Compare Mortgages

What is an interest only home equity loan? This is a loan where the principal borrowed is not paid back each month only the interest is repaid. The principal borrowed may be due in 10, 15 or 20 years. A borrower may decrease the amount of principal due in the future by making payments on the principal.

Interest only mortgages may be adjustable rate mortgages (ARM) or fixed rate mortgages. A fixed rate mortgage will have a set payment for the period of the loan. ARM mortgages will have a fixed rate initially for a six-month period, and then the rate will increase or decrease based on an index, prime rate or five-year treasury rate.

A balloon second mortgage is a short-term mortgage with a fixed rate of interest. Balloon mortgages require repayment of principal and interest. The monthly payments of principal are not based on the five-year term of the mortgage but a longer amortization period of 30 years. Balloon mortgages must be refinanced every five years at the expense of the borrower and subject to any dramatic increase in interest rates.

One of the advantages of the balloon second mortgage is the lower monthly payments could yield additional funds for debt consolidation and home improvements. With lower monthly payments the homeowner has more money to budget towards other expenses.

If the balloon mortgage is repayable in five years and the ARM is a 520 loan, both loans must be refinanced in five years. The balloon second mortgage must be refinanced with a new second mortgage, a line of credit or a home equity line at the expense of the borrower. ARM mortgage rates reset using a mechanical rate adjustment procedure set in the original contract and have a cap on the amount the rate of interest may be increased.

Currently the rates on balloon mortgages are generally lower then the rates on ARM mortgages. If one were sure that rates would be lower in five years, the balloon mortgage would be a wise choice. If one is unsure of future interest rates the security of knowing the maximum rate the interest can be five years in the future would be worth the slightly higher cost of the ARM mortgage.

Both of these second mortgage loans can co behind a negative amortization loan in 1st position, as long as the broker or lender allows the deferred interest loan. Check with your home equity lenders to make sure that they will allow you to get a home line of credit or second mortgage behind a payment option ARM.

If we had a crystal ball to look into the future the comparison would be simple. In a scenario with 15% interest rates the ARM would be the wise choice while in a scenario with 5% interest rates the balloon mortgage would be the wise choice. Unfortunately the uncertainty of the future of interest rates makes it clear there is some risk involved in making this decision.

The term mortgage in everyday lingo, is used to mean ‘mortgage loan’.The word mortgage has now become the generic term for a loan secured by real property. A mortgage is similar to that of a secured loan. The amount of money lent is slowly repaid in monthly amounts for the length of the mortgage term.

Getting a mortgage is therefore, a huge task for any homeowner. These loans can range from the tens of thousands to the hundreds of thousands of pounds, and impose many different terms and conditions. Finding the best mortgage interest rate available is therefore quite an uphill task, which can eventually save one thousand of pounds over a period of time. The mortgage-lending industry is however, not free from its own share of pitfalls. As the market is inundated with so many different mortgaging options one may quite easily end up choosing the wrong one.

The unsuspecting consumer may be lured to believe that a ‘balloon mortgage’ offers the best mortgage interest rate available. While it is true that in the beginning of this mortgage, monthly payments are quite low, homeowners often find difficulty at the end of the mortgage when they are forced to make a large balloon payment. Balloon mortgages do however, offer some of the best mortgage rates available for real-estate buyers who are looking to turn over the property quickly. Mortgage brokers are usually middlemen between the customer and a lender .The broker needs to look through the market to find out the best mortgage interest rate available.

Types of Mortgage loan: There are two main types of mortgage loans, fixed rate and variable rate interest. With a fixed-rate mortgage loan, the homeowner pays the same amount of interest every month during the lifetime of their loan. With a variable rate mortgage, the homeowner will end up paying different interest rates month-to-month solely depending upon market conditions. Banks and lending companies may use different market indicators to determine your interest rate.

While selecting the best mortgage interest rate one also needs to know that the true drivers of mortgage rates are the investors in the secondary market. A loan when its funded, the mortgage lender that funds the loan which may be a bank, a credit union, or other type of financial institution has the option of keeping that loan on its portfolio or selling it on the secondary market.

When selecting the best mortgage interest rate one needs to see whether it offers you the best return possible. That level of return is to a great extent determined by the current and anticipated condition of the economy. Determining the best loan that requires one to pay the smallest monthly payment possible is equally important as getting the best mortgage interest rate.

Fully equipped technologies are now available which simplify the lending process and ensure the current mortgaging rate is the best for his client. Only by exploring the wide-range of mortgaging options one can decide which one suits hisher purpose. It takes only a little bit of internet surfing, a few phone calls or may be a couple of visits to the local branch to find out and grab the best mortgage interest rate.