What is a Hybrid Mortgage?
Potential homeowners are often looking for the best options to give them the lowest interest rate while being able to borrow the most money. Someone looking to purchase a home for a few years may want to consider using a hybrid mortgage, which is a combination of fixed rate and variable rate loans.
When using a fixed rate mortgage, the borrower knows how much their interest rate will be throughout the life of the loan, usually 30 years, but the rate is often higher than when using adjustable rates. An adjustable rate loan (ARM) often starts lower but can be riskier in the long-term if market rates increase.
A hybrid allows someone who is planning on being in a home for a short time to receive a loan at a lower interest rate. These can be ideal for someone who is beginning their climb up the career ladder and believes they will want a different home in a couple of years. A hybrid loan provides the opportunity for lower interest rates on larger loans at the outset of the mortgage. The benefits and consequences of such a mortgage should be considered before signing the paperwork.
Benefits
- The fixed rate period can be for three, five, seven or 10 years.
- In the first few years, the interest rate on a hybrid loan is lower than that for a fixed rate contract. For example, a hybrid loan in which the fixed rate lasts for five years and then adjusts annually, the initial interest rate is often a full percentage point below that for a 30-year fixed loan.
- They offer the buyer the chance to borrow a larger amount of money at a lower interest than they normally would.
- If market rates decrease after the fixed rate period is up, the borrower’s rate will also decrease, thus lowering their monthly payments.
Consequences
- The initial fixed rate of a hybrid loan is usually a little higher than that for typical one-year adjustable interest rate loans.
- After the fixed rate period ends, the rates will adjust, usually increasing. This will cause monthly payments to rise. Since the rates can be adjusted on an annual basis, it can be difficult to budget for the monthly payments.
- Those entering into a hybrid loan anticipating selling the home before the fixed rate period expires could find themselves taking a loss if home prices decrease.
A 30-year fixed rate home mortgage is a safer, less glamorous option for securing a home loan. The borrower knows how much to budget for monthly payments over a long period of time. This type of loan makes more sense for someone who plans on staying in the same house for a long time.
A hybrid loan may be a better option for someone who plans on selling the house or refinancing the loan prior to the end of the fixed rate period. Hybrid loans should only be considered by those who have done proper research and have developed a solid plan to avoid the higher interest rates.
Katherine Watkins enjoys writing about personal finance topics such as mortgages and home equity loans. She believes it is important for homeowners to do careful research and seek professional advice before borrowing money, so that they choose the best option for their circumstances.
Mortgage Tips: 5 Things You Need to Know About Before Signing Mortgage
By Alban Smith
You may not be signing your life away when you sign the mortgage on your home, but you are certainly signing away a large portion of it. That is why it is so important to know exactly what you are signing, and be aware of the common pitfalls and obtusely misleading clauses and conditions of mortgage documents before you sign.
When you are signing your mortgage, there are five main things you should look out for in the process and in the documentation, including:
1 The approvals process
When you are signing your mortgage documents, find out how long the process takes from the time your application is submitted, to the time it is approved. This is important to know if you have already placed an offer on a property or block of land that you want to buy, as you can lose the property if your finance doesn’t come through in time. Therefore, make sure you are clear about how long the process is expected to take.
Also, to protect yourself if you change your mind about the loan or the property, find out about any cooling off periods in the mortgage contract. You may have a certain number of days in which you can change your mind, without incurring penalty fees.
2 Penalty fees
At the time of singing your mortgage it is important you understand all of the fees and charges which could be applied to your mortgage account. Firstly find out whether there are any penalties for early repayment of the mortgage, for example if you make additional repayments, or receive a lump sum amount and your mortgage is paid off sooner than the full term, some lenders will charge you early exit fees.
Also find out about charges for additional fees such as insurance, as there may be a tie in clause which states you must purchase the insurance from a specific company, so you can be paying more than if you had been able to shop around yourself.
You also don’t have to accept all of the fees which your lender is charging, and make sure you understand exactly what each one is for. Some lenders will hide a number of additional fees and charges in the closing cost fees, and make sure you get a copy of this statement, and match it to the amount you are then required to pay when the loan settles.
3 Interest rate
Even though you spend a lot of time shopping around and comparing rates and fees, when it comes time to sign the mortgage documents, you may forget to correlate that research with the loan you’re actually getting. Therefore, make sure you ask exactly what the interest rate will be, as many home loan interest rates are variable, and the rate may have changed from the time you researched the loan to the time you signed the documents.
Also make sure you understand the type of interest rate you are getting, whether it is a fixed or variable rate. There will be clauses in the mortgage document which will explain the circumstances of an interest rate adjustment on your mortgage, or you may have been sold on a low interest rate, but that interest rate only applies for one to two years, after which you are charged a much higher rate.
4 Sale of your loan
When you are thinking about your home and your home loan, the only sale which will come to mind is if you decide to upgrade or change locations down the track, and sell the property. However, you should also make sure you find out about whether your mortgage can be resold by your lender.
While the sale may never eventuate because market circumstances never require it, it is important to know whether your loan is eligible to be sold in a secondary market. Your choice of mortgage will have been based on the product as well as the lender, and if your loan is going to be sold to another lender after you’ve signed, then this is an important consideration. At the time of signing, you may be able to find out who your loan is likely to be sold to, if your lender does decide to sell in the future.
5 Your agreement
There is a portion of your mortgage documentation called the Acknowledgment and Agreement section. This section of the mortgage states that the information in the application is true and correct, and you are then required to sign and date the agreement.
If your income or any other information doesn’t match what is in the mortgage document, your lender could be committing mortgage fraud. However, it is you who would be responsible for providing the inaccurate information once you have signed the agreement. Plus, the lender may not even purposely provide misinformation, but an error could be the result of an admin or computer misinterpretation.
Therefore, make sure you review the details in your mortgage document closely, to make sure they really are true and correct, and reflect the information you provided to your lender.
Alban has been writing on home loans and mortgage for several years for a home loan comparison website
How to Pay Off A Mortgage Faster and Save Thousands of Dollars
There’s a major sense of accomplishment and peace of mind of owning your home outright. Paying off your mortgage sooner can make sound financial sense by saving you thousands of dollars in interest costs. Learning how to save on your mortgage can slice years off your loan. Finding out if you can save on your mortgage payments won’t cost you anything, and you will discover whether you have the best loan available for your individual circumstances.
1. Shop around for the best mortgage possible with your credit score.
When a mortgage company has a small overhead cost to stay in business it typically means that they will not charge you unreasonable ongoing service fees. Make sure you know the fees charged by your mortgage company before you sign on a loan.
2. Select weekly or bi-weekly mortgage payments.
A bi-weekly mortgage payment means you make 26 half-monthly payments instead of 12 monthly payments. But keep in mind that unless your initial mortgage is set up as bi-weekly, some lenders charge an upfront fee of $300-$400 to make bi-weekly payments, and even though you’re making a payment every two weeks, the lender only applies it once a month.
If you make bi-weekly payments of $415 instead of monthly payments of $830, you could save almost $27,000 in interest over the entire amortization period of your mortgage, and you could own your home about 4-1/2 years sooner.
3. Prepay a little extra every month, or any time during the term of your mortgage.
Increasing your payment by even a few dollars each month will pay down your principal amount faster. It is a good idea to pay 10-15% more each month. This amount shouldn’t put too much extra burden on you, and it will help to pay off your mortgage much faster. For example, if you increased your mortgage payments by just $170 from $830 to $1,000, you could save almost $48,000 in interest over the entire amortization period of your mortgage, and you could own your home about 8 years sooner.
4. Make an annual lump sum payment.
Use your tax refund, work bonus or any extra money you can save and apply it directly to your principal amount. Check your mortgage documents to find out how often you can prepay and in what amount. Many loans don’t prohibit you from doing this, however the lender may have parameters on how many extra payments you can make. Ask this question when shopping for a mortgage loan.
5. Pay as much as you can at renewal time.
Most mortgages become open at renewal. This means you can pay as much as you want on your mortgage. If you chose a 5-year, fixed-rate term, and made a $10,000 lump-sum payment every time your mortgage came up for renewal, you would save about $37,481 in interest over the entire amortization period of your mortgage.
6. Red flag your extra payments.
Always check your mortgage statement to make sure that any extra payments you made are being counted against the principal and that your bank has accurately documented your payments. Make the extra principal payments on a separate cheque and make a note on the memo line stating that the payment should be applied to principal reduction only. At tax time, tally up those payments and make sure they’ve been applied correctly.
7. Stay informed.
Once you have a mortgage, aside from making the payments, it’s easy to forget about it altogether. By keeping up-to-date on interest rates and new products could save you money. You may want to shop for another product that better suits your needs. For example, to qualify for a mortgage, you may have started out with a lower-rate adjustable rate mortgage, but you want to switch to a more long-term affordable fixed-rate mortgage later.
When Should You Hold Off on Paying Your Mortgage Faster?
While paying down a mortgage quickly may be a wise decision for many homeowners, it’s not for everyone. For example, you may want to switch to investing in mutual funds when yields return 10-12% annually. For most people though, this is not a mathematical issue but one of security, as they just want that mortgage paid off. For people who are very debt-averse, the peace of mind of paying off the house more quickly is worth the price.
Secondly, if you are planning on moving soon, you may want to hold off investing money into your existing home as you may need the money for a down payment, closing costs or buying new furniture for your new home.
As you can see, with a little research, you could save on your mortgage. The truth is: the banks won’t tell you how to save money on your mortgage as they want to make the interest on the money that they have loaned to you. If they were to help you save money, they would lose money and their profits would stagnate. Make sure that if you implement changes to save on your mortgage it is the right decision for you.
Article Source: www.vanhomesales.com
Under Water Mortgage Solutions
By Jesse Smith
With the housing market on the decline, many homeowners are noticing that their mortgage is underwater. In other words, many homeowners owe more than their house is worth. This can be a very bad thing, especially if a person is planning to move in the near future. Fortunately, there are a few different things that consumers can do to rectify their situation.
Loan Modification
A loan modification is usually the most attractive option to homeowners whose property has significantly decreased in value. There are many different programs available to homeowners in underwater situations. These programs may:
- Reduce the balance of a borrower’s loan
- Reduce the interest rate on the loan
- Lengthen the term of the loan
- Reduce the size of the payments
To begin the modification process, homeowners will want to contact their lender and explain their situation. A representative will be able to explain the modification process and help determine whether a borrower could possibly qualify.
The problem with loan modification is that the process can be lengthy and many homeowners simply don’t qualify. Luckily, all hope is not lost. There are other options for homeowners to consider.
Consider Becoming a Landlord
If a homeowner can no longer afford their home, but can’t sell it because their mortgage is underwater, renting can be an option. If a homeowner finds tenants to cover the cost of their home, they may be able to purchase a new, more affordable home. Of course, the consumer will need to have decent credit and enough money to place a down payment for this to be a beneficial option.
Even if a consumer cannot afford to purchase a new home, they may be able to rent a portion of their home. Homeowners may want to consider turning their basement or other area into an apartment. While this may not be the ideal situation, it may make the home significantly more affordable.
Surrender Your Property
It may also be possible to surrender your home to your lender. If the lender accepts the surrender, they will usually also forgive the loan. This is called a deed-in-lieu and is different than foreclosure.
When doing this, homeowners will propose the deed-in-lieu and then stop making their mortgage payments. The lender will then choose to accept the proposal or decide to foreclose on the home. However, lenders will often accept the surrender, since it saves them the trouble of foreclosing on the home. It also lessens the chance that the homeowner will decide to purposely damage the property.
While this could potentially backfire, it is an option. Homeowners that are considering this option may want to check with a financial advisor or attorney that can explain the local laws pertaining to this practice, as it does differ by state.
Consider a Short Sale
If a homeowner wants to sell their home, they will definitely want to consider a short sale. A short sale is composed of two different parts.
The homeowner will first want to contact their lender and negotiate the balance of their loan. For this to be successful, the lender must agree to lower the balance of the loan to less than the home’s market value.
Then, the owner will need to put their home on the market. Since they now owe less on their loan, they won’t lose money by selling the home for what it’s currently worth. Once the home is sold, the consumer can begin the hunt for a new, more affordable home.
Living with your mortgage underwater can be extremely frustrating. If you can afford your mortgage payments, you could wait for the value of your home to rise. Even if your home doesn’t rise in value, you will be building more equity in your home, which will help you refinance in the future. Fortunately, if you can no longer afford to make your mortgage payments, you could explore these options to improve your situation.
Jesse Smith is a personal finance expert with an interest in the mortgage crisis, managing credit card debt, and student loans.
Tips on Getting the Best Mortgages
By Nicole Rodgers
Shopping around for a mortgage is not as difficult as it may seem. Although there is a lot of paperwork involved, comparing offers and searching for a good deal is worth your effort. Before going for a mortgage loan you should understand how things work and then try to get lower interest rates. Here are some tips on getting the best mortgage:
Improve Your Credit Rating
Before you start shopping for a home loan or mortgage, check your credit record. Paying down your financial obligations and getting rid of debt is a good start. Individuals with a poor credit record have a difficult time finding competitive deals. It is highly recommended that you improve your credit score before applying for a mortgage. Credit scores over 620 are usually approved.
Shop Around and Compare Costs
Although you might be tempted to go to a local bank because you have a checking account there, it is advisable that you first research your options to make an informed decision. Contact a broker, use the Internet to get loan quotes and search for information in your local newspaper. Each bank, loan association or mortgage company has its own interest rates, so be sure to evaluate a number of offers from different providers.
Make a Large Initial Deposit
The size of your deposit is very important when it comes to getting a mortgage. The best rates out there are available only to those with a large deposit. The larger the deposit you have, the more money you will save. The good news is that there are a couple of things you can do in order to build up your deposit. Getting an unsecured loan is a viable option. You may also ask your family or friends for help, reduce daily expenses or use your other savings.
Decide on the Right Mortgage
If you decide to apply for a mortgage, be sure to do proper research. Potential homeowners can choose from various types of loans. Some of them prefer a 30-year mortgage, while others opt for fifteen-year fixed rate loans. Evaluate your budget and decide how much you can afford paying every month. Remember to ask each lender and broker about the loan’s annual percentage rate (APR). The APR includes broker fees and points, as well as the interest rate that applies to the loan.
Act Fast
Once you find an offer that suits your needs, act quickly to secure the mortgage. Although you need to do research and evaluate your options, it is important that you act quickly to avoid disappointment and get the best deal out there. You may hire a broker and ask for expert help. A good broker can move quickly to secure funds for you.
Applying for a mortgage loan requires your full attention. Be sure to get all the information you need from several lenders or brokers. Ask about the lender’s requirements for a down payment and try to find out what each fee includes. Make lenders compete with one another for you. Examine your credit report and make sure you don’t borrow more money than you need. Don’t hesitate to contact a broker; he can help find a loan that best suits your needs. Get loan quotes from multiple sources and check the reputation of the brokers and lenders you interested in working with.
Nicole Rodgers has been in the mortgage industry for 4 years; she currently contributes to blogs dealing with ways for people to refinance a home loan and how online trading can help families earn extra income.
Connect With Us!
Subscribe
