percent or less of the home's value and are willing to pay higher rates in exchange for quick-and-easy approval.

Home is probably the biggest purchase most of us would make in our lives. With so much of your money at stake, you should leave no stone unturned in your hunt for a new or replacement loan. You can get mortgages from banks, savings and loans (thrifts), mortgage brokers, mortgage banks, mortgage-finance companies, local mortgage brokers and credit unions. There's no easy rule for which one will be better, so check them all. Besides local banks and lenders try using online mortgage lenders and brokers also. Most these online services provide mortgage calculators to calcualate  exactly what you'll qualify for, compare various loans, and even apply online

Closing Costs : Lenders must give you a good-faith estimate of your loan's cost when you first apply for it, but they might not include all the fees they may charge. These fees can add up. Some of the typical closing costs charged are:

	Appraisal fees, May Range between$200-$350
	Bank Attorney's fees from $400-$500
	Property Surveys ; Cost range $150-$400
	Credit-reporting fees a $150-$500
	Document-preparation fees around $200
	Application fees, usually range between  $250-$400