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If you are in the market for a new or first time house mortgage its important to understand the basic of a mortgage. This article starts at the basic and will explain you about a mortgage and different types of mortgages.
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mortgage,home mortgage,new mortgage,mortgages,home loan,house loan
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Introduction
Mortgages come in many different shapes and sizes, each with its own advantages
and disadvantages. Since mortgage debt is often the largest debt owed by the
debtor, banks and other mortgage lenders run title searches of the real
property to make certain that there are no mortgages already registered on the
debtor’s property which might have higher priority. Tax liens, in some cases,
will come ahead of mortgages.Here are some basic things to know about mortgages:
Mortgage companies and lenders are the institutions that will lend you money to
pay for your home.It is a good idea to shop around for a lender or mortgage
company, as every institution will offers different mortgage rates and
mortgages. How mortgages work, where to get one and the different deals
available Types of mortgage. Other forms of mortgage loan include interest
only mortgage, fixed rate mortgage, negative amortization mortgage, and balloon
payment mortgage. One of the decisions you’ll have to make includes whether to
get a fixed rate mortgage (FRM) or an adjustable rate mortgage (ARM).
Fixed
With a fixed rate mortgage, your monthly rates will always be the same. Due to
the inherent interest rate risk, long-term fixed rates will tend to be higher
than short-term rates (which are the basis for variable-rate loans and
mortgages). Some fixed-rate loans start with one rate for one or two years
and then change to another rate for the remaining term of the loan. If you
feel the current rates are low and you plan to stay in your house for a long
time, you may want to consider a fixed-rate loan. With a fixed-payment loan,
if the borrower was unable to meet the fixed payment, they would risk late fees
or foreclosure.
Arm
ARMs generally permit borrowers to lower their payments if they are willing to
assume the risk of interest rate changes. An adjustable rate mortgage (ARM),
variable rate mortgage or floating rate mortgage is a mortgage loan where the
interest rate on the note is periodically adjusted based on an index. A hybrid
adjustable-rate mortgage (ARM) is one where the interest rate on the note is
fixed for a period of time, then floats thereafter. Hybrid ARMs are referred
to by their initial fixed period and adjustment periods, for example 3/1 for an
ARM with a 3-year fixed period and subsequent 1-year rate adjustment periods.
After the reset date, a hybrid ARM floats at a margin over a specified index
just like any ordinary ARM. The popularity of hybrid ARMs has significantly
increased in recent years. Like other adjustable-rate products, hybrid ARMs
transfer some interest rate risk from the lender to the borrower, thus allowing
the lender to offer a lower note rate. An “option ARM” is a loan where the
borrower has the option of making either a specified minimum payment, an
interest-only payment, or a 15-year or 30-year fixed rate payment in a given
month. When pricing an Option ARM, never focus on the Start Rate of 1% or 2%,
consider only the Fully Indexed Rate (FIR) which is the Margin and the current
Index being used (12-MTA, LIBOR, etc. The main risk of an Option ARM is
“payment shock”, when the negative amortization reaches a stated maximum, at
which point the minimum payment will be raised to a level that amortizes the
loan balance. Historically, option ARM mortgages have been used effectively to
minimize income taxes and maximize mortgage interest deductions by high net
worth homeowners whose earnings are primarily derived from passive or
investment income. Option ARM mortgages are increasingly available in Hybrid,
or temporarily Fixed Rate varieties, from 3 to 10 years, mitigating certain
negative amortization characteristics of the popular Adjustable Rate variety.
As an example, a 5/1 ARM means that the initial interest rate applies for five
years (or 60 months, in terms of payments), after which the interest rate is
adjusted annually. Calculating this is important for ARM buyers, since it
helps predict the future interest rate of the loan. This is the major risk of
an ARM, as this can lead to severe financial hardship for the borrower.
Conclusion
Mortgages are a necessary part of home buying. Mortgages will allow you to own
a home, whether a starter home or the home of your dreams, without having to
wait until you can pay for it outright. Whether you are a first time buyer
learning about mortgages for the first time, investing in buy to let or need to
remortgage but have bad credit , we believe that the best way to prepare you
for your mortgage decisions is to keep you as informed as possible about all
the mortgage types available to you.