Mortgage Loan Overview

by mortgage box

All mortgage pledges have an interest rate in applied to the amount of money you borrowed and havent yet paid back. You pay this interest in monthly installments. In addition to interest, your payment includes an extra amount to pay back the principal. Therefore, the principal balance is reduced with each payment. This means that the interest payment is also reduced, as time passes.

Since the total payment remains constant, more money is applied to principal reduction as the loan ages. The payment schedule is designed so that the loan will be completely paid off at the end of the term even though few mortgage loans survive their full term. Most are ended when the home is sold or refinanced several years after the loan was originated. Definition of a few key terms are provided below to help you better understand mortgage financing. ( A more extensive glossary begins on other post)

Amortization is the process of paying down the principal of the loan. If the interest rate on the loan is fixed, an amortizing schedule for the full term can be prepared when the loan is originated.

Fixed-rate loan have the same interest rate applied over the entire term. The combined monthly payment for principal and interest is unchanged.

Adjustable-rate mortgages (ARMs) provided for adjustment to he interest rare at specified intervals. When the rate is adjusted, the principal and interest payment may change.

A balloon payment occurs when the term of the loan is shorter than the full amortization term. Most balloon payment loans are made by nonprofessional lenders, such as seller who provide financing to induce a sale. They want to limit the life of the loan without making monthly payments prohibitively high. When a balloon payment becomes due, the borrower will have to refinance the loan.

Refinancing is the process of replacing the current financing with a new loan or set of loans. This may involve replacing the original loan with one of the same amount, increasing the amount of the loan, or replacing several mortgages with one mortgage loan.

Loan assumption is the process of allowing a later home buyer to take over the existing loan, possibly substituting for the seller. Many loans have due-on-sale provisions that prevent assumptions. Loans that dont are called assumable mortgages.

An escrow account is required by most lenders. The account provides fund to pay for hazard insurance and property taxes, the borrower makes a deposit in the account with each monthly payment (the total payment is sometimes called PITI, for principal, interest, taxes, and insurance). Since insurance premiums and taxes may vary, the monthly payment may change over time even for fixed rated loans.

A loan commitment indicates the lenders intention to provide a loan with a specified terms. The lenders has to process the loan application before the loan is approved, but a rate commitment may by granted when you apply. This state that, if the loan is approved, it will be for a certain amount and have certain terms.

A loan closing, also called settlement, marks the time when the money is provided (usually coinciding with the closing of the sale) and interest starts to accrue. Payments are often timed to be paid at the beginning of the month and include interest that has accrued during the previous month. Interest accruing between the closing and the end of the month is paid at the closing. http://mortgagebox.blogspot.com/2008/12/mortgage-loan-overview.html

mortgagebox.blogspot.com is reliable guide for home buyers, it shows you how to get a mortgage to purchase a home, a second mortgage or home improvement loan and much more

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Adjustable Rate Mortgage Service

by Sadhana Dhanyal

Introductory rate - Lenders usually offer a low introductory rate for a specified period of time at the beginning of the mortgage. When this period ends, the rate resets to reflect the annual percentage rate (APR) as determined by the mortgage agreement. Adjustable Rate Mortgage service can help a borrower make a wise decision.

Adjustment period - The adjustment period is the time between rate changes. For instance a 1-year ARM will have its interest rate and monthly payment changed once every twelve months.

An adjustable rate mortgages, generally has a fixed period of time where the rate is lower than traditional 15 - 40 year fixed rate products. After completion of the initial fixed-rate period, the rate begins to adjust up or down based upon the value of an assigned index. If a borrower is looking for a low initial payment and only plan to be in a home for ten years or less, an adjustable rate mortgage might be a good decision.

Commercial mortgage loan is a type of loan which can be availed by those who own a shop, factory, warehouse office farm or hotel or any other commercial property. Such people can get a favourable deal on these loans. Anyone can make use of these loans. The lenders dont take into consideration a poor credit rating, CCJs or defaults of a borrower. Seeking help from a team of professional experts can help immensely. Many of the Commercial mortgage lenders only accept business through registered intermediaries & packagers.

Borrowers who need money to start a small business or expand your business can do so with these loans. It is the most flexible and affordable finance solution. In fact, it is the right way to raise finance to start up your business firm, expand your existing business, purchase of machinery for industrial units or a land to set up a plant, move your business from one location to another.

Following some simple steps can help a borrower get a suitable commercial mortgage loan:

Find property - A borrower needs to have a building or land in mind before availing this kind of loan. Those who wish to buy a rental property need to have tenants lined up to show the property will be cash flow positive.

Look for a lender - Once you understand your financial commitment, approach a lender. An experienced lender can guide a borrower to get a loan at a reasonable rate of interest.

Expert Author, For further information visit: Adjustable Rate Mortgage

And: Commercial mortgage loan

For more News, Articles, Guides, Tips, Tricks and various Mortgage And Loan Products information... visit our site at http://www.mortgage-and-loan-info.com.

Comparing Fixed Rate, Hybrid Arm, Pay Option Arm And Hybrid Option Arm Mortgages

by Tristan Hunt

With all of the options available to homeowners today, adjustable rate financing is a common topic of discussion at our offices. The 3 most popular Adjustable Rate Mortgage (ARM) types today are Hybrid ARMs, Option ARMs, and Hybrid Option ARMs. Sound pretty similar don't they? There are similarities, that's for sure, but there are differences as well.

Hybrid ARMs

Hybrid ARMs are a cross between a traditional fixed rate mortgage and a classic ARM. They generally come in varieties indicating how long they are fixed for, and how often they adjust thereafter. For example, a 3/1 ARM will have a fixed rate for the first 3 years, and can then adjust once every year thereafter. A 2/1 would be fixed for years and adjust every year thereafter, a 5/1 fixed for five years, 7/1 for seven and a 10/1 for ten.

All adjustable rate mortgages are calculated using an index, such as the MTA, the COFI, the COSI or the LIBOR. MTA and LIBOR are most popular. These rates indicate a basic borrowing cost of capital for the lender, this is how much it costs them to lend money in a perfect world. They also have a margin, which is like a risk premium, their profit for making the loan.

Hybrid ARMs have basic characteristics including:

1. Start Rate which remains fixed for X amount of time, so a 3/1 lasts 3 years and adjusts every year thereafter

2. Adjustment Cap Structure which dictates how much the rate can change when the loan begins adjusting. A 5/1/5 adj. cap structure means that the 1st time the rate adjusts it can go up or down 5 points max, any subsequent adjustments are limited to 1 point up or down, and the rate can never go up or down more than five points.

3. Floor: a rate which the note rate or fully indexed rate can never be lower than. (usually the initial fully indexed rate)

4. Ceiling: a rate which the note rate or fully indexed rate can never go higher than (usually 9.95 to 11.95 depending on lender and index)

The minimum payment on a 100,000 dollar regular Hybrid ARM with a 7% rate would be a bit over 665 dollars, and borrowers of all credit levels qualify for Hybrid ARM type mortgages.

One Month Option ARM

Option ARMs are one of the most popular loan types in today's market, and for good reason. Option ARMs are like regular ARMs, but they have 4 payment options instead of just the one fully amortized payment option on a regular mortgage. The minimum payment option is the main point of attraction for majority of the Option ARM customers in the USA today, because it allows them to make smaller payments when cash is tight. The minimum payment for the initial period of the loan for 100,000 dollars would be 322 dollars, versus 665 dollars for the full payment on a conventional mortgage. A great option for the self employed, the small business owner.

On 1 month option arms, they adjust every month after the initial period, so if the initial period is 6 months or 1 year, then every month therafter the rate adjusts. There are 6 month and 1 year option arms wherein the payment adjusts every 6 months or 1 year thereafter as well, however 1 mo arms are most popular. They have additional features in addition to standard Hybrid ARMs:

6. A Minimum Payment: a payment which like a credit card allows you to stay current on the mortgage without paying the full amount of interest due, referred to as deferring interest

7. A Minimum Payment Adjustment Cap: the maximum amount that the minimum payment AMOUNT can increase or decrease in a given period. Typically 7.5%. So if your minimum payment is 1000 dollars, then in the next period it can not go higher than 1075 dollars.

8. a Negative Amortization Cap: This is the maximum the loan balance is allowed to increase due to deferral of interest (making the minimum payment only) before the loan is re-cast and the minimum payment option goes away. Depending on state and LTV this is 110% to 120% of the loan amount.

Option ARM Example: On a $100,000 Option ARM with a 1% start rate, a base or index rate of 4% and a margin of 4%,

- Minimum Payment = 322
- Interest Only = 667
- Deferred Int. = 345 (IO minus Min Pay)
- 1 Year Neg. Am. = 4140
- Recast Balance = 115000 (assuming 115% neg-am cap)
- Months to Recast= 43 (assuming you only make the minimum payment)

When a regular option arm exceeds its negative amortization cap and recasts (typically in 3 and half to 4 years if you're only making the minimum payment) the minimum payment option goes away, and you are left with the fully amortizing payment, although some products are beginning to extend the availability of the interest only option for up to 10 years. Because of the incredible flexibility of these loans, they are limited to higher credit borrowers (generally a FICO score of 660 is required, however certain programs are available for borrowers with FICOs of 600 or better).

Hybrid Option ARMs or Fixed Rate Option ARMs

Hybrid Option ARMs combine some the best features of Hybrid ARMs, such as medium term fixed rates, with the best aspects of Option ARMs, such as low minimum payments, while solving a lot of the problems with both for the average borrower. They are most popular with homeowners who want the stability of a fixed rate mortgage but the option to make very, very low minimum payments, and are considered an ideal compromise between 'safety' and 'flexibility' in the mortgage world.

Hybrid Option ARMs are generally based on normal Hybrid ARMs, in that their initial period is usually 3/1, 5/1, 7/1 or 10/1 meaning 3, 5, 7 or 10 years where the rate and minimum payment stays fixed, and 1 adjustment per year afterwards.

However they have Option ARM like features such as a minimum payment, minimum payment adjustment cap, and neg am cap.

Using the above example the same loan amount in a typical hybrid option arm package

- Minimum Payment = 449 (assuming 3.5%)
- Interest Only = 583
- Deferred Int. = 134 (1/3 of regular option arm)
- 1 Year Neg. Am. = 1608
- Recast Balance = 115000 (assuming 115% neg-am cap)
- Months to Recast= 112 (assuming you only make the minimum payment)

Also, when hybrid option arms recast, most of them allow for an Interest Only option instead of forcing the borrower into a fully amortized payment they might not be able to afford. Along with the long recast timeframes and the fixed rates for the initial period, this substantially reduces payment shock on recast.

Wrapping Up

So we've discussed Hybrid ARMS, Option ARMs, and Hybrid Option ARMs, and will provide a variety of real world examples and detailed treatment of relevant topics in other articles in this series. And as always we welcome your questions and calls.

Tristan Hunt is a seasoned financial professional with a wealth of experience in the mortgage industry, advising clients on debt consolidation, refinancing & investor loans. Phone: 800-515-8443 Website: http://www.RefinanceOne.net.

For more News, Articles, Guides, Tips, Tricks and various Mortgage And Loan Products information... visit our site at http://www.mortgage-and-loan-info.com.

The Adjustable Rate Mortgage as Long Term Loan

by Stefano Sandano

Adjustable rate mortgages are long term mortgage loans with variable interest rates. They have a schedule of principal and interest payments just like a fixed mortgage, but the interest rate may be adjusted at regular intervals during the term of the loan. Therefore, the monthly payments are likely to move up and down as the rate is adjusted.

An ARM is an important financing alternative for first and second mortgages. In addition, many home equity loans are structured as adjustable rate mortgages.

In addition to the contract interest rate, discount points, loan to value ratio, and maturity, ARMs have their own unique set of terms:

- Adjustment Interval: most ARMs are adjusted at regular intervals stated in the mortgage contract. In between these intervals, the interest rate on the loan is constant. The shorter the interval, the more sensitive the loan is to changing interest rates. Most first ARMs are adjusted annually

- Initial Interest Rate: all ARMs have an interest rate that is fixed until the first adjustment date. Sometimes this rate is set low to attract borrowers, called a teaser rate. Therefore, the initial interest rate does not indicate the long term cost of the loan.

- Convertibility: some ARMs provide the borrower with the option to convert to a fixed rate loan during the loan term.

Because your payments almost always rise later on, some detractors call it a compact with the devil. Nonetheless, an Arm in some markets can cut your initial payments by as much as a third. That can mean the difference between being able to purchase and being left out in the cold.

The best way to understand an ARM is to compare it to a fixed-rate mortgage. With a fixed-rate mortgage you always know where you stand. Your interest rate and your monthly payment remain constant for the life of the loan whether it is for 3 years or 30 years.

With an ARM, it’s quite different. Your interest rate fluctuates, it moves up and down depending on market conditions. Your monthly payment, which reflects the interest rate, likewise can vary up or down over the life of the loan.

Given a choice between a mortgage where you never know what your monthly payment is going to be, and a mortgage where the monthly payment is fixed, any reasonable person would opt for the fixed-rate mortgage. The real key to deciding whether or not to get an ARM is how long the teaser rate lasts. If you get an initial low interest rate and payment for just 1 month, and then it goes up, you have accomplished almost anything.

On the other hand, if the low monthly payment lasts for several years, it can be just the right thing, particularly if you sell or refinance when the teaser expires. In fact you want the teaser to be for as long as possible so you get a lower monthly payment than you otherwise would get. Second, you hope that once the teaser evaporates and your interest rate and payment go up, you can refinance to another ARM with another low teaser.

Stefano Sandano is a home equity loan expert and if you want to know more about mortgages and loans you can visit http://www.homequity-loan.com.

For more News, Articles, Guides, Tips, Tricks and various Mortgage And Loan Products information... visit our site at http://www.mortgage-and-loan-info.com.

Adjustable Rate Mortgages Terminology Can Be Confusing

by Charlie Essmeier

Buying and selling houses is a complicated business. If it weren't, it would not require the services of tax preparers, attorneys, appraisers, land surveyors and professional salesman. People who wanted to buy and sell property would just sell it like they would a used car. Unfortunately, buying and selling property is somewhat complicated, particularly when it comes to loans. Studies have shown that most homeowners understand fixed rate loans fairly well, but that many people are confused by adjustable rate loans.

A fixed-rate loans has a rate of interest that is applied to the loan principal. That interest rate never changes, even if the loan is issued for 30 years or more. Adjustable rate mortgages, on the other hand, have rates that can change as soon as one year after the loan is issued. How the rate changes, when the rate changes, and by how much the rate can change will vary dramatically from lender to lender and from loan to loan. These adjustable loans, known in the industry as an 'ARM', have their own terminology, which can sometimes confuse buyers.

Index - A financial market indicator that is used by the lender to determine if a rate change should take place. Once selected, the same indicator will be used for the life of the loan. Li>

Margin - The percentage added to the indicator's value to determine the interest for your loan. A loan tied to a Treasury Bill with a 2.0% margin would have 2% added to the bill's interest rate. Thus, a Treasury Bill at 7% with a 2% margin would yield a 9% interest rate for the buyer.Li>

Annual cap - Some loans have rates that change once a year. An annual cap specifies by how much the interest rate may adjust, either up or down. No matter what the index does, the annual rate cannoth adjust by more than the amount of this cap.

Lifetime cap - The maximum or minimum interest rate over the life of the loan. As with annual caps, these rates may not be exceeded, no matter what the value of the index to which the loan is tied should do.

These are the most commonly used terms for adjustable rate loans. The terms can vary widely from lender to lender; there are loans that adjust as soon as one year after being issued and others that will not adjust for a decade. These mortgages come in all shapes and sizes so as to accommodate the widest variety of customer. If you are considering taking out an adjustable rate loan, make sure you shop around in order to find the terms that best suit you.

©Copyright 2006 by Retro Marketing. Charles Essmeier is the owner of Retro Marketing, a firm devoted to informational Websites, including HomeEquityHelp.net, a site about home equity loans, mortgages and refinancing.

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