If you are in the market for a mortgage, you’ll soon realize that there are several different types available.  The question is which one is right for you.  Some of the most common mortgages are as follows:

Fixed-rate mortgages are the most popular because it protects homeowners from increased payments and is very straightforward.  With this mortgage our monthly payment and interest rate stays the same for the entire term of the loan which makes it easier to budget.  Most loans are taken for 30 or 15 years, however, other fix terms are available.

FHA mortgage loans are fixed-rate mortgages back by the Federal Housing Administration (FHA), which is government agency.  FHA loans maybe a good option for first-time buyers.  FHA loans allow lenders to offer lower down payment options, however, with the lower down payments require mortgage insurance.  Additionally, lower the lower the down payment, the higher your monthly payment will be.  So be careful to review the extra costs when considering a FHA loan.

Adjustable-rate mortgages (ARM) have an interest rate that adjusts periodically, usually every 6 or 12 months. When the loan adjusts, the payment will adjust with market interest rate movement. Most lenders also offer a “hybrid ARM,” also known as a “fixed-period ARM”.  This is a mortgage with an initial fixed period of 1, 3, 5, 7, or 10 years, and has an adjustable rate and payment after the fixed period. Fixed-period ARMs are often named by the length of time the interest rate remains fixed.  

A 3/1 ARM, means the “3″ is for a three-year introductory period, during which the interest rate remains fixed. The “1″ means the interest rate will adjusts once per year after the introductory period.

Introductory period rates are lower during the introductory period, which can mean a lower starting monthly payment. However, when the introductory period ends, your rate will go up or down depending on the market rate. When considering an ARM, you should carefully consider your ability to handle potential increases to your rate, and consequently, your monthly payment.

ARMs caps are available in 2 options. Adjustment caps limit how much your rate can go up or down in any single adjustment period, which limits how much your loan payment can change when it adjusts. Lifetime caps have a maximum interest rate over the entire life of a loan. You should find out what the caps if you’re considering an ARM, and then determine to see if you can handle rate increases.

Interest-only mortgages (I/O) are mortgages that contain an interest-only payment option during a set period in first years of the loan, often the first ten years. Interest-only mortgage payment options can be available on ARMs or fixed rate loans.  During the I/O period, borrowers can delay making principal payments and make monthly payments that include only the loan’s interest. After the interest-only period ends, however, if interest-only payments were made (you can choose to make regular principal + interest payments during the I/O period) your monthly payments will significantly increase when your required monthly payments start to include principal, plus interest.

Adding any unpaid principal from the first 10 years to the principal due on the remaining years of the loan plus interest due on the remaining portion of the loan can result in what is commonly referred to as “payment shock.” You should carefully consider payment shock when considering an I/O payment option. Interest-only mortgages start with monthly payments that include only the loan’s interest.

After this initial interest-only period ends, however, the monthly payments can significantly increase when these payments then start to include the principal. This is called amortization. When an interest-only loan starts amortizing, the monthly payment amount increases, as you begin repaying principal in addition to interest.

Chase has introduced a unique cash back offer for home mortgage.  If you get a new Chase mortgage or refinance, you can choose either a 1% cash back or a 1% payment against your principal balance annually when you sign up for automatic payments on a new Chase Mortgage.  That’s not a bad deal!

The 1% Mortgage Cash Back works with any new Chase mortgage or refinance.  The cash back is deposited into your Chase checking account OR applied as a payment against your mortgage principal.

At your loan closing, complete your enrollment in our automatic mortgage payment service with your Chase personal checking account. Your monthly mortgage payment is automatically deducted from your checking account.

For more information visit Chase.com.

Last night 60 Minutes had a very interesting segment about Michael Lewis who is about to release a book (titled “The Big Short : Inside the Dooms Day Machine“) about a handful of Wall Street outsiders who realized the subprime mortgage business was a house of cards and found a way to bet against it. One outsider made over $700MM.  Michael Lewis also talks about the current situation on Wall Street, the large bonuses still being paid and his predictions for the future of the industry. See videos below.

I’m in the process of refinancing our mortgage.  I’ve debated whether or not to refinance to a 15 vs. a 30 year fixed loan or keep my existing loan.  I ran the numbers and it was hard making a final decision.  There are pros and cons with all three scenarios.  

Fortunately, I’m able to refinance because I have a Freddie Mac loan.  My mortgage company is able to refinance the loan without a formal appraisal, which would have caused problems due to current market value my home.

After some careful analysis I decided to go with a 15 year fixed rate at 4.25%.  I just couldn’t pass on the rate.  My existing loan is a 30 year fixed at 5.625%. My out of pocket cost to refinance the loan will cost approximately $1,187. My mortgage will increase by $147 per month which isn’t too bad.  I expect my property taxes to drop due the value of my home falling which will offset the additional $147 per month.

When I initially purchased the house if I had went with a 15 year fixed it would have increased my mortgage by approximately $350 per month, which I didn’t want to pay at the time.  I have paid 6 years of my existing 30 year mortgage, so now I will have 15 years left.  I suspect we may live in the house for at least an additional 5 years but you just never know what may happen in the next 5 years.

The answer to the question of whether to choose a 15 year fixed, a 30 year fixed or keeping your existing loan is “it all depends”.   Below are some of the things I considered to making my decision:

• Current personal financial situation
• Current mortgage interest rates
• Interest rates falling vs. increasing
• How long we plan to keep the house
• Home equity after 3, 5, 10 years
• Loan interest savings after 3, 5, 10 years
• Investing/saving the difference in mortgage payments of 30 vs. 15 year loan
• Interest left on existing loan vs. interest cost on new loan
• Extra payments on a new or existing 30 year loan (to reduce life of loan and build equity) vs. 15 year loan

When I finally looked at the extra cost per month, the interest rate, money saved in loan interest cost, equity built in 3, 5, 10 years, etc., the new 15 year fixed loan at 4.25% is a great deal.

Related Articles: Is it Time to Buy or Refinance Your Home?

A reverse mortgage is a type of home loan that lets you convert a portion of the equity in your home into cash. The equity that has built up over the years in your home can be paid to you. Unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer use the home as their principal residence. You are still required to pay your real estate taxes, insurance and other conventional payments like utilities.

The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home. The older you are, the more valuable your home is, the lower the interest, the more you can borrow. You can use an online calculator on the AARP website to get an idea of what you may be able to borrow.

You can be paid from a reverse mortgage in 4 ways: 1 – get cash all at once; 2 – a monthly cash advance 3 – a creditline which lets you decide when and how much of your available cash is paid to you; 4 – a combination of these payment methods.

To qualify for a reverse mortgage in the United States, you must be at least 62 years of age.  There are or credit or minimum income requirements, however, there are other requirements that homeowners must make sure they qualify for before they invest significant time or money into the process. You must also reside in the home. Some types of dwellings do not qualify such as mobile homes, however, condominiums and manufactured homes that meet FHA requirements may be eligible.

With most reverse mortgages the money can be used for anything, however, the borrower must pay off any existing mortgage(s) with the proceeds from the reverse mortgage and, if needed, additional personal funds.

Before proceeding with a reverse mortgage, applicants have to seek third party financial counseling from a source approved by the Department of Housing and Urban Development (HUD). The counseling ensures the borrower completely understands what a reverse mortgage is and how it’s obtained.
 
You can contact the Housing Counseling Clearinghouse on (800) 569-4287 for the name and telephone number of a HUD-approved counseling agency and a list of FHA-approved lenders within your area.

For more information visit hud.gov.

Video:  Reverse Mortgage

Mortgage rates and home prices have fallen to all time lows.  This maybe the perfect time to purchase or refinance your home.  The pot is even sweeter for first time buyers per the stimulus package which offers first-time homebuyer an $8,000 tax credit for primary residences purchased between January 1, 2009 and November 30, 2009.

Last month I posted an article titled, “Is it Time to Refinance Your Mortgage?”  It included a list of different reasons for refinancing your mortgage which included:

• Switching to a fixed rate or an adjustable rate mortgage
• Improving the features of your ARM
• Building your home equity faster
• Reducing your monthly payments
• Turning home equity into cash

However, when looking to purchase a home or refinancing your mortgage there are many questions to answer, which involves crunching some numbers and your comfort level.  

Below is a list of questions linked to mortgage calculators to help answer your home financing questions?  I hope you find the calculators very useful!

Preparing for Home Ownership

• Am I better off renting?
• Am I better off refinancing?
• What home can I afford?
• How much should I put down for a new home?

Understanding Finances

• How advantageous are extra payments?
• How much can I borrow?
• How much can I save in taxes?
• How much will my mortgage payments be?
• Should I pay points to lower the rate?
• Which is better: 15 or 30 year term?
• Which is better: fixed or adjustable?
• Which loan is better?

Considering Home Equity Financing

• How much will my loan payments be?
• Should I consolidate my debts?
• Buying a vehicle – auto or home equity loan?
• How large a line of credit can I obtain?
• What will it take to pay off my line of credit?

Reference:

• View Mortgage Rate by State

Related Articles:

• Is it Time to Refinance Your Mortgage?
• Having Trouble Paying Your Mortgage?
• What is a Subprime Mortgage?
• What’s In the 2009 Stimulus Package for You?

If you are having trouble paying your mortgage, remember that President’s Obama Homeowner Affordability and Stability Plan is setup to help up to nine million families modify their mortgages to avoid foreclosure.

Many homeowners pay their mortgages on time but are not able to refinance to take advantage of today’s lower mortgage rates maybe due to a decrease in the value of their home. While other homeowners are struggling to make their monthly mortgage payments maybe because their interest rate has increased or they have less income .

The government has setup a website at MakingHomeAffordable.com to help with loan refinancing and loan modification.

Eligible borrowers who are current on their mortgages but have been unable to take advantage of todays lower interest rates because their homes have decreased in value, may now have the opportunity to refinance. Through the Home Affordable Refinance Program, Fannie Mae and Freddie Mac will allow the refinancing of mortgage loans that they own or that they placed in mortgage backed securities.

You may be eligible if:

• You are the owner occupant of a one to four unit home,
• The loan on your property is owned or securitized by Fannie Mae or Freddie
• At the time you apply, you are current on your mortgage payments (current means that you haven’t been more than 30-days late on your mortgage payment in the last 12 months or, if you have had the loan for less than 12 months, you have never missed a payment),
• You believe that the amount you owe on your first mortgage is about the same or slightly less than the current value of your house,
• You have income sufficient to support the new mortgage payments, and
• The refinance improves the long term affordability or stability of your loan.

To find out more information visit MakingHomeAffordable.com.