Mortgage leads loans Rates

In case you haven’t noticed the mortgage market and the real estate market have been blazing a trail into the record books. Never before has there been such explosive, sustained growth of these two markets. The key factor here is that one seems to feed off the other. Is this a good thing, or are the two markets headed for a collapse?

You have analysts that will argue for either side. But, you need to have a better understanding of how this process works, and what elements have come together to allow this kind of growth, before you can accept or disprove either argument. What has happened to spur this kind of growth? Well, there are several key factors that managed to come together at precisely the right time, some of them attributable to natural disaster that has generated a booming market.

The first contributor was the falling interest rate that has leveled out around 6 – 7%; the second great contributor has been the increase in mortgage loan options. There are mortgage products out there to fit every type of buyer. The third contributor, (and this one is purely from nature) was the horrific hurricane seasons of the past couple of years, including the season we had this year.

How have all these elements come together to generate growth? Here’s exactly how: lower interest rates meant cheaper monthly payments, refinancing options were open, and people could afford to buy bigger homes for less. Add to that mix a more varied loan market, and you have an increase in buying, selling, and building. If you also throw in the fact that hurricanes destroyed massive quantities of homes along the coast, and most will rebuild, you have a burgeoning real estate and housing growth market.

We have also managed to create an environment very conducive to investment, construction, and resort development. Now, if you factor in a booming market for investors, you have a prime situation for increases in real estate value, increases in construction, and increases in mortgage loans.

How does the average citizen ready to buy or build a home interpret all this information? Well, it creates a wonderful situation for the homeowner looking to sell a home, simply because the value of the home should show a tremendous increase over the purchase value, especially if you’ve owned the home for more than 10 years. However, if you’re buying or building, you’re not going to like the situation. Why? Because home prices are up, thanks to the rising real estate prices, and so are is the price of building materials, needed to build a new home. We can attribute much of this to high gas prices and hurricanes. The good news, in all this, is the low interest rates. You can still borrow at an extremely affordable interest rate.

For the consumer shopping the market, you need to really educate yourself about the rising costs of real estate, the local values in your community, and what mortgage products would most benefit you, when you consider your individual objectives. If you’re like most, you aren’t buying your home for an investment, and you aren’t buying with the intent to sell in a few short years. In the market of today, it would be a wise choice to meet with a financial advisor; someone that has a background in finance, and can help you to clearly define your objects, and choose a mortgage that will reflect those objectives.

Many of the individuals, who are the doomsayers, seem to think that the market can’t sustain this type of growth. That is has occurred too quickly, and like the bubble of the stock market, will burst, leaving many homeowners and mortgage lenders “holding the bag” so to speak. But, you also have many of the intellectuals that say the real estate market was due a burst of growth; that it is normal, healthy, and we should have no trouble sustaining this type of growth. Whatever the end result, right now, the real estate market and the mortgage market are hot items; if you own real estate, you’ve hit the jackpot. If you’re looking to buy, get ready to pay.

Not everyone that applies for a mortgage loan is a homeowner seeking to purchase their dream home, or their first home, or even their second home. Some of the mortgage market centers around individuals who invest in property for the purpose of increasing their investment portfolio, or building their retirement fund. What are the differences in the needs of the investor and the homeowner? There are some great differences, and then there are some basic values that every person seeks to fulfill when soliciting a mortgage product.

Let’s take a moment to examine the mortgage loan from an investor’s viewpoint, and determine how their needs and objectives differ from the average homeowner. As an investor, of course the objective is to make money. You want a return on your investment, preferably, as much as you can possibly get. This means that you seek the lowest interest rate possible, with the least amount of expenditure on your part.

The rising real estate prices, and the low interest rates, have generated much activity in the investment area of the mortgage and real estate markets, and many of these investors are fairly new to the investing game. So what are the best bets in mortgage loans? Interest only loans have everyone buzzing, especially the investor. Why? These loans require very little expenditure on a lot of real estate. Many of the interest only products out there today, do not require the homeowner to make a down payment, nor do they require the investor to make a down payment. Unlike traditional loans, the payment each month only requires that you pay the interest due on the principal. This equates to less cash out for the investor, and more retained for improvements to the property, or in the active solicitation of a buyer. Either way, the investor gets to keep more of his or her money, for the real objective, buying and selling.

Fueling the mortgage product market are the low interest rates, and the rising real estate prices. For many of the lending institutions, these investment properties are a fairly safe bet. Most of the investment property is in a resort or vacation area, and as the numbers go, these areas will only see increases in demand, not decreases. Also available in these areas, for investors and homeowners alike, are the jumbo, super jumbo mortagage, and 125 mortgage options. The jumbo and super jumbo require much more paperwork, normally a higher interest rate, and higher private mortgage insurance; but they also provide the huge amount needed to finance resort property during the construction phase.

The other great contributor to the real estate investment market is the coming of age for the baby boomers. Many of these individuals are reaching retirement age, and they have expendable, investment income. They prefer a safe bet, also. They prefer resort, retirement, and vacation properties, also. A great many of these individuals are investment savvy, and understand the different loan products available, and how to use them to their advantage.

It would be wonderful if the market continued to grow, and we continued to experience the wonderful effects of an ever-increasing and growing real estate market, but I’m afraid we are going to hit a few years, in a few short years, that will see a leveling, if not decline in real estate prices, simply as a result of the continued climb of these last few years.

However, for the investor today, the real estate market is a wonderful and exciting market on the move and on the rise. Take the time to seek financial advice, and in some cases legal counsel prior to jumping into the water; the need to prepare is just as necessary for investing as it is for average home ownership. The only black mark on this market would come from the volatility of real estate, in relation to the stock market, and the investor’s cash assets. If we should begin to experience problems in the stock market with heavy fluctuation, or spiraling portfolio balances, you could possibly see an effect on the real estate investing market. But, just like many other disasters, even though the possibility exists, our current market trends and projections do not lend debt credit to this potential threat. For the most part, the investment portfolio that includes real estate and the mortgage market seems to be climbing steadily!

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 15 year fixed rate mortgage, and the advantages offered by the 15 versus the 20 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 forties 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 15 year fixed rate mortgage, works to an even greater advantage, in that the homeowner has substantial equity, a lowered 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 15 year fixed rate mortgage is often the mortgage product of choice, especially for the baby boomers, and the forty-something homeowners today.