Adjustable Rate Mortgages
In the world of lending and borrowing, there is an extensive amount of information that must be absorbed in order for real estate buyers and sellers to understand and make it through the process without a scratch. As a seller of real estate, one has to hope that the potential buyer is capable of attaining financing and receiving that notorious letter of acceptance from the bank or else the deal falls through. Buyers have the real job-finding a lender that will offer the best payment plan with the best interest rate possible, because even a single percent lower on a rate can save a buyer thousands of dollars over the years of the note. So when a buyer sets out to figure out how they want to tackle this feat, they approach the lenders and realize that there are options when it comes to a home mortgage loan.
Home Equity Loans
With the value of homes and properties generally increasing in most cases across the country, homeowners can take advantage and use home equity loans to finance large purchases that they might not otherwise be able to afford. College tuition for a son or daughter is one of the most sought out needs for funding, as is major home remodeling and a long list of other major expenses. Home equity rates have always provided homeowners an alternative method of borrowing money for large costs and are based on the difference between the value of a home and the mortgage balance.
There are enough terms and other legalese to learn and memorize when taking on the task of securing a mortgage, buying a piece of real estate, or anything in regards to this subject. The following is a breakdown of the most basic mortgage subjects and their meanings (defined by The Federal Reserve Board and HUD).
A clear understanding of mortgage payments and refinancing methods is important to the life of a loan and the lender's and borrower's relationship. The basic life of a loan is made up of monthly mortgage payments and each payment can be broken up into four parts, known as PITI: Principal, Interest, Taxes, and Insurance. The monthly payment of principal is applied directly towards repaying the loan itself. The interest pays any accumulated interest against the loan. Taxes, as well as insurance, go into an escrow account. This covers the cost of these items as they become due. All four parts of a monthly mortgage payment are designed to cover all aspects of the loan, simply broken up for simple and easy installments so that no one aspect of the PITI is overlooked or due at one time.
Real Estate Lending
When it comes to lending and borrowing, there seems to be a library of information and facts one needs to understand before even beginning the process. Broken down, however, this information is easily understood and categorized for clarity's sake. In mortgages, there are basically two major choices, the Fixed Rate Mortgage and the Adjustable Rate Mortgage (ARM). A fixed rate is an interest rate that remains fixed for the life of the loan, whether it is 15, 20, or 30 years. Adjustable rate refers to a loan that usually features an initial low interest rate (usually for the first year) and often are adjusted on a regular basis after that first year depending on the market rates. Some of these ARMs will have a cap from period to period and by law all of them must have a ceiling on rate increases. This limits the level of risk a borrower is assuming when acquiring this kind of loan. A borrower who intends to live in the property long term and favors peace of mind will likely choose the fixed rate, while another borrower who doesn't mind a little risk and may sell within a few years might go with the ARM.