Refinance rates

When you purchase a home for the first time, one of the most important things you will have to figure out is whether a fixed rate or adjustable rate mortgage (ARM) is best for you. Before knowing which is best for you, however, you need to be aware of how each one works. A Home mortgage with Fixed Rate Interest

A fixed rate mortgage has an interest rate that does not change. This rate is frozen for the term of the loan, meaning that your rate will stay the same no matter what happens to interest rates over the term of the loan. Many new buyers decide to go with a fixed rate home mortgage, since these mortgages make it easier to plan for the future. Because the interest rate on your home mortgage never changes, neither do your payments. This means that if you purchase a home for $175,000 at rate of 6. 5% for 30 years, your monthly home mortgage payments will stay at $1106 (excluding any escrow costs), and never deviate during the course of the term. There are upsides and downsides to going with a fixed rated home mortgage. While you will always be able to depend on a fixed mortgage payment (excluding property tax and insurance), you will typically have a higher interest rate than if you used an ARM. The reason for the higher rates is that the banks typically take a greater risk on fixed rate mortgages and therefore can charge a premium to lock in a rate for the entire term of the mortgage. A Home Mortgage with Adjustable Rate Interest

An adjustable rate home mortgage is often called a floating rate, as your rate changes along with interest rate indexes. Normally, this kind of home mortgage will start off with a fixed rate for a predetermined amount of time (generally three to ten years). After that time, the rate will adjust at predetermined intervals. At these adjustment periods the rate you pay will rise and fall along with whatever index your rate is tied to. Simply put, if rates go up, your home mortgage payments will go up as well. In general, a variable rate home mortgage starts with a lower interest rate than a typical 30 year fixed rate mortgage. But if interest rates go up, your payments will go up. Fortunately, many adjustable rate home mortgages come designed with a rate cap, which will limit the number of percentage points your rates can go up. The most important part of deciding on the best loan for you is having a thorough understanding of your acceptance of risk, as well as a plan for the amount of time you will own the home. If you will only be in your home for a few years, you could save money by taking advantage of an adjustable rate mortgage that has a low fixed introductory rate for 3 to 5 years. You’ll be out of the house before the rate ever adjusts. If you plan to be in your home longer and don’t want to face a rate adjustment, the longer term fixed rate option may be the best fit for you.

As Barack Obama was sworn in as the 44th President of the United States on January 20th, many financial analysts focused their attention on the current economic crisis. At the forefront of that crisis is the real estate market. As the new President entered his first official full day in office, the housing index for the first month of 2009 was published by Wells Fargo and the Home Builders Association. The survey canvasses nearly 420 builders in the housing industry for their opinions about how confident they are about their industry. The confidence indicated by the index decreased to a level not seen since the mid 1980s. Home builder confidence has been waning since May 2006. The credit crisis and economic downturn hit home builders particularly hard, due to the resulting rising home foreclosures and significant increase in the inventory of existing homes. In spite of historically low rates for mortgage loans, most experts do not anticipate an increase in interest for new properties in 2009. Many housing experts do not expect the building industry to pick up until 2010. Some in the industry think the only thing that will pull the housing sector out of the slump is government intervention. The National Association of Home Builders, for example, is pushing for increased tax credits and a reduction in mortgage rates for consumers buying a home in 2009.

Home building is just one industry expecting a slow 2009. Mortgage insurers, most notably MGIC, are not anticipating much profitability either. Mortgage foreclosures are anticipated to go up even more, which will reduce the bottom line of mortgage insurers who back those mortgages. Loose lending standards over the past decade allowed almost anyone who wanted a mortgage to get one. Those practices offered subprime loans to consumers who were not eligible for traditional mortgages. Some consumers were certain the housing market would continue to climb, thus took on an adjustable mortgage to buy a home and mortgage they could not afford. As a result, mortgage insurance companies like MGIC are paying out claims from lenders more and more as defaults rise. That is quite a contrast to just two short years ago, when private mortgage insurance was one of the most lucrative types of insurance offered by companies. Mortgage insurers like MGIC are hoping to utilize some of the $700B from the federal bridge loan to help them through 2009. President Obama has said that preventing mortgage foreclosures should be a priority in any plan to help boost the real estate sector.

As the tough economic times continue to weigh heavily on the country, consumers are seeking ways to reduce their monthly bills. Many are trying to build up their savings. Others need to reduce their budgets, due to unemployment or a reduction in pay. A common way consumers reduce their bills is through a refinance. Mortgage payments are usually the biggest bills consumers have each month. And after a refinance, mortgage payments can often be reduced by a couple hundred dollars each month. Most people choose to refinance to save money on monthly payments. Many, however, refinance from a variable to fixed rate to achieve some financial predictability. Regardless of why you refinance, mortgage interest rates are at historically low levels right now. The second week of February, the average interest rate for a 30 year fixed rate mortgage hovered at 5.19 percent.

As the current rates offer a great opportunity to refinance, mortgage holders may decide now is the time. But not everyone may benefit from a refinance. Deciding if refinancing makes sense for you takes some simple calculations. First of all, determine how much it will cost you. You will need to pay for an appraisal, inspection, documentation fees and lawyer hours. Double check with your current bank to see if you will be saddled with any penalty fees for paying off your current mortgage earlier than originally anticipated. Next, determine what your estimated savings would be under the new interest rate. Simply take what your currently pay each month and subtract your estimated new payment. Now you know your costs and monthly savings. The third step is to determine if the costs will be worth it to you, given how long you plan to own the house after the refinance. Mortgage holders do not generally benefit, for example, if they plan to sell the house shortly after they refinance. This is simply due to the fact that it takes a while to recoup the costs of the refinancing. This is called the break even point. To calculate your break even point, divide the costs by the estimated monthly savings of the refinance. Mortgage refinancing is generally a good decision for those who expect to own the property past the point when they break even. Refinancing is generally not a good idea for those who will sell before they recoup their costs.

Before purchasing a home, most prospective home buyers need to make sure they are eligible for a home loan. Understanding and being prepared for the home buying process, especially qualifying for a home loan, will make the experience much easier.

Two components that banks examine when deciding your eligibility for a loan are your financial means to repay the loan, as well as your ambition to pay it back.

Means For Loan Repayment

Your ability to pay off a home loan is the most important consideration. First, a lender will check out your current employment and job history. This will help the lender determine how secure you are financially. Clues such as how long you have worked at one place, or the length of time you have been in one particular field are good gauges that you have a favorable financial situation and will be income secure in times to come.

In addition a lender or bank could examine your net income to determine the amount of debt you have incurred in the past. If you are in debt prior to the acquisition of a home loan, the lenders or banks must be certain that you make enough money to pay for both your outstanding debts as well as the home loan. In some cases, the lender may decide that your previous debts are too expensive for the home loan that you want, but if that is the case you still may be able to procure home loan for a smaller amount. So, if you have your heart set on a specific home and don’t have additional down payment money to lower your loan amount, it is to your benefit to pay off as much debt as possible before applying for a home loan.

Agreement to Repay

Your ambition to repay is another big issue in procuring a home loan. Your credit report is one way that lenders can ascertain the likelihood you will pay your loans back on schedule. Your credit report tells lenders if you have paid past debts in a fair and timely fashion. If you have always paid loan installments on time and in the sum requested, you will be a more attractive borrower.If you have paid loan payments in full and on time, you have a better chance of getting a loan from lenders. Also, lenders will look at what you are buying the property for. If you are using the home loan for a residency, it is different than if you are securing it for an investment property because homes are more likely to be paid off in full.

Don’t be surprised if lenders will ask for a detailed financial history when deciding if you qualify or not. This could include your credit report, tax return or a W2 form, statements from any investment portfolios and more. If you are able to give the lender all of this financial data and they can verify its accuracy, your ability to qualify for a home loan will increase.

Many consumers are considering refinancing their mortgages, but some do not thoroughly think through the process before jumping in. A refinance essentially trades in your old mortgage for a new one. Borrowers typically refinance to obtain a lower interest rate or change the term on the original loan. Term is the length of time before the loan is paid (such as 15 or 30 years). The Lender will examine your credit and your home will undergo the same appraisal process as when you purchased your house and applied for the original mortgage. The home appraisal allows the lender to assess the value of the property now. Your credit score and credit report will be requested, as well as any information on additional mortgages on the home. If approved for the new mortgage, you may go through the same process you did when you bought the house, but there is often less paperwork with a refinance. When you refinance, the new loan will be used to pay off the old mortgage and any additional loans against the house. You will be responsible for all fees for titling, preparation of documents, lawyer costs, etc., just like you were when you received the original mortgage.

A good number of mortgage holders who have currently decided to refinance, are doing it because the rates are so much better now than when they obtained their current home loans. If you are debating whether to refinance, first compute the cost difference between the old mortgage rate and the refinance interest rate through the term of the loan. Next, add up all the costs of the refinance itself. Do not forget to tally any early pay off penalty fees. Lastly, determine how long you intend to keep the property. Say the new rates are at 5 percent and your current mortgage is 7.5 percent, you could save thousands of dollars over the next 7 years you plan to own that property. If the fees to refinance will only cost $1000, for example, it would be worth it. If you plan to sell in two years, though, it may not be worth the cost of the refinance.

A refinance done at the right time can reduce your monthly payments. You can sustain your good credit, because your monthly payments will be more manageable and more likely to be paid in full. Before jumping into any refinance, do the calculations to see if the savings over the time you plan to hold the mortgage will be greater than the costs of the refinance.