Mortgage leads loans Rates

Ever been to watch the hot-air balloon in flight? It’s an absolute beautiful sight. What is the down side to the hot air balloon? Unless all the conditions are just right, the balloon can crash, causing a life-threatening situation. The balloon mortgage note, can affect the same result, you just don’t fall from the sky. You fall from the home. This article takes a look at the balloon mortgage note, and the situations it benefits, and the situations it does not.

Before you can discuss how well something does or does not work, you really should understand what it is. The balloon mortgage note allows you to borrow money to purchase a home, and establish an affordable monthly payment, often with a very good interest rate. The amortization of the amount borrowed may be for a 30 year term; however the life of the balloon mortgage generally does not exceed 72 or 84 months, 6 to 7 years. At the end of the balloon term, a huge “balloon payment” is due.

If you intend to sell your home within a 7 year period, the balloon note option is an excellent alternative that offers a lower monthly payment. But, what happens if you don’t sell the home? Well you either must come up with the balance of the note, or find an alternative mortgage product. The biggest problem that this situation creates is your ability to deal with the variables in the situation, when the balloon note matures.
At the time the note matures, if the interest rates are high, or if the real estate market is experiencing a slump, you may be forced to accept a higher interest rate, or produce a very big down payment with a new note. Either way, the conditions aren’t favorable for the homeowner.

What is the difference between the balloon note and the Adjustable Rate mortgage? Actually, quite a lot. The balloon note, of course we have discussed above. But we’ll hit the high spots once more: The balloon mortgage note allows you to borrow money to purchase a home, often with a very good interest rate; the life of the balloon mortgage generally does not exceed 6 to 7 years. At the end of the balloon term, a huge “balloon payment” is due. Well, with the ARM, your interest rate is fixed for a certain period of time, and at the end of that term, there is an agreed upon fixed rate mortgage that picks up the balance of the loan, with a previously agreed upon interest limit, and a fixed number of years. You see, with the ARM, there is more of an assurance provided to the homeowner that he or she will be eligible for a particular mortgage, with a set limit on the interest rate. Current market conditions have the put the rates for balloon notes and ARMs at the same level. So, there is really less reason to choose the balloon note.

Some of the balloon mortgages sold today, have an automatic rollover option; you need to be sure which type of balloon note you’re getting, and if the automatic rollover option is in effect. The automatic rollover does create the opportunity for a guaranteed renewal on the note; however the interest rate will not be geared to benefit the homeowner. Often, the interest rate is higher, and the homeowner has a new mortgage, but at a higher interest rate.

It really pays to shop around before you consider this option, especially with the vast product offerings that are available to most homeowners; there are usually better products, with better terms than the balloon note.

Balloon notes are generally more popular with rising interest rates, simply because they offer a better rate. But so do ARMs and they have less volatility than the balloon note. Unless I was absolutely positive that the home I was purchasing would be sold in less than 5 years, I wouldn’t even entertain the thought of a balloon note. I would suggest the safer alternative of the Adjustable rate mortgage.

However, balloons are more attractive, and quite popular than there more hum-drum counterparts, and they do offer more home for less money each month. Just remember, they are prone to exploding!

In order to understand the theory behind the fixed rate mortgage, you have to understand the mindset of the mortgage banker and the mortgage borrower of thirty or forty years ago. The Great Depression left a tremendous impression on the minds of this country, so much so, that one of the popular mortgage products of the turn of the century, the interest only loan, was shelved, never to be heard from again. Not until the recent explosion in real estate prices and the mortgage industries efforts to accommodate home buyers of all types has there been such mortgage variety.

The trend after the depression, through post-war America, and really until the late 1990s was the fixed rate mortgage. That’s the type of mortgage the bank offered, and the public generally didn’t consider anything else. Why did so many individuals, as well as banking institutions popularize the fixed rate mortgage? This loan type, more than any other product available, was a security blanket for the banker, and the homeowner.

The banker, offering the mortgage loan, was assured of a 20% down payment and a secure monthly payment with a fixed interest rate that would benefit the bank. The homeowner received a set monthly payment amount that was affordable, and a fixed number of years to repay the loan, usually 15, 20, or 30.

This article will discuss the 20 year fixed rate mortgage, and the advantages offered by the 20 versus the 15 versus the 30 year option. We have really already established the “why” when it comes to the fixed rate mortgage option in general, but we need to look at now, the term of the fixed rate mortgage. “Why” would you choose the 15, or the 20, or the 30? Well it really depends on two factors: where you are in your life, and what you can afford.

If you happen to be in your 20s, with a lifetime to pay for your home, but not a lot of income, and two children to raise the 30 year option would get you the house, with as low a monthly payment as possible. Granted, you will pay more in interest, but you won’t have to pay out quite as much each month. If money is tight, a lower payment can mean the difference between buying a home and renting a home.
If you’re in your mid-to-late thirties, still quite a long way from retirement, the kids are almost grown, and your monthly income is substantially greater than it was 10 years ago, the 15 or 20 year mortgage would suit your needs. Most often, the homeowner will choose the 20 year option, and make principal payments when affordable.

But let’s say you’re in your late 40s and the amount of time until retirement is growing ever short; you have your children raised, and your monthly income is nice to look upon. What option would you take? For most, it is the opportunity to pay for the home as quickly as possible, thus the 15 year fixed rate mortgage is the mortgage of choice.

Many homeowners who purchase a home in their mid-to-late thirties are purchasing their second home; some even have a substantial amount of equity, or down payment for the home. If this is the case, the 20 year fixed rate mortgage, works to an even greater advantage, in that the homeowner has substantial equity, a low monthly payment, and a preset monthly payment amount. The interest is tax deductible, and they are now secure in the knowledge that their home will be fully paid out prior to retirement.

When trying to decide which mortgage is the mortgage for your situation, you need to have a mortgage broker or banker that has an excellent understanding of your financial status, your goals and objectives for your mortgage purchase, and your ability to absorb unexpected expenses or change. All of these factors affect your ability to repay a loan, the choice you will make on a loan, and the satisfaction you will have during the servicing of your mortgage loan.

For these reasons, and others, the fixed rate mortgage, especially the 20 year fixed rate mortgage is often the mortgage product of choice, especially for the thirty-something homeowners today.

As you begin to traverse the actual home appraisal, the loan amortization, your down payment, and all the dots that must be connected in order to make the dream a reality, you suddenly realize that you may not be able to afford a payment on the Fixed Rate Mortgage plan. What other options are available? Well, there’s the Adjustable Rate Mortgage that is a close first cousin to the Fixed Rate mortgage, just a little riskier. What products are available with the Adjustable Rate Mortgage? What advantages does the Adjustable Rate Mortgage option offer, and what are they drawbacks, if any? This article examines the advantages and disadvantages, if any, of the Adjustable Rate Mortgage and the 15 Year ARM option.

The Adjustable Rate Mortgage, or ARM, is a more affordable option for homeowners who have a fairly tight monthly budget, and who have a need for bigger house, lower payment. The typical ARM customer wishes to build equity in their home; however they need the lowest monthly payment possible, for a certain number of years. The homeowner this program most benefits is the individual who expects income increases to occur within a few short years, but also has an expanding family with a need for space. The 15 Year ARM is one of the more used ARM options, simply because of the attractive monthly payment, and the length of time the homeowner has to build more equity in an affordable payment.

An ARM works in this way: when you set up your mortgage on an ARM, the interest rate you have will only be set for a very short period of time, normally only 6,9, or 12 months. At the end of that period, the interest rate will be re-evaluated, and if the rates have increased based on the prime, your interest rate will also increase; once again, for a short, set period of time. The benefit derived from this type of loan, during today’s economy, is that the interest rates are at an all time low. That equates to big savings for current home buyers, and homeowners who refinance.

The 15 Year ARM allows the mortgage loan to operate as an adjustable rate mortgage for 15 years, automatically converting to a fixed rate loan after that 15 year period has expired, for another 5, 7, or 10 years.

The disadvantage to this type of loan occurs when interest rates begin to rise. As the rate rises for the lending institution, it also rises for you, the homeowner. The home mortgage product market can be very confusing, and quite frustrating if you don’t take the time to fully research and understand your mortgage options.

Another great benefit to the ARM, when interest rates are low, is that it allows you to build equity faster than with a standard fixed rate mortgage. But if interest rates begin to rise, quickly, your opportunity for building equity quickly, is greatly diminished, because more of the payment is directed to the interest on the loan. If you fall into the category of the typical homeowner, ARMs aren’t as attractive as the fixed rate mortgage; but let’s face it the typical homeowner category seems to be shrinking.

All in all, if you are buying a home, and your income level is expected to increase over the next 10 years, or your expenses are going to drastically decrease, you would probably benefit from the standard 15 Year ARM that converts to a FRM. All the other complicated options still simply do not benefit the average homeowner oday.

Now, if you don’t happen to be average, and you have a financial advisor that can work with you closely, I’d recommend that you consider all those other options, but only with the assistance of a trained financial analyst. After all, your home is a purchase you definitely do not want put at risk. The 15 Year ARM is a good, solid product that allows the homeowner to build equity, with a low interest payment each month, while also providing the lending institution the opportunity to reset an interest rate, if they should begin to rise quickly. This is one of the greatest reasons banks tend to promote the ARMs as much as they do the standard FRMs: they’re fairly safe, time-tested products.