Types of Mortgage Loans in the Market

A mortgage loan is one which is taken from banks, private mortgage brokers or online brokers. These loans are taken by pledging owned property in order to buy another residential or commercial property. They are sometimes taken to even refinance another loan. Mortgage loans generally extend over a period of 15 to 30 years. The payment amounts are distributed depending on the exact number of years, the type of mortgage and the decided rate of interest. The property that is purchased serves as security in case of a debt. In case the borrower defaults, in terms of the payments, the lender can sell the property by using the foreclosure process.

In order to be sure that the borrower can make the payments, there are a few key points that lenders examine beforehand. The main aspects considered are the down payment, monthly income and the credit score of the borrower. The down payment amount bring the risk of the lender down in case of defaults, the monthly income will reflect the borrowers capability to make monthly payments and the credit scores show the risks of lending to the borrower. Higher the credit score lower the risk for the loan.

Types of loans

• Interest-only mortgage: This type of a mortgage loan requires the borrower to pay only interest for a specified time period. After this period the loan is usually changed and there is a new mortgage amount. This new amount will be repaid with principal payments plus the left over interest amounts.

• Balloon mortgage: This mortgage gives the borrowers a lower rate for a fixed period. The period usually varies between 3 to 10 years. Once this fixed period passes, the borrower has to pay the entire principal amount.

• Sub-prime mortgage: A sub-prime mortgage is meant for people whose credit score is low. This means the risk for the lender is higher. In order to compensate for this, the interest rate and monthly payments are also higher. Lenders usually earn good money by giving out these loans. But if the borrower pays the due amount before the time expected, a prepayment penalty has to be paid by the lender.

• Fixed rate mortgage: These mortgage loans have a fixed rate over the loan period. They are very popular as rises and falls in interest rates do not influence these rates. No matter what, the interest rates remain the same in these mortgages.

• Home equity line of credit: These are also known as HELOC’s. The mortgage rates are variable in line with the prime rate. This lasts for 3 to 10 years after which the borrower is required to pay back the entire principal amount like in balloon mortgages.

• Adjustable mortgages: This is a mortgage loan where there is a fixed rate for a specific time period. After completion of this time period the rate of interest is adjusted according to the fluctuating market rates. These loans are the most commonly taken loans after fixed rate mortgage loans.

Mortgage Rates Are Falling – Again

Mortgage rates are dropping again for 30-year, fixed-rate mortgages. During the months of July through September, mortgage rates began creeping up, producing a flurry of home sales in anticipation of even higher mortgage rates to come. However, it appears those concerns of much higher mortgage rates have flown out the window as mortgage rates are back down to levels not seen since June.

What’s the Cause of the Drop?
The recent government shut down may partially be to blame for the drop in rates. The shutdown led to speculation about the Federal Reserve refusing to renew its bond purchases. Another possible cause appears to be September’s weak employment. Only 148,000 jobs were added last month, which was far lower than the expected increase of 193,00 jobs. The 30-year fixed-rate mortgage rate was listed as 4.13% last Friday (Oct. 24) which was down from 4.28% from the week before, but still higher than the 3.41% rates in October of 2012. Rates also fell for:
• 15-year fixed-rate mortgages,
• 5-year Treasury-indexed adjustable-rate mortgages, and
• 1-year Treasure-indexed adjustable-rate mortgages.

Rate Changes
The average rate change went down by only a small amount in each case. These rate changes did not reflect closing costs, though.
• 30-year, fixed-rate mortgages dropped 0.8 percent.
• 15-year, fixed-rate mortgages dropped an average of 0.6 percent.
• 5-year, adjustable-rate mortgages were down an average 3 percent.
• 1-year, adjustable-rate mortgages were down an average of 0.5 percent.

Speculation About the Government Shutdown
There has been a lot of talk about the recent government shutdown and what could have happened to mortgage rates if the shutdown were to continue over a longer period of time. In many communities across the US, applications for government-backed mortgages dropped during the 2-week long shutdown, which only fueled the speculation about what would happen if Freddy Mac and Fannie Mae were to run out of funds completely. Among the public’s concerns were worries about
1. where the mortgage money would come from;
2. mortgage lenders running amok with rates all over the place due to the lack of government backing; and
3. long delays in getting government-backed mortgages, which would only increase the longer the shutdown continued.

What’s to say that another shutdown won’t occur? What then? Many of the mortgage-lending delays occurred because lenders require verification of borrowers’ income tax and social security information to help determine their qualification for a loan. When the government shuts down, the IRS and Social Security Administration close their doors and send employees home, so the information they provide becomes unavailable. The longer the shutdown lasts, the longer it takes lenders to get the information, which in turn, lengthens the time it takes buyers to get into their new homes.

Is it time to overhaul the mortgage rules and the government’s role in the mortgage industry? Who’s to say, though there seems to have been some discussion along this line lately. This may be another wait-and-see scenario. In the meantime, it’s benefiting the real estate industry by allowing interest rates to drop again and keep the potential for buying a home within the realm of possibility.

Factors That Affect Your Mortgage Rate

There are going to be many factors which affect your mortgage rate, some of which are under your control and others which you can do nothing about. You should be aware of all of the factors which might affect your mortgage rate and take them into consideration before applying for a mortgage loan. You can take steps to improve some of the factors which affect your mortgage rate and make decisions about when is best to apply based on basic knowledge about your mortgage.

What is a mortgage?

Most people understand the basic definition that the mortgage is a loan which is used to purchase a home. There is slightly more to the mortgage than this. The mortgage is a loan which uses the property itself as collateral. If you fail to make the payments on your mortgage, the property may be taken over by the lending institution who has given you the mortgage.

You want the best mortgage rates

The mortgage is a long-life loan meaning that it is not going to be fully repaid for many, many years. A standard home mortgage is often a fifteen or twenty year loan. This means that you want the best mortgage rate possible because you are going to be needing to pay this rate for a long, long time.

Factors affecting mortgage rates

Major factors affecting mortgage rates include:

o Amount of down payment on mortgage
o Consideration of closing costs
o Income of mortgage borrower
o Life of mortgage loan
o Life of mortgage rate
o Total mortgage loan amount
o Whether or not the mortgage rate is adjustable

Factors making up a desirable mortgage rate

The basic premise of the desirable mortgage rate is that it is within your budget, has a low interest rate and is paid back as quickly as possible. How all of this plays out in terms of each individual mortgage depends upon the independent factors of each borrower. For example, you might prefer a fifteen-year mortgage loan to one that is paid over thirty years. This will allow you to save money over time because you pay less in interest. However, if you can not afford the higher monthly payments and you default on the mortgage loan, you have not helped yourself out any.

Negotiating a desirable mortgage rate

The simplest method of achieving a desirable mortgage rate is to work with a mortgage broker. You will have to pay up front fees to the mortgage broker, usually at the time when all of the closing costs are paid on the home purchase, but you will save money and time in the long run. The mortgage broker plays the role of assessing your personal financial situation and working with lending institutions to negotiate the best possible mortgage rate for your situation. The mortgage broker has experience with all of the factors and terms used in the mortgage loan negotiation and can use this expertise to your benefit.

Repayment of the mortgage loan

When you are working out a plan of repayment for the mortgage loan, you should look at the amount of money available for down payment, the amount you can reasonably pay on the loan each month, the grace period of any adjustable mortgage loan interest rates and any fees owed for early repayment of the mortgage. Working with the mortgage broker, you should be able to develop a repayment plan for your mortgage which allows you to purchase and remain in your home through the life of the loan.