The kinds of mortgage available to you

There are thousands of different mortgages on the market at the moment, all offering something different, something similar but essentially offering one of two types:

• Repayment and Interest, with a repayment and interest mortgage you (the lender) you will have to payback the specified mortgage amount plus the interest in a specified time. For example if you borrowed £100,000 over 25 years, the total plus interest is £190,000 over 25 years, this is what you will repay. You will see the balance becoming increasingly smaller over the term of the loan.

• Interest only, with an interest only mortgage you only pay the interest on you mortgage, however when the term of your mortgage is over you are still left with the initial buying fee of your house. Using the above example this would be £100,000 still left to pay. When you take an interest only mortgage you will need to take out an alternate savings plan, in the form of a pension, I.S.A, or an endowment. These alternate plans run alongside your mortgage to accumulate the final sum to zero your balance after the term is over.

Advantages of a repayment and interest mortgage

• It is possible for you to pay off lump sums of your mortgage to minimize the balance and make term shorter. However do be careful as some lenders do charge for a early settlement. If you do decide to repay early it is better to do upon the changing period of your mortgage i.e. when you are eligible to start another discounted term with another lender.

• You do not always have to take out life insurance with a repayment mortgage. Some pension plans that are in place do cover for unfortunate events such as death.

• You know the full balance of your mortgage and also the term of the repayment, so you always know when your mortgage will be paid in full.

Disadvantages of a repayment and interest mortgage

• In the early years of a repaying your mortgage the majority of the monthly repayment is interest rather than capital. For lenders who move house regularly, this can mean that little of the capital is paid off.

• If no life insurance, pensions or assets are in place to cover the repayment of the house. In the unfortunate event of a death the house will still have to be repaid. If payments are not kept up to date then the house will be sold.

• There may be financial penalties for making additional payment into your mortgage account.

With this type of mortgage, only the interest is paid off with each mortgage payment. After the term of the mortgage elapses e.g. 25 year period, the lender is left with the full balance for the initial purchase of the house. To combat this problem (if you do not have the money to repay after the term is over) you the lender can take out another policy to run along side the mortgage payment? These policies are an ISA, pension plan or endowment policy. When you find a policy to suit you? The policy will grow along with your mortgage to accumulate the balance of you initial payment over the same term as your current mortgage. So at the end of the specified lending term you have the correct amount of funds to pay your balance.

Pension Plan

Using a pension plan to accumulate the balance of your mortgage is a tax free saving scheme. The balance of your house will be saved over a period of time until you can pay your final balance. If you do intend to use a pension fund to save for the balance of your house, consideration should be taken into account to open another pension fund for retirement purposes too.

ISA Plan

With an ISA plan you invest in stocks and shares via an Individual Savings Account (ISA) – which is a tax-free method of saving. This method of saving may not be suitable for most borrowers. Before considering this option you should consult with an independent financial adviser.

Endowment

An endowment is still the most common type of interest only mortgage which also provides life assurance cover and a fixed payment for investment. The endowment policy along with the interest only mortgage should in effect end at the same time, leaving you with the ownership of your home and nothing to pay. Endowments have undergone much criticism; this is due to investors being promised high returns from their investments. However lately this has not been the case, borrowers have found their investments have been as good as expected and a shortfall in the end amount of invested cash will not match the amount owed on the current property.

Taking into account the recent problems that have arisen regarding endowment policies it is worth remembering that returns on endowment policies have been pretty good, however you do need to see the term out in full. Also endowments do provide life assurance as part of the actual policy, so in the unfortunate event of a death the mortgage balance is paid in full.

Advantages of an interest only mortgage

• Your investments and savings could accumulate more than the required amount to cover the final payment; this could leave you more cash for your own personal use.

• Some plans have good tax benefits and help reach the required amount it a quicker and cheaper rate.

Disadvantages of an interest only mortgage

• In the unfortunate event of your investments not acquiring the designated amount of cash to cover the loan repayment, the investor could face a shortfall which they will then need to pay. If you are worried about a shortfall on your investment, you should keep in touch with your investor and request regular updates on the situation of your endowment. If the worst comes to the worst, you can increase payments to compensate for the loss of investment.

• Cashing in your endowment, ISA or pension could have adverse effects on the amount of money you have saved over the past however many years. If you do decide to cash in any existing policies you may be subjected to a penalty, this could be a cash amount specified by the investment company/lender. Please seek professional advice if you are worried about the end results of your finances, don’t be too hasty as most policies accumulate more of the cash in the final year.

About the Author

Article supplied by Michael Aldridge. For a complete and extensive guide to mortgages, please visit our web site at http://www.completeguidetomortgages.com/.

Points are a single payment that are paid on the percentage of the loan amount. For example, let’s say you take out a mortgage of a total of $200,000 and you have to pay 3 points. You must pay a total of $6,000 in points to a lender. The lender is the person who supplies the money so you can buy the house in consideration. Your total interest rate may be lower, however, for paying these one time, up front fees.

You may want to consider taking a slightly higher interest rate that will end up less than these one time fees. Often, points are considered extra bonuses for the broker. Points are usually considered extra income on a deal. You can get a lower interest rate by paying these one time fees, however, it may not be the best option.

If you have bad credit or some problems with income to debt ratio, then you may have to pay the points that the lender is requiring. Your negotiating power will definitely decrease if your credit is not up to par.

In every situation, try not to pay points! They are usually accepted as exchanges for a lower interest rate. However, you may not pay less than if you have a slightly higher interest rate.

Points for an amount of 1 or 2, may be worth it because the total payment of the one time fee may be less than the total amount paid in interest above the rate that is made.

If presented with mortgage terms that are not satisfactory to you, work on negotiating new terms. Delete the points and extra fees, and ask for a deal that fits within your financial situation.

There are many choices when it comes to mortgages. Whether or not you use an adjustable rate mortgage or fixed rate mortgage, be sure to understand all terms that you may agree to. If the lender is not willing to give you an itemized report about the mortgage, then ask to see exactly where your money is going. Don’t ever sign papers without representation or reviewing the before the closing so you know exactly what it is that you are accomplishing.

Points are generally negative aspects of a mortgage, so don’t pay them if you can negotiate the terms without points in your favor.

About the Author

John R Blakefield is a mortgage and real estate specialist. For more information, articles, news, tools and valuable resources on home mortgages or investment loans, refinancing, debt solutions, visit this site: http://www.scourtheweb.com/mortgage/.

What’s Your Status?

Depending your life situation, age, income and financial status, you will need different things from your mortgage. Whether that’s flexibility, low rates or security, take the time to have a good look at where you are now, and where you want to be long term.

In For The Long Haul!

Most mortgages are for a 25-year term – so it’s an agreement that you could be locked into for a substantial part of your life. This means you need to have at least a vague idea of how your finances are likely to shape up long term – no one can predict the future, but good planning is one way to help ensure you meet the challenges to come.

The first thing to do is to draw up a budget – you need to know what income you have every month, and all your outgoings. Be realistic – there’s no point exaggerating your income or ignoring certain expenses. You want to buy your own home, but you also want to be able to eat once you’ve moved in! Take into account all your bills, council tax and loan payments, as well as living expenses such as food, running costs for your car, going-out costs and clothing. Check bank statements to make sure you have included all your usual expenses.

Crystal Ball Time..

Next, give some thought to your future. Now we don’t really mean for you to go to some charlatan and ask what your personal circumstances will be in the future, that would be just silly. However, what you would need to do is be honest with yourself in answering some personal questions in an attempt to plan ahead for financial reasons.

Do you expect your income to rise over the next few years, or will it stay the same? Do you have dependents, or are you planning a family? While some things are uncertain, you should be able to tell whether your needs will stay constant for the next five years, or are likely to change substantially.

Your budget should give you a fair idea of how much you can afford in repayments each month – bear in mind there will be other costs incurred when buying property, such as legal fees and stamp duty.

Generally, a mortgage lender will also look for a cash deposit – usually 5 or 10 percent of the total cost of your home. You will then repay what you have borrowed in monthly installments. Read on for more detailed information on how mortgages work.

About the Author

Joseph Kenny writes for the loan site http://www.ukpersonalloanstore.co.uk. Visit them today for more loan articles and financial information.

Why refinance?

Here are some reasons to consider refinancing your mortgage:

1. To obtain a lower fixed rate. If you took out a fixed-rate mortgage several years ago and interest rates have since dropped, refinancing may lower your payments considerably. A $150,000 mortgage with a 30-year term and a rate of 8 percent, for example, carries a monthly payment of $1,100. The same mortgage at 6 percent will have a payment of less than $900 a month.

2. To switch to a fixed rate or an adjustable rate mortgage. Adjustable-rate mortgages (ARMs) offer lower interest rates initially, but some homeowners find the fluctuations stressful. If rates are on the way up, you might consider locking in at a fixed rate and consistent monthly payment. On the other hand, if you want to reduce your monthly payments and are comfortable with the interest rate changes of an ARM, it could save you money to refinance to an ARM.

4. To turn home equity into cash. You may want to take out a new mortgage with a larger principal, in order to turn some of your home equity into cash for a major expense. This is called cash-out refinancing. The advantage of taking out a loan secured by your home is that you can get a lower rate of interest than you can with an unsecured loan or credit card. However, if the interest rate offered for your refinanced mortgage is higher than your current rate, a home equity loan or line of credit might be a better choice.

Is refinancing right for you?

If you’re refinancing in order to pay less interest, you won’t usually see the savings right away. That’s because lenders typically charge fees when you take out a new mortgage, and you may also have to pay a penalty for getting out of your old one. To determine whether refinancing makes financial sense for you, consider these issues:

1. How long you plan to be in your home. If you expect to move in a year or two, you may never realize the potential savings you’d get from refinancing. As a rule of thumb, the longer you plan to stay in your current home, the more sense it makes to refinance.

2. The prepayment penalty on your current mortgage. Many mortgages carry a penalty if you pay them off early. The amount varies, but it is usually a small percentage of the outstanding balance, or several months’ worth of interest payments.

3. The costs of the new mortgage. When you take out a new loan, your lender may charge a number of fees including application, appraisal, origination and insurance fees, plus title search, insurance and legal costs that can add up to thousands of dollars. Lenders may also charge discount points, which are paid upfront to secure a lower interest rate. As a guideline, expect fees to eat up any potential savings unless your new interest rate is at least a half a percentage point lower than your current one.

To learn more about mortgage refinancing and when it makes sense, visit http://www.lendingtree.com/cec/yourhome/yourmortgage/mortgage-refinance.asp

About the Author

The editorial staff at LendingTree is committed to helping consumers become smarter borrowers. Visit http://www.lendingtree.com/cec for more information and tips on buying, selling, and financing a home. Copyright 1998-2006, LendingTree, LLC.