Understanding What You Can Afford for a Home

Filed under: Insurance, life insurance, mortgage life insurance

Decide how much you can afford for a house before you shop for it, not later. Many prospective home buyers fail to do this and spend countless hours looking at homes that are way out of their price range.

There are a number of factors that influence how much you can spend on a home, including household income, the amount of the down payment, and the market rates and closing costs on mortgages in your area. Your total expenses will also be considerd, since they will affect how much income you have left to pay your home loan each month.

There are some rule of thumb ratios that most lenders use to take into account your income and expenses, debt ratios and closing costs, to decide what you can afford to pay for a house.

You can try to estimate these costs yourself, or you can make it easy on yourself by meeting with a mortgage consultant who will do this for you.

The first thing that most folks have a problem with is having enough of a deposit to begin with. People don?t routinely save as much as they used to, so frequently they will not have any decent balances in savings accounts. Lenders are no longer offering the dangerous no down payment mortgages now that credit is tight and they have to be more discriminating.

A minimum of a 10% deposit will normally be demanded. For a house that costs $200,000, which is an average price today, you will have to have saved at least $20,000, plus whatever amount you may need for closing costs. A lender can supply you with a good faith estimate of your closing expenses.

A very low assumption should be that you have to make $25,000 available. The next step is to find out what your monthly payments will be. You can calculate how much you can pay based on income and current expenses if you go to one of the many calculators available on the net, or you can take a simpler route and speak to a mortgage consultant.

Typically, the standard used is that your home costs should not exceed 25% of your income. But this does not take into account extraneous credit card debt. The remainder of your income above 25% should be devoted to food, utilities, savings, education and entertainment. If you are spending a lot on credit card debt, your income will be reduced, because you will have less money to devote to the loan.

Without these complications, figure that a monthly income of $6,000 means that you can afford to pay $1,500 in mortgage, taxes and insurance. With this information at hand, you can now intelligently start to shop for a home.

Deciding Upon a Lock in Period for Your Home Loan

Filed under: Insurance, life insurance, mortgage life insurance

When you are shopping for mortgage rates, you have to understand that the terms you are quoted are the terms available at the time of the quote. Obviously, you will not be closing on your new house that same day, so you have to worry about what the rate will be later on.

Deciding Upon a Lock in Period for Your Mortgage

Filed under: Insurance, life insurance, mortgage life insurance

When you make an application for a home loan, the rate you are quoted will be the rate for that day. Usually, you don?t close on the same day you are inquiring about rates, so you will have to take the risk that the rate will go up.

Because of this worry by borrowers, most lenders now offer a lock in terms, which means you can keep the quote you are given, for a while, anyway. They realize that it may take some time before your house is found and actually closed on. Many people count on the interest rate when they calculate how much their monthly mortgage costs will be. Locking in a rate for a length of time frequently proves to be advantageous for a borrower. This applies to both interest rates and points.

This feature can be made available at the time of application, while the mortgage is being processed, or once it has been approved.

If the bank offered you a 30 day lock in term for a rate of 5.5%, with one point, that is what it will remain. What this gives you is the privilege to keep that rate, even if you do not close on the mortgage for an additional 30 days. Thirty days are usual lock in periods, and are offered as a marketing device since the bank usually has little risk that rates will move too much during a short period. Lenders are not usually willing to give such a guarantee for greater than 30 days, with a greater chance of rates going up, unless the borrower pays a premium.

One of the problems of such a rate, however, is that if rates in general go down, you may be hit with the higher rate, unless there is an opt out clause. This has to be done as you sign up for the lock in rate.

After the 30 day period, of course, the rate will revert to whatever the current market rate is. If rates have not changed, a lender might consider issuing a new guarantee at the same rate.

There are combinations in terms of lock in periods.

Locked in Rate, locked in points. In other words, the bank will keep both the interest rate and number of points for 30 days.

Locked Interest Rate with Floating Points. The lender may choose to protect himself by setting a fixed base rate for the lock in period, but with the right to change the points to keep the rate. The bank can charge additional points if they wish.

When interest rates are rising quickly and drastically, choosing for a lock in period is a smart move, and can even be worth paying for.

How to Understand the Lock in Period for Your Home Loan

Filed under: Insurance, life insurance, mortgage life insurance

When a lender offers you a rate on your home loan, it is normally good for that day only. Obviously, you will not be closing on your new house that same day, so you have to be concerned about what the rate will be later on.

But banks today frequently offer their customers a lock in period for their loan at the time of application. They understand that there is usually a period of time between when the loan application is made and the loan is closed. And since most people calculate how much mortgage they can afford based the interest rate, they realize people want to maintain that rate. The lock in period is the time during which the potential borrower can obtain a rate for a future closing. This applies to both interest rates and points.

The lock in rate can be fixed at the application point, the processing stage or the approval stage of the home loan.

An example would be if a lender offered a lock in rate for thirty days at 5.5% interest with one point. You then have the right to borrow at 5.5% even if you are not able to close on the mortgage for the next thirty days. This thirty day period is usual, since getting all the paperwork done may take that long. Banks are not likely to give such a guarantee for more than 30 days, with a greater chance of rates increasing, unless the borrower pays a premium.

Keep in mind, however, that a locked in rate may prevent you from taking advantage if interest rates actually decrease, unless you have an agreement that prevents this from happening. You have make sure you negotiate such a benefit in advance.

If your mortgage is not settled during the lock in period, it will expire and your new loan or new lock in period will be at the increased rate. If there haven?t been any significant movements in rates, the lender may be willing to renew.

There are combinations in terms of lock in periods.

Rate is locked, points are locked. In other words, the bank will maintain both the interest rate and number of points for 30 days.

Locked Interest Rate with no locked in Points. The lender may choose to protect himself by setting a fixed base rate for the lock in period, but maintaining the right to change the points to maintain the rate. You may have to pay more points to get the guaranteed rate.

If interest rates are moving a great deal, it is probably a good idea to ask your lender about lock in periods.

How to Understand the Lock in Period for Your Mortgage

Filed under: Insurance, life insurance, mortgage life insurance

When you make an application for a mortgage, the rate you are quoted will be the rate for that day. Usually, you don?t close on the same day you are inquiring about rates, so you will have to take the risk that the rate will go up.

But lenders today frequently offer their clients a lock in period for their mortgage at the time of application. It is only practical to realize that there will be a delay between when the loan is applied for and the home is closed on. And since most people figure how much mortgage they can afford based the interest rate, they realize borrowers want to maintain that rate. So a lock in period can be negotiated with your lender, which will keep the rate the same for a certain period of time. Both interest rates and points can be locked in.

The lock in rate can be fixed at the application point, the processing stage or the approval stage of the home loan.

Perhaps you have a chance to lock in 5.5% interest with one point for 30 days. Even if you close in a month, and rates have increased, you will still get the 5.5% rate on the mortgage. This is a normal lock in period, and a lot of lenders offer it to attract customers, and are willing to take the risk for a short period of time. However, if you prefer a longer term, you may have to pay since lenders do not want to take such a risk for a longer time without getting something in return.

Remember that the lock in period can go against you if rates go down instead of up, unless your agreement permits you to break the agreement. This has to be done when you sign up for the lock in rate.

Once the 30 day period is over, your agreement expires and you will be given whatever the new market rate is. If there have been no significant movements in rates, the bank may be willing to renew.

There are combinations in terms of lock in periods.

Rate is locked, points are locked. In other words, the bank will maintain both the interest rate and number of points for 30 days.

Locked Interest Rate with Floating Points. The basic rate is fixed for the period, but the bank retains the right to increase the points. In order to maintain the original rate, you may have to pay extra points.

In a volatile interest rate environment, it is very wise to choose a lock in period, and maybe even pay a slightly higher interest rate for a longer period.

What are Mortgage Points? Should I Pay Them?

Filed under: Insurance, life insurance, mortgage life insurance

Many people don?t really know what ?points? are when it comes to negotiating their mortgage. The concept is fairly simple: you pay points up front to decrease the interest rate on your loan over the entire period. each point represents a percentage point of the whole loan value. A $100,000 would require a $1,000 payment for one point.

Basically, such points lower the stated rate on the mortgage. There are different ways of calculating the benefit of a point, depending on the lender, but an example would be to pay 1.5 points to reduce your mortgage from the posted rate of 6.25% to 5.875%, or to 5.375% if you paid 2 ? points.

The important thing to consider when you are deciding upon paying points is how long you plan on living in this house, and whether or not you can afford the points upfront. If you need to borrow to pay the points, you will most likely lose any advantage since you will have the additional interest. First time home buyers usually will not find it advantageous to pay points, since many do not stay in their first home for long.

Points are likean investment in the loan. Let?s say you?re thinking about paying 1.5 points to get a reduction in your home loan rate from 6.00% to 5.50%. In essence, you are paying some of the interest in advance, so if you are only going to have the home loan a short while, you have paid that advance interest for nothing.

There are many calculators on the internet that can help you calculate how much you can save in monthly hhome loan payments by paying upfront points, based on the length of the loan or you can take the easy way out and contact a mortgage professional to do it for you.

The $100,000 loan we were talking about would require $1,500 in points to reduce the rate to 5%. How do you find the breakeven point in this scenario, based on the different rates? For a $100,000 mortgage, the monthly payment is $599.55 for a 15 year mortgage. The cost of a $100,000, 30 year loan at 6% would be $567.79 a month.

The points paid then save you $31.76 a month, but you had to give the bank $1,500 in order to get this savings. If you divide your investment of $1,500 by your savings of $31.76, you will see that it will take 47.23 months for you to recoup the investment. In other words, if you don?t think you?ll be in the home for about 4 years, you get nothing by paying the points.

However, once the 47.23 months have passed, each month payment is a savings. Let us now suppose (this doesn?t happen very often today) that you actually stayed in your home for the thirty years; you would save that $31.76 over the course of 30 years, a big savings of $9,933.58!

The News on Interest Rate Only Mortgages

Filed under: Insurance, life insurance, mortgage life insurance

Most home loan payments are split into two when they get to the bank; a small part reduces the equity, and the balance pays the interest. This was how all mortgages were until now. But there exist now new kinds of mortgages that only pay the interest.

The borrower can pay whatever amount he wants, as long as he pays the minimum amount of the interest due each time. Even with more conventional home loans, you could pay additional on your mortgage to reduce the principal balance more quickly, but the idea here is to keep the monthly payment low.

The concept was believed to be a good one since rising housing prices guaranteed an increase in the value of the home. Normally, equity in a home is gained by a combination of paying off the loan value and increasing home values.

Now that real estate values are falling instead of rising, the logic of interest only loans has been called into question. There are cases where interest only loans are a good solution. This might be good option as long as it were a temporary situation.

Perhaps there is a situation where one partner is not employed or only working part time while he finishes school. Theoretically, once the other partner finishes school and starts working again, the mortgage payments can be increased to begin to lower the loan.

Another example may be where the homeowner has income that varies greatly from month to month. Maybe a project worker is only paid at the end of the project. When income is low, the lower payment (interest only) choice could be used and then when the windfall amount was received, higher payments could be made to pay down the loan.

But in any of these cases, the homeowners cannot count on the price of the home rising and should make sure principal payments are made. You want to make sure that you pay off some of the principle so that you will have some equity built in the home, since you can no longer count on real estate market increases to do so. If no equity has been paid down, the owner will have to raise additional money to pay off the mortgage when home values have not sufficiently increased.

Learn About Interest Rate Only Mortgages Before You Borrow

Filed under: Insurance, life insurance, mortgage life insurance

When you pay your monthly mortgage payment, you may have noticed that a part of it (however small) reduces the mortgage and the rest of it pays the interest. This was how all mortgages were until now. Some banks have now introduced a new type of loan to attract more borrowers by keeping the monthly payment as low as possible by only paying the interest.

This means that if you choose an interest only option, every month you pay your mortgage, the loan balance stays just the same; it never goes down. Even with more conventional mortgages, you could pay extra on your mortgage to pay down the principal balance faster, but the idea of this loan is to keep the monthly payment down.

Interest only loans were based on the theory that it did not matter that the principal was never reduced, because when the home was sold, the increased value would allow the borrower to pay off the loan. Equity was increased by a combination of mortgage paydown and increased home values.

Today?s falling home prices means that homeowners can no longer count on an automatic increase in their home value. The only reason that one would want to have an interest only loan is to keep the monthly mortgage as low as possible. Today, it would actually only work if it were used as a stop gap measure.

A good example would be if one partner to the mortgage was attending school and the other was employed. Theoretically, once the other partner finishes school and starts a job, the mortgage payments can be increased to start to reduce the loan.

Another example may be where the homeowner has income that varies greatly from month to month. Perhaps someone who worked on large projects and was only paid at the completion of them might have such a situation. It would be in his best interest to keep his mortgage payments low during the periods of no income and raise them when the large income was received.

In the current housing environment, not building equity by reducing the loan could be a dangerous situation. As mentioned, with ?old fashioned? home loans, the mortgage was paid down eventually because part of the monthly payment went towards principal, so the owner had some equity even if the value of the house did not go up. If no equity has been paid down, the owner will have to raise additional money to pay off the mortgage when home values have not sufficiently increased.

WhatAre ARMs All About?

Filed under: Insurance, life insurance, mortgage life insurance

As if there were not enough decisions to make when you are buying a house and getting a mortgage, lenders now have such a wide rang of ARMs (adjustable rate mortgages) and the borrower even has to choose the index upon which the ARM will be based!

What are Interest Rates Up to? Should I Purchase a Home?

Filed under: Insurance, life insurance, mortgage life insurance

If you are considering buying a home or refinancing your present one, you probably are wondering if this is the right time. If you think interest rates are going up, you will want to lock in a lower rate now, but if you think rates may still fall considerably, you will want to wait before you commit to a mortgage.

What determines interest rates depends on many factors, so knowing what they are as well as how they operate can help you make your decision. The price of money is interest rates, so if you understand what will affect the price of money, you will understand what affects interest rates, which includes your mortgage rate.

The first factor to examine in terms of interest rates is the inflation rate. The inflation rate has two primary indicators. They are the PPI and the CPI, the producer price index and the consumer price index.

PPI or Producer Price Index is a measure of the change in prices at the level of production. If the prices of raw products increase, you can be sure prices in general will go up.

CPI is the benchmark of the change in prices at the consumer level, measured as a group of goods. This is a very important signal of inflation since this is what we will all pay for our goods. Certain segments of CPI can ?skew? the results, so analysts frequently remove changes in food and oil prices, which can be too volatile. This permits them to look at the core inflation rate to understand better where overall prices, and therefore inflation, are heading.

GDP is another relatively good predictor of inflation as well as interest rates. The Federal Reserve Bank attempts to keep the economy growing at a ideal rate; too slow and production will lag, causing a recession; too fast and the economy will overheat. The Fed has some tools to influence interest rates and will use them to increase rates when it needs to slow the economy down and decrease them when it needs to help the economy to pick up.

Another important indicator is the unemployment rate. Low unemployment tends to lead to inflation, since it will lead to higher wages which will lead to higher prices. High unemployment usually leads to lower interest rates over time since employers can keep wages lower since there are so many candidates for each job. In other words, higher wages lead to a wage price spiral and decreased wages bring prices down.

It can be very beneficial to a prospective homebuyer to keep on top of these kinds of economic indicators to know what is happening in the interest rate arena. In general, a slow economy, with high unemployment, means that interest rates will be coming down, and you should hold off on your loan for a while. Higher GDP with low to no unemployment signals a road to higher interest rates.