How to Refinance Your Mortgage?

Today we're going to talk about the mortgage refinance. I think you can do the pretty easy low-hanging fruit thing refinancing your mortgage. Now there's some important things to consider whenever you're going to refinance and so here are my four rules for a home run refinance.

First can you lower your interest rate? A lower interest rate means you'll spend less money on repaying the bank for your loan. Today’s interest rates are near historic lows and chances are that you can do better than the eleven percent, the seven percent or even the five percent interest rate you have now. Can you lower your mortgage payments this is point number two. Ideally you want to pay less each month and you can do this by extending your mortgage term. Which is not great because if you took out a 30-year mortgage rate at initial mortgage term and now you want to take out another 30 year mortgage term. You’re going to end up paying interest on interest. While lowering your monthly payments will give you more breathing room. It’s not usually worth the extra cost you pay over the long term.

Now if you tell me that number one on your list is paying less each month and you don't care how many years you have to pay it. Then you're going for that even if you have to do another 30-year term. But for most people the kicker for really saving money is point number three reducing the length of your loan term. So if you can secure a loan of interest rate you'll be able to reduce but the length of your loan and the cost of your monthly payments those savings really will add up. So for example if you took out a 250 thousand dollar refinance loan at five percent for 30 years you would pay almost two hundred and thirty thousand dollars over the life of the loan interest but if you save five years off that same loan will save nearly 45,000 dollars.

Now imagine if you are saving five years off that loan and now you're bringing down the interest rate as well and your savings are going to multiply the last thing. The thing that people sometimes forget to do is you have to manage the cost of the refinance. so on top of the administrative fees you're homeless too also be appraised inspected and assess and you may pay a penalty for paying off your mortgage early and that typically early prepayment penalty is only the first two to six years of a mortgage.

So check the details of your court current mortgage agreement before moving ahead with a refinance. Whatever you do make sure you can pay off the cost of the refinance within six months to a year and try to keep the costs under $2,000 colon. It’s going to be a little bit hard to do if you have a higher-end cost home but if your home is only maybe a hundred to two hundred thousand dollars or rather the mortgage amount somewhere between a 2000 2500 dollars would be ideal. That’s it on mortgage refinance, keep visiting extramortgage for more.

Fixed And Variable Mortgage Rates

When you're ready for a mortgage you'll have to decide whether to go variable or fixed. With a fixed rate mortgage your interest rate and monthly payment will stay the same across your term. With a variable rate on the other hand your interest rate and monthly payments are likely to fluctuate over the course of your term. We brought you both types of rates and show you the differences in more detail.

In variable rate mortgage will start with a lender's prime rate the lender will either offer you a premium or a discount to their primary. In this illustration your lender has offered you a variable rate mortgage at a discount. Important points to consider our that your relationship with Prime never changes throughout the term and that Prime can change based upon the bank overnight lending rate. Let’s say you've just purchased a home for 300,000 and have a five percent down payment. In this example with a five-year fixed interest rate a 2.93 percent you would have a monthly mortgage payment of 1375 dollars. With a variable rate mortgage with an effective interest rate at 2.55 percent you would have a monthly mortgage payment of 1319 dollars. In this example the variable rate mortgage payment is less.

However you must consider that your payment can fluctuate throughout the length of the term. Two years into your term Prime has increased to four percent what that means is the effective interest rate of your variable rate mortgage has increased the 3.5 five percent. That also means that your effective monthly mortgage payment has increased the 1470 dollars. Now let's look at how much these interest rates would cost you over a five-year term.

Since fixed interest rates remain the same over five years. We simply multiply the payment x 60 months that would give you an effective mortgage payment over five years of 2500 dollars. For the variable rate we must calculate the payments for the first two years when the rate was 2.5 five percent and then calculate the payments for the last three years when the rate was 3.5% the payment for the first two years is 1656 dollars and the payment for the last three years was 2920 dollars. For a total of eighty 4576 dollars in this example payments for the five-year fixed are lower than the five-year variable rate. However that is not always the case while sixty percent of people prefer the stability of a fixed interest rate while variable interest rates have been lower over the past 10 years.

A fixed-rate provide stability and eases budget anxiety. Because it is constant over the duration of the term. However when the fixed rate is significantly higher the stability is often not worth the premium. That’s all for today, check out extramortgage for more information about mortgage. 

Mortgage For Beginners And Dummies

In this post of Extra Mortgage we will give you some ideas about Mortgage Advice for Beginners and Dummies,Mortgage Basics,Beginners' guide to mortgages in very simple language. Let's Begin.

One of the most important financial decision you'll ever take is getting a mortgage. It's one of the biggest financial commitments most people make alongside private school fees to their children if they're lucky enough to go to for them.So what is a mortgage? a mortgage is a secured loan that makes it different from alone.You might take out for example unsecured to buy a car or just simply by racking up credit card debt or using a store card. Those are unsecured right now, the difference is very simple a secured loan and mortgage. 

Here's the deal you go to a bank so i want to borrow a hundred thousand pounds, the bank says that we want balloon secured on an asset. that asset being the house you plan to buy. The daily simple and it's a two sided deal. In return for that security the bank will offer you a low-interest-rate. In here the load is secured and that means if you fail to repay it or keep up with three payments the bank reserves the right to seize your property and sell it and use the proceeds to repay the loan. So mortgage has one benefit that's up front the interest rate tends to be a lot lower then you can get in any other loans and that's because the bank has a lot of security in the form of your property. 

Now property prices can go down as well as up. which is why bank will not lend or certainly not anymore the full value of the property to somebody wants a mortgage. what does that mean and what practical consequences that have you trying to get a mortgage. well here is the solution. let's take a help of an example. so there's a house. Let's say that the value of the house on the open market is 100,000 pounds. and you plan to put down a 30,000 pound deposit. And that means you need a seventy thousand pound alone or mortgage. So a combination of what's called equity that's your bit and alone bank secured on the property makes up the funding. Compared to that as a percentage LTV is 70,000 as a proportion of the value of proprietary loan-to-value ratio is seventy percent. The higher the loan-to-value ratio naturally higher the interest rate. So if you can scrape together as much of a deposit as you can get hold of bring the loan-to-value ratio to tend to find the better deals and become available. 

Why we no longer seeing loans in excess four hundred percent the value of property? while unfortunately if you allow someone to borrow a huge amount of money and the value of the property then drop. So imagine for example if I take out the deposit all together and I make the loan one hundred percent. So imagine that the whole thing still following my scribblings here is funded by a mortgage the danger is this if the value of the property drops then which it could do the 90,000. You are now in something called negative equity. It's the danger taking out loans that are a high proportion of value of property. Negative equity means the property is not enough to pay back the loan 90,000 be sold the property tomorrow won't pay back. 

Once we hit the financial crisis unfortunately banks are now being very conservative unfortunate because it makes it harder for other people to get onto the property ladder at all. so that's a negative equity what Americans call being underwater. now once you decided how much you're going to borrow 70,000 in my previous example you've got a couple of choices you can either go interestingly or you can go a repayment style mortgage. what's that mean? basic choice for all mortgage products all loans fall into one of those two camps essentially no matter how they're written up in the advertising literature there is interest only loan repayment it's worth bearing in mind. mortgage is now upside to interest only. The loans payment every month the bank is lower than it would be if you were paying them back interest and some of the original capital under the bounds that's the outside the downside is you to be pretty damn sure that whatever you're going to use to repay the capital after 20 or 25 years.

For argument's sake is enough to do the job and the problem a lot of people found will have to the past is a set up these kind of little investment funds on the side saying well after 20 years it will have grown. so I gotta clear my mortgage have a problem is the equity market plummets your little savings vehicle isn't enough to repay the original load of your problem. so interest will be only mortgages attractive because the initial payment the bank will be relatively low but you've got to have some way to pay off the capital that you've borrowed in the future. the alternative is a repayment mortgage as there every month your repayment the bank is interest on the loan for sin problem it's a plus a little bit of the original capital you borrowed the idea being off 25 years for example you would have cleared all of the 100,000 pounds that's the amount you borrowed that you owe the bank. now downside to that one is you will find your monthly payments the bank are a Little bit higher because they include interest and some capital course. the upside is you know provided you keep your job and keep up three payments you will clear your mortgage after 20 or 25 years. 

There are a couple of traps which I want to finish. this is a beginner's introductory guide. there are a few traps to watch out for with mortgages. so decision tree so far is how much do I want to borrow? how much do i need to borrow? how much of a deposit of I got this is the amount required by the property I'm after? that will impact the deal you can get from the bank but then you need to decide on the amount of borrowing. am I going to go down the interest-only or the repayment style route. now let's say for a moment I've picked a repayment style mortgage. I wanted to other things to look out for. number one when you're looking up mortgage rates again you can look up on sites so on you can look up rates on a number of different site. number to watch out for low ball initial deals the ones with the bank. what we can do is set you up for a few years aren't really low rate and watch out because once that low rate. ends you might be kicked into what's called the standard variable rate as the are lat maybe first of all not a fixed rate secondly a lot higher thirdly Redemption penalties if you take our deal and commits. you to a minimum number of repayment their. number is the number of years. if you need to sort of switch product or kick out of there early you know it was something goes wrong you may be stung for a big Redemption penalty simply to get out of the mortgage early. so there's a few traps to watch out for when you're shopping around for a mortgage. 

Alright so just to recap their mortgages secured loan. good news is that means you can borrow lower than you would on other types of loan. first decision to make how much do i need to borrow or less you need to borrow so the better the deal you'll get. third thing just a bear in mind is that you want to make a decision between interest-only and repayment and he was going to make a decision between fixed rate and paying a variable rate of interest. lots of things to think about here fixed rates certainty variable rates well the opportunity maybe if your mortgage payments to go down and interest rates fall as well as up their eyes. so that another decision to make their do watch out the little sting in the tail including arrangement fees low initial rates to grab you in and redemption penalties. That's all for today, we will keep posing amazing stuff for you.

How Mortgages Work?

An art understand the chaos of the current economic crisis. We began with the market that calls at all the housing market and to unravel what what's wrong with the housing market we first need to tackle a very simple question. How do people purchase homes? Well in this podcast I'll be giving you a basic overview of how the system works? And what exactly the bank does to help people purchase mortgage start of.

Let's begin with a very simple situation. Let’s take the case of a man. And this man has money and he wants to save it. He has several options and one of them is to hide this money underneath his bed. But there's an issue here and issue is inflation, a time when prices rise. Well the problem is that prices would start increasing for basic items such as food and clothing and thus make the money that was saved under the bed seem like a small now. Because it wouldn't be increasing at the same pace of goods and the outside market the result is that this man would be getting less bang for his buck.

So what does a person do? Well he can go to a bank and deposit his money in a savings account. I'm like under his bed the money doesn't just sit there in fact the bank is actually borrowing this money to finance their other activities and returned to for borrowing this money they pay this man interest. Remember what I said was the definition interest a fee for borrowed cash for me. I was always intrigued by this idea of where that money came from? It seemed too good to be true that just putting your money in a bank could yield small interest to understand.

Where exactly money has come from? We must go the other side have the equation and look at the case have a typical family. They want to buy house. The problem is that the house cost 250,000 dollars. Now very few people can afford to pay two hundred and fifty thousand dollars up front for house. Well a commercial bank has access to a lot of money because it had all that money from savings account and want pull that money together. It has a substantial amount. An amount that's good enough to buy a home. And so because the commercial bank has access to large pools of money it agrees to serve as an intermediary between a family and home and so they stay forefront the two hundred and fifty thousand dollars to fight the house.

In return they give the family a mortgage. Under a traditional markets the family goes to restrict and rigorous pre-approval process with the bank. Whereby if they qualify for the markets to pay the bank back in small monthly payments. Now because these payments are show small they typically take years to pay off. In this case the family would finish paying back their mortgage in 30 years. Now you're asking why it takes so long to pay back. Well it's because mortgages are very expensive. You want to see family pays back their bank. their payments are divided into two parts, principal which is the original I'm portion of the loan that you owe a pink at the example we discuss that's the two hundred and fifty thousand dollars that the bank paid up front for the house and interest that for feed that you have to pay the bank for borrowing their two hundred fifty thousand dollars.

In the first place what most people don't realize is 'how large that can be?' in the overall scheme of things every month this family would pay down the principal and it would accumulate. I'm told they would be able to cover the entire cost to the house until they do. That however they start off with high interest payments and as they pay down their principal there interest gets lower and lower. In many cases interest can make up more than half total market payments. for example let's assume that this family had an interest rate of 6 percent assuming their mortgage took thirty years to pay off the house would cost in total 539,000, dollars that's over twice the value of what the house was listed for at market price.

So how are homeowners connected to that man he decided to take the money from under his bed and put it in a savings account well the commercial bank pulls together all the money usually from savings accounts to buy that house. Then they charge the homeowner 6 percent from running the money. The homeowners pay back their six percent and then the bank think about the man with the savings account by giving him one percent interest. Than the banks are the ones that ultimately get to keep that 5 percent difference. So that's how families buy houses. People make interest of a savings account and banks make money to review a person puts money in their savings account. Banks use that money to front money for homes. Homeowners pay back thanks with a lot of interest over a long period of time. Banks use a small part of that interest to reward people with savings accounts. And this is how the mortgage works.

What is a mortgage?

Mortgages is a loan by a bank or other financial institutions that a person can use to finance the purchase of a home. A mortgage is different from other loans like personal or student loans. Since the bank can use your house as collateral, meaning if you don't pay the bank back on time they can take possession of your home.For your convenience we will explain it to you in a simple way. In simple words mortgage is a legal agreement between money lender and individual (gainer), which gives the property rights in favour of money lender, in return the money lender earns profit in a form of interest. The rate of interest has already been discussed in agreement. Here if the debtor fails to pay back to lender the agreement will turn into the favour of the lender and it transfer the ownership to the money lender. Her mainly the term money lender refers to the bank or other financial institutions. So thus the mortgage works, both sides will have profit. The money lender will earn the in term of interest rates and the debtor can use the property with the artificial ownership of property until the amount of has not been paid.   

We will explain you with the example. Here's Rahul and Zeel are newlyweds looking to buy their first home. After a long search they find the perfect home with the not so perfect price tag of five hundred thousand dollars more than they have in the bank. What are they to do Rahul and Zeel head over to the bank, the banker suggest that they take out a mortgage to finance the home. The banker ask them ' how much they are willing to put down as a down payment? ‘The down payment is the amount that Rahul and Zeel pay up front. Usually its needs to be at least around twenty percent of the price of the home. But Rahul and Zeel have been saving for a while and decide to put down a hundred thousand dollars. Meaning they will need to borrow an additional four hundred thousand dollars to buy the house.

The banker of use Mark and Lisa’s credit reports and income statement and grants them a four hundred thousand dollar mortgage at a fixed rate of five percent with a five-year term and a 40 years amortization period that means Rahul and Zeel must pay five percent interest rate to the bank per year. The fixed five year term means Rahul and Zeel are locked into this rate for five years. Regardless of whether the interest rates go up or down conversely they could have taken a variable or floating rate which goes up and down with the interest rates. Fixed rates are considered to be the safer choice but are often a little more expensive than variable rates. The amortization period is the length of time Rahul and Zeel will take to pay off the loan and own their home entirely. So with monthly interest and principal payments they will be the sole owners of their home in 40 years.

The advantages to taking the mortgage should be pretty clear. Instead of putting money into a landlord's pockets by paying rent every time they make a mortgage payment. They own a little more of their home currently the house is split between equity what Rahul and Zeel own and debt. What the bank owns every time they make a payment and they turn some of their debt into equity. Also Rahul and Zeel could make a nice profit if the value of their home appreciates. For example imagine Rahul and Zeel get an offer to sell their home for six hundred thousand dollars the day after they bought it. Rahul and Zeeland the bank aren't partners they don't have to split the profits. So let's say they take the offer and sell the house. They collect six hundred thousand dollars from the buyer and pay back the four hundred thousand dollar loan to the bank. Just like that they doubled their $100,000 investment to learn more about mortgages and other topics of mortgage check out our other posts.