Compare Mortgages

Types of Loans

What types of loans are available to me? There are many different types of mortgage offered to consumers. Some of the most popular mortgage broker are the FHA Home Loan (Federal Housing Administration) and the VA Loan . Because the FHA mortgage and VA mortgage are guaranteed by the government, borrowers are able to make a smaller down payment, and take advantage of more relaxed credit and asset requirements than traditional conventional loans.. Details about the major types of loans, including FHA mortgage and VA mortgages, follow.

Conventional loans generally are considered loans with loan amounts at or under the maximum loan amount available for purchase by Freddie Mac or Mannie Mae.

Fannie Mae is the common name of the Federal National Mortgage Association. Fannie Mae is a congressional chartered, shareholder-owned company that buys mortgages from lenders and resells them as securities on the secondary home mortgage market. Before approving you, Fannie Mae looks at a number of factors including credit ratings, debt ratio, and employment history.

Freddie Mac Freddie Mac is the common name for the Federal Home Loan Mortgage Corporation. The 2006 maximum loan amount for both Fannie Mae Mortgage and Freddie Mac company is £417,000.  Freddie Mac does not issue mortgages directly, rather, they buy mortgages from lenders and resell them as securities on the secondary mortgage market. Before approving you, Freddie Mac looks at a number of different factors including credit ratings, debt ratio, and employment history.

Government guaranteed loans.  FHA, VA loans.
An FHA mortgage (Federal Housing Administration) has some advantages over conventional mortgage. Since FHA Mortgage are insured by the government, they generally have more lenient qualification and requirements, lower down-payment requirements, and they may be assumable. The maximum mortgage amount for an FHA mortgage varies depending on the city where you live. As your mortgage broker on what these maximum amounts are for your specific city. FHA loans are very popular with first time buyers.  They also make great sense if you are buying a multi family property to live in and want to get maximum financing.  Mortgage insurance on an FHA loan is the same no matter what loan to value your loan is, something that is not the case with a conventional loan.  High LTV’s pay a far greater insurance payment.

A VA (Veterans Affairs) mortgage carries many of the same advantages as an FHA home mortgage. However, to qualify for this mortgage, you must be a qualifying veteran, the unmarried widow of a veteran, or an active-duty serviceman. Talk with your mortgage broker on maximum loan limits, required down payments (if any) and what your funding fee will be.  VA loans do not have a mortgage insurance payment, instead borrowers pay a one time fee for their “insurance”  What percent of the loan amount varies, currently it will not exceed 4%.  These are different than origination or discount points.

Non-Conforming  Jumbo mortgage are loans where the loan amount is greater than the conforming loan limit.  £359,650 currently for a single family.  So if you need to borrow £500,000 to purchase your new home, it will be a jumbo loan.  Jumbo loans typically have interest rates slightly higher than conforming loans, about 12 percent higher.   If you will be borrowing this much money you should ask your broker if you could split up your loan into a 1st. and a 2nd. mortgage to avoid needing a jumbo loan and avoid the increase interest cost.

A mortgage broker can help you find the best rate and product to fit your situation.  Ask them about what are your options.

Buying a property is likely to be the largest purchase you ever make – finding the right deal for you means choosing one mortgage from the many hundreds available. This will be much easier if you know what you’re looking for.

What’s Your Status?

Depending your life situation, age, income and financial status, you will need different things from your mortgage. Whether that’s flexibility, low rates or security, take the time to have a good look at where you are now, and where you want to be long term.

In For The Long Haul!

Most mortgages are for a 25-year term – so it’s an agreement that you could be locked into for a substantial part of your life. This means you need to have at least a vague idea of how your finances are likely to shape up long term – no one can predict the future, but good planning is one way to help ensure you meet the challenges to come.

Get The Budget Ready

The first thing to do is to draw up a budget – you need to know what income you have every month, and all your outgoings. Be realistic – there’s no point exaggerating your income or ignoring certain expenses. You want to buy your own home, but you also want to be able to eat once you’ve moved in! Take into account all your bills, council tax and loan payments, as well as living expenses such as food, running costs for your car, going-out costs and clothing. Check bank statements to make sure you have included all your usual expenses.

Crystal Ball Time..

Next, give some thought to your future. Now we don’t really mean for you to go to some charlatan and ask what your personal circumstances will be in the future, that would be just silly. However, what you would need to do is be honest with yourself in answering some personal questions in an attempt to plan ahead for financial reasons.

Do you expect your income to rise over the next few years, or will it stay the same? Do you have dependents, or are you planning a family? While some things are uncertain, you should be able to tell whether your needs will stay constant for the next five years, or are likely to change substantially.

Your budget should give you a fair idea of how much you can afford in repayments each month – bear in mind there will be other costs incurred when buying property, such as legal fees and stamp duty.

Generally, a mortgage lender will also look for a cash deposit – usually 5 or 10 percent of the total cost of your home. You will then repay what you have borrowed in monthly instalments. Read on for more detailed information on how mortgages work.

You may freely reprint this article provided that the author bio and live links are left intact.

A reverse mortgage can be an attractive option for many home-owning seniors that are having a hard time making ends meet. With a reverse mortgage, a senior homeowner will receive money for their home equity from a lender without having to make repayments for as long as they live in their home. So with the right reverse mortgage a senior homeowner can maintain their standard of living while retaining ownership of their home.

This of course, is the picture that all the reverse mortgage companies try to paint for prospective borrowers. Nonetheless, there are many differences that have to be understood between reverse mortgage’s and conventional loans. If these differences are not understood, they can cause financial problems for reverse mortgage borrowers.

Disadvantages of Reverse Mortgages.

The first disadvantage is the relative cost of a reverse mortgage. Reverse mortgages tend to be very expensive when compared with a conventional mortgage. This is due to the rising-debt nature of reverse mortgages. For example, a typical reverse mortgage may provide a homeowner with a £300 per month payment with a yearly interest rate of 12 percent compounded monthly. Over the course of ten years, the homeowner will receive £36,000 in payments, but will owe almost £70,000-almost    twice as much as received.

The second disadvantage is the complex and confusing contracts of reverse mortgages, that can have a tremendous impact on the overall cost of a reverse mortgage to the borrower. The complexity of the contracts often allow lenders and third parties involved in arranging reverse mortgages to not fully disclose the loan’s terms or fees. These numerous other front-end andor back-end fees can also quickly drive up the cost of a reverse mortgage. These fees can include origination fees, points, mortgage insurance premiums, closing costs, servicing fees, shared equity and shared appreciation fees.

Out of all these fees, the shared equity and shared appreciation fees should be avoided, as they can quickly raise the cost of the mortgage without providing any benefit to the borrowers. As an example, a shared appreciation fee can give a lender an automatic 50% interest in the difference between the current value of the home when the loan is signed and the appreciated value of the home when the loan is terminated. What makes the fees unfair is the fees have no relation to the amount that is borrowed.

The third disadvantage is the reverse mortgage payments can affect eligibility for old age pensions, Medicaid, or supplemental Social Security income. Senior’s may not even realize this problem until after they already have their reverse mortgage, and only then do they find out that this can have the opposite affect on a seniors finances then what they were trying to accomplish in the first place by taking out the reverse mortgage.

Another disadvantage is the fact that reverse mortgages reduce the value of a senior’s assets and estate. This will affect the amount of inheritance received by the borrower’s heirs.

How to avoid these hazards

The best way for a senior to avoid these hazards is to be careful when choosing a lender, by obtaining bids from three separate lenders. They should take these contracts to a reverse mortgage counselor for evaluation. This will allow them to accurately evaluate the three contracts before deciding on best one for their situations.

Here’s the first mortgage term you should learn – Standard Variable Rate, or SVR. This is the interest rate you will be paying on the total amount you are borrowing. It is usually expressed as a percentage, and is different from an APR (Annual Percentage Rate). An APR includes all costs associated with the loan, such as interest, fees, any compulsory insurances etc.

While interest rates can vary quite widely across the board, all lenders will have a Standard Variable Rate. It’s the default rate for their mortgages, and can provide a good indication of whether they are offering good deals. Comparing different lenders’ SVRs is one way to get an idea of who has lower rates generally – though there will be exceptions to this rule.

This rate fluctuates, going up or down according to the economy and the lender. The biggest factor that effects SVRs is the Base Rate set by the Bank of England. In recent years this has been kept relatively low, and mortgage interest rates have been particularly good for borrowers. However, this could change and you should bear in mind that rates could go up in the future.

Many mortgages start off with special introductory rates, and then revert to the SVR after a set period. These include capped and collared mortgages. There are also ‘fixed rate’ and ‘interest only’ mortgages available, which are covered in more detail further on in the guide. When considering mortgages with special introductory rates, you should also take into account what the SVR is likely to be once your initial period is over. Many mortgages come with the condition that you stick with the same one for several years, even after the special offer period is over. There will often be penalties if you want to change mortgage within this tied period.

Interest calculation, interest charging

Be aware that there is a difference between interest calculation and interest charging. Some mortgages calculate interest daily, which works out as fairer for the borrower as your overall balance is reducing every month, and therefore the interest will be reducing too (even by a tiny fraction, every little helps!). Other lenders calculate interest monthly or annually, although annual calculation should be avoided if at all possible, as you will be paying the same interest for a whole year despite your balance having been reduced by your repayments. You should also ensure that your interest is charge in arrears, rather than in advance.

Reverse mortgages are increasing in popularity as a way to turn home equity into a liquid asset. Before you jump on a reverse mortgage, you need to understand the impact it can have on government benefits.

The beauty of home ownership is found in the value of time. The longer you own a home, the more valuable it become. On one hand, you are paying off the mortgage over time, which is increasing the equity you have in your property. The other finds your real estate appreciate over time. This double whammy is what makes home ownership so attractive.

Retirement and old age will become an issue when you need to convert your home equity into usable cash. Reverse mortgages are touted as a solution. A reverse mortgage is a loan against your equity that does not need to be repaid until an event happens, usually the sale of the home or your death.. Essentially, you have reversed the process of a traditional mortgage. The lender is now giving you money in exchange for a piece of your home equity. Payments are expedited in lump sums, monthly or through credit lines depending upon the particular package you go with. As the clock ticks, the equity in your home is reduced, but you will have a reliable and predictable monthly revenue source.

Over the years, the fed has tried to find ways to reduce the amount of benefits they pay out to citizens. One of the factors they like to use is the asset value you hold. If you have a certain amount of assets, your benefits are reduced or terminated because they government takes the position you do not need them. An analysis of government benefits is beyond the scope of this article, but reverse mortgages have an impact.

Basically, be assured that taking a reverse mortgage on your home will not affect Medicare or social security benefits. This is true, however, only so long as you spend the full amount you receive each month. The government is always playing with benefit issues, so make sure you get up to date information on the situation. You will want to understand what you are getting into, particularly if you rely heavily on Medicare for the payment of medical bills.

In general, reverse mortgages do not impact most government benefits. That being said, make sure to get an informed opinion on exactly what will happen before you agree to a reverse mortgage.