Online home mortgage quotes are very similar to the quotes given by mortgage brokers in “the real world,” except lower. With the reduced cost due to a simplified application process and reduce overhead for office space and personnel, online mortgage lenders can offer financing with no fees or lower interest rates.
Looking At Fees
Fees are the hidden costs of loans. Mortgage brokers are paid in fees or points on the mortgage loan. The advantage of a mortgage broker is that they find the best mortgage rates for you. So even with their fee added into the loan, you still can expect to save money.
Online mortgage brokers have automated much of the mortgage loan process, reducing costs. As a way to stay competitive, many of these lenders have eliminated or reduced their fees.
Interest Rate Quotes
Both traditional and online mortgage brokers can give you an instant generic interest rate quote to narrow your choices from a mortgage lender. However, to get a true quote, you will need to provide detailed personal and financial information. With a traditional mortgage broker, the process can take a couple of days to process the information and meet with the mortgage broker to review rates.
Online mortgage lenders connected all their databases to be able to provide you with a near instant quote. Occasionally there can be delays in processing your information if you have recently moved or changed names or jobs.
Difference Is Sales Styles
Online and traditional mortgage brokers differ in their sales style when relaying quotes to you. A traditional mortgage broker will use sales tactics to pressure you to complete the mortgage application right there. Many people feel the need to make a quick decision rather than taking the time to process the information.
Online mortgage lenders offer a different approach; they provided the information, then wait for you to take the next step. After requesting a mortgage quote, you will receive rates either through the website or through email that you can review at your own pace. You can choose to apply with a specific mortgage lender, or decide that none of them are best for you.
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Reverse mortgage rates are not different form traditional mortgage rates, and when you are applying for a reverse mortgage you should make every effort to find the lowest reverse mortgage rates you possibly can. While comparison shopping takes time, you can help your own cause by taking advantage of the reverse mortgage calculators available on one of the many reversed mortgage Internet websites.
You will have to pay interest on your reverse mortgage loan regardless of whether you receive your money as a single lump sum, in monthly installments, or as advances on a credit line. In the US, reverse mortgage rates are tied to the US Treasury rate, and like all adjustable mortgages rates will fluctuate as it does.
The Margin Is The Difference
Because of this, any money you save on your reverse mortgage rates will be as a result of the competition among lenders. Their margin–the amount they charge in interest over and above the variable treasury-based reverse mortgage rate, will vary from company to company. Lenders can adjust their rates anywhere from once a month to once a year.
Fixed-Rate Reverse Mortgages
Fixed-rate reverse mortgages are the exception to the rule, although they have become more available in recent months. One limitation on a fixed-rate reverse mortgage is that the borrower must take his or her money in a single payment; monthly installments and lines of credit are not permitted. Fixed reverse mortgage rates, in early 2007, were hovering in the low end of the six percent range, not including the lenders’ margins.
Your fixed mortgage rate will have nothing to do with your credit history or your income. Even low-income senior citizens who have paid for their homes are eligible for reverse mortgages; they, in fact, are the individuals for whom reverse mortgages are primarily intended.
You can get a better idea of reverse mortgage rates by researching both online and brick-and-mortar reverse mortgage brokers; many brokers have both websites and offices. Find the best online rate you can, then take it to the reverse mortgage lenders in your area and use it as a negotiating tool if necessary.
You can find a list of legitimate reverse mortgage lenders close to you by doing a search on the National Reverse Mortgage Lenders Association–NRMLA–website, searching by the name of the state in which you live, and then whittling down the results to lenders in your area. All NRMLA lenders are committed to upholding a Code of Conduct, which means they will deal with you fairly in the reverse mortgage process.
Do you know the reverse mortgage is? The reverse mortgage is credited for the retired senior citizens who are already 62 year old and above, and they have steady income for sure. In addition, the senior citizens, as applicants must have and live in their own house.
There are few things you need to pay attention when it comes to reverse mortgage. You see, the home is still yours. Second, you will not be charged with tax for the money you receive. Third, you do not make monthly mortgage payment on condition that you still live there and maintain it. And also, do not forget to take the homeowner insurance too. The hecm counselor is able to explain you more about reverse mortgage on the counseling sessions. Or perhaps you can go to some sites that provide information about them. You may also try to use reverse loan calculator there.
The income is resulting from the home equity by the lender. You need to pay attention that the lender will not give money back before the home is sold. The next thing you should pay attention is the reverse mortgage APR that usually much higher than any traditional mortgage.
Furthermore, you need to know the 3 types of reverse mortgage. What are they?
- Single purpose reverse mortgage
- Home equity conversion mortgage or hecm
- Proprietary
You know, single purpose reverse mortgage is settled by government for those who are in low economic situation. They are those who have low income. This mortgage purpose is to assist those homeowners to pay all the things they need related to the property and home such as the taxes, repair, improvement, and so on.
HECM or Home Equity Conversion Mortgages is also named as federally insured reverse mortgages. HUD or housing and urban development backs this loan. Usually, this loan is much costly than the first type of reverse mortgage. However, this loan does not require the applicant use the loan as single purpose only. HECM loans need the applicant to carry out the counseling sessions first prior to take the loan. In this counseling, they can discuss the entire thing about reverse mortgage concept, include the cost, possible alternatives, risks, and so on.
Compare to the HECM, the proprietary reverse mortgage is not really different in cost that higher than the single purpose reverse mortgage. On the other hand, this kind of loan does not require you to conduct counseling session.
If you’re in the process of buying a house, you may have come across the phrase “interest only mortgage”. As the name suggests, this is where you simply pay the interest and nothing else for the duration of the mortgage. There are pluses and benefits to these types of mortgage, and as long as you’re aware of them, and can afford to take it out, then an interest only mortgage may offer you a workable solution to affording your first home.
The Pros
Perhaps the most obvious part of an interest only mortgage is that because you’re only paying the interest on your house, the payments are a lot lower than what they would be on a more traditional mortgage. Since the interest on a mortgage is only a small percentage of the overall cost, then that shows in the monthly payments. This allows you to be able to have more “free money” each month, which of you’re just starting out on the property ladder can make all the difference.
An interest only mortgage also allows you to make better use of that extra money. For example, you could put it into a high yield savings account, or stocks, or even another property, which you could then rent out. This would then see you having residual income every month, which you could then transfer to your high interest savings account to pay for your mortgage at the end of the loan period.
The Disadvantages
Although an interest only mortgage offers many advantages over a more traditional mortgage, there are also the downsides to it that you should be aware of before you sign up for one.
Ironically enough, the big advantage of this type of mortgage is also one of its biggest disadvantages. Because you’re only paying the interest on the loan itself off, you’re not taking anything off the principle sum, or the mortgage itself. Therefore, when the end of the mortgage period comes round, you’re going to have a substantial amount still to pay. Unless you’ve saved for that time, you could find yourself coming up short and losing your home, even if it’s 25 years down the line.
If you decide that you do want to take out an interest only mortgage, there are ways that you can help yourself prepare for the end of the repayment term. These include:
Paying into a monthly savings or investment account Sell another property (if applicable) or use any inheritance you may have Switch to a repayment mortgage throughout the duration of the interest only one. This is especially popular with people who find themselves promoted to a higher paid job, for instance Sell the actual property to pay for the loan
These methods all have their pluses and minuses, and some are more attractive than others. This is why it’s important for you to be completely sure that you understand what’s involved with interest only mortgages, and whether they’re right for you, before signing up for one.
An interest only mortgage is one in which you make only interest payments for a period of time. A third of all new mortgages are interest only mortgages.
Contrast this to traditional mortgage that pays back the mortgage balance you took out to purchase your home. Many traditional mortgages are “amortized” over 30 years; that is, the amount you pay every month pays both interest and helps reduce the balance of the loan; so at the end of 30 years the loan is completely paid off.
=== Why are Interest Only Mortgages Attractive? ===
Interest only mortgages allow you can buy a larger, more expensive home in a better neighborhood.
Consider a traditional $250,000 mortgage for 30 years at 6.35% interest. The principal and interest payment is $1,555.59. But, the interest only mortgage payment is only $1,322.92–a monthly savings of $232.67. This makes homes more affordable.
And, for nearly the same traditional monthly payment (of $1,555.59 for a principal and interest loan), an interest only mortgage payment (of $1,555.75) allows you to get a loan of $294,000. Adding $44,000 to the loan amount could easily let you afford a larger home in a better neighborhood.
The short term effects of the interest only mortgages are:
1) Homes are more affordable so more people can buy homes
2) People can buy more expensive homes
Another way of looking at interest only mortgages is from a real estate agent’s perspective. The interest only mortgage allows real estate agents to sell more homes because they are more affordable. And, interest only mortgages allow real estate agents make fatter commissions on more expensive homes.
=== What are the Downsides of Interest Only Mortgages? ===
Adjustable Rates: Most interest only mortgage loans are adjustable. That is, as key interest rates change, the interest payments on the loans change. Since interest rates have recently been climbing, eventually the monthly mortgage payments will also rise.
Those home owners with adjustable interest only mortgages will find their monthly payments higher than when they first purchased their home. If their income has not kept up, they will find it increasingly difficult to manage their mortgage payments.
Limited Term: Not only that, but depending on the terms of your interest only mortgage, your interest only payments may last only a few years. You could be expected to start making principal payments in five, seven or ten years. Once the interest only period ends, your monthly payment will go up because then you’ll be paying on both principal and interest.
Many Americans are living on a financial cliff. They save little, spend most of what they earn, and are sinking deeper into debt every year. If you bought the largest interest only mortgage you could afford, you could find yourself in the difficult position of defaulting on your mortgage.
Real Estate Price Uncertainty: Also, the past decades have seen housing prices increase, seemingly without limits. As the selling price of your home increases, you essentially are building equity. When you sell your home for more than you paid for it, you’re making a profit on it’s increased value.
Money Magazine reports that many home prices have gone up five times as fast as personal income. They credit home price inflation to a large extent to the interest only mortgage loan.
But, Forbes magazine indicated that the housing prices on the coasts have peaked. Rising interest rates have increasingly made expensive homes less affordable. With fewer potential buyers, expensive homes are harder to sell and their prices could eventually drop.
The theory many home buyers have used in the past is that if home prices keep increasing, the profit you can make from selling your home can be enormous–even if you never pay down your mortgage loan. This positive outlook is merely one form of real estate speculation. It may be worth while applying Alan Greenspan’s comment about “irrational exuberance” to holders of interest only mortgages. He said, “But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?”
But, if rising interest rates make expensive housing less affordable, and if retiring baby bombers begin to seek smaller, less expensive housing, then the prices of real estate could stagnate or even decline. This could place the interest only mortgage holder in the position of being “upside down” on their loan, owing more than their property is worth.
=== Is an Interest Only Mortgage for You? ===
There are certainly situations in which an interest only mortgage can be a valuable option.
Interest only mortgages can be useful if you are a savvy investor looking for cash-flow from income producing real estate. You will likely have investment property in several markets and a decline in one market could be offset by an increase in another market.
If you can obtain an interest only loan at a rate significantly below your traditional mortgage, you can take advantage of it’s lower rate. Just because it is an “interest only mortgage” does not mean, however, that you must only make minimum payments for interest. You can add money to you payment to decrease the principal (loan amount). Because your interest charges are less, by making the same monthly payments as before you can more rapidly reduce the amount of your debt.
Or, you could use the money you would have paid in principal payments to build equity by making improvements in your home–just be sure the improvements really add value to your home. For example, kitchen and bathroom upgrades usually add value to your home, but adding a built-in pool often does nothing to improve your home’s resale value.
Refinancing a partially paid for home with an interest only mortgage can free up money for other investments. You will still have equity in your home even if your home’s selling price declines somewhat.
=== Summary ===
Overall, you need to understand both the advantages and disadvantages of an interest only loan.
If you are buying a home merely because you can afford the payments, you may be in for an unpleasant financial education. So, evaluate your situation carefully before you choose an interest only mortgage.