Archive for the 'Mortgage' Category
Sunday 9 August 2009 @ 6:08 pm
Martin Lukac asked:
The Christian Mortgage concept is built on the basis of Christian faith and principle. Various institutions around the world follow Christian Mortgage principles to shape their terms and conditions.
According to Catholic social teaching a mortgage is the provision under which people is permitted to utilize the merchandise of the globe. It signifies that no one is bestowed with the illogical right of private property while others in the world suffer from lack of it.
There are seven basic components that are found to be most attractive in choosing a Christian Mortgage.
Seven Benefits of Christian Mortgage: -
Benefits of Christian Mortgage #1 – Refinance to get a better rate: There are two types of mortgage loans in consideration of interest rates available – (a) Fixed Rate Mortgages (FRMs) and (b) Adjustable Rate Mortgages (ARMs). When you have cash down your credit at certain amount, it would be wise to opt for an ARM in exchange of a FRM. Christian Mortgage institutions often offer this opportunity to refinance. Moreover, Christian Mortgage institutions offer remarkably low rates in comparison to other institutions.
Benefits of Christian Mortgage #2 -Second Mortgages to consolidate debt or for other purposes: Christian Mortgage many times offers a second mortgage to a single person. By this way, one can get a second mortgage on a single property, after the first mortgage payment is cleared; or on the other hand, one can identify another property to mortgage when they are still paying a mortgage debt.
Benefits of Christian Mortgage #3 -Lower monthly payments: A very important benefit from a Christian Mortgage is its lower monthly payment. A monthly payment comprises of a basic payment with some interest rate. Christian Mortgages by providing you with a low interest rate cuts down your monthly payments and thereby your monthly expenses to a large extent.
Benefits of Christian Mortgage #4 -Cash Out Equity: Another benefit of Christian Mortgage is cash-out equity. When a person recognizes that the value of her/his asset has increased, or that the principal has been paid down to a particular amount, then she or he can re-borrow on that principal. The homeowner may “cash out” this equity in the home. By this way one can get some extra fund as cash. Christian Mortgage offers this Cash out Equity system to be used as extra cash for other beneficial purposes.
Benefits of Christian Mortgage #5 -Large tax Benefits: Christian Mortgages always fall under release of tax amount. As the basis of Christian Mortgages is social welfare and as Christian Mortgage offers genuine help to the needy people, governmental tax decreases upon this mortgage. Thus it offers a large tax benefit with it.
Benefits of Christian Mortgage #6 -Short Duration of Payment in few cases: Christian Mortgage in general offers short payment duration depending on the amount of debt. But considering the other types, Christian Mortgage institutions always aims to shape their offer personally either on shorter payment period, or shorter monthly payment amount.
Benefits of Christian Mortgage #7 – Private Mortgage Insurance: PMI is extra insurance that lenders require from most homebuyers who obtain loans that are more than 80 percent of their new home’s value. But in Christian Mortgage, the PMI starts at lower cash down limit, considering the borrowers’ financial status.
The Christian Mortgage concept is built on the basis of Christian faith and principle. Various institutions around the world follow Christian Mortgage principles to shape their terms and conditions.
According to Catholic social teaching a mortgage is the provision under which people is permitted to utilize the merchandise of the globe. It signifies that no one is bestowed with the illogical right of private property while others in the world suffer from lack of it.
There are seven basic components that are found to be most attractive in choosing a Christian Mortgage.
Seven Benefits of Christian Mortgage: -
Benefits of Christian Mortgage #1 – Refinance to get a better rate: There are two types of mortgage loans in consideration of interest rates available – (a) Fixed Rate Mortgages (FRMs) and (b) Adjustable Rate Mortgages (ARMs). When you have cash down your credit at certain amount, it would be wise to opt for an ARM in exchange of a FRM. Christian Mortgage institutions often offer this opportunity to refinance. Moreover, Christian Mortgage institutions offer remarkably low rates in comparison to other institutions.
Benefits of Christian Mortgage #2 -Second Mortgages to consolidate debt or for other purposes: Christian Mortgage many times offers a second mortgage to a single person. By this way, one can get a second mortgage on a single property, after the first mortgage payment is cleared; or on the other hand, one can identify another property to mortgage when they are still paying a mortgage debt.
Benefits of Christian Mortgage #3 -Lower monthly payments: A very important benefit from a Christian Mortgage is its lower monthly payment. A monthly payment comprises of a basic payment with some interest rate. Christian Mortgages by providing you with a low interest rate cuts down your monthly payments and thereby your monthly expenses to a large extent.
Benefits of Christian Mortgage #4 -Cash Out Equity: Another benefit of Christian Mortgage is cash-out equity. When a person recognizes that the value of her/his asset has increased, or that the principal has been paid down to a particular amount, then she or he can re-borrow on that principal. The homeowner may “cash out” this equity in the home. By this way one can get some extra fund as cash. Christian Mortgage offers this Cash out Equity system to be used as extra cash for other beneficial purposes.
Benefits of Christian Mortgage #5 -Large tax Benefits: Christian Mortgages always fall under release of tax amount. As the basis of Christian Mortgages is social welfare and as Christian Mortgage offers genuine help to the needy people, governmental tax decreases upon this mortgage. Thus it offers a large tax benefit with it.
Benefits of Christian Mortgage #6 -Short Duration of Payment in few cases: Christian Mortgage in general offers short payment duration depending on the amount of debt. But considering the other types, Christian Mortgage institutions always aims to shape their offer personally either on shorter payment period, or shorter monthly payment amount.
Benefits of Christian Mortgage #7 – Private Mortgage Insurance: PMI is extra insurance that lenders require from most homebuyers who obtain loans that are more than 80 percent of their new home’s value. But in Christian Mortgage, the PMI starts at lower cash down limit, considering the borrowers’ financial status.
Sunday 9 August 2009 @ 5:35 pm
Matt Peters asked:
With the numerous mortgage options being offered by mortgage lenders today, newcomers to the arena may find the scenery just plain confusing. If you’re planning to get a mortgage loan, and you don’t know where to start, here is a list of the basics that you need to know about.
Mortgage Defined
A lot of people tend to use mortgage to mean a mortgage loan. A mortgage refers to the document that you, as a borrower, sign and entrust to a mortgage lender in return for a mortgage loan. If you default on your mortgage payments, the mortgage lender, through the document called mortgage, has the right to take possession of your property. The borrower, the one who applies for a mortgage loan, is referred to as the mortgagor since it is the borrower who hands the mortgage over to the mortgage lender.
Mortgage Loan
The basic premise of a mortgage loan is that it is a type of loan used to pay the difference between the purchase price and the cash available for a down payment. When mortgage lenders let you use their money, they will charge you a fee for it. The biggest fee is called the interest, which is expressed as an annual percentage of the loan. Usually, it is in the range of a low 5% and a high 12%. When you apply for a mortgage loan at one of these financial institutions, they will also charge you with an origination fee, which may include application fees, credit report fees and appraisal fees. The annual percentage rate (APR) consists of the base interest rate with points and other fees.
Mortgage Loan Rates
The mortgage loan comes in a fixed rate and adjustable rate. A fixed rate mortgage loan refers to a loan that features a fixed interest rate and fixed monthly payments for the entire life of a loan. Mortgage lenders typically offer 15- and 30-year fixed rate mortgage loans. An adjustable rate mortgage loan features lower initial rates, which may change as frequently as every six months. Borrowers who prefer going the least expensive way can opt for the 15-year mortgage loan. However, this type of loan is suitable for those who can afford the higher monthly mortgage payments. For people who plan on moving to another home in less than eight years, may find it more appropriate to settle for a 30-year mortgage loan, with its lower monthly mortgage payments.
Mortgage Loan and Down Payment
The down payment made on a house is usually in the range of five to 20 percent. The down payment precedes the mortgage loan, or the amount borrowed on the residual cost of the house. Thus a house that’s worth $450,000, you will require a down payment of $90,000 and a mortgage of $360,000.
Basic Mortgage Interest
Interest rates are prone to fluctuations, which make them highly unpredictable. There are two popular indices of short-term interest rates. The first one is the rate banks offer for six-month certificates of deposits (CDs). The second one is the interest on Treasury Bills, or T-bills. Mortgage lenders operate by charging around 2.5% over the publicly quoted interest rate. Compared to short-term rates, long-term rates are higher since they expose lenders to greater risk when lending money for a long time.
With the numerous mortgage options being offered by mortgage lenders today, newcomers to the arena may find the scenery just plain confusing. If you’re planning to get a mortgage loan, and you don’t know where to start, here is a list of the basics that you need to know about.
Mortgage Defined
A lot of people tend to use mortgage to mean a mortgage loan. A mortgage refers to the document that you, as a borrower, sign and entrust to a mortgage lender in return for a mortgage loan. If you default on your mortgage payments, the mortgage lender, through the document called mortgage, has the right to take possession of your property. The borrower, the one who applies for a mortgage loan, is referred to as the mortgagor since it is the borrower who hands the mortgage over to the mortgage lender.
Mortgage Loan
The basic premise of a mortgage loan is that it is a type of loan used to pay the difference between the purchase price and the cash available for a down payment. When mortgage lenders let you use their money, they will charge you a fee for it. The biggest fee is called the interest, which is expressed as an annual percentage of the loan. Usually, it is in the range of a low 5% and a high 12%. When you apply for a mortgage loan at one of these financial institutions, they will also charge you with an origination fee, which may include application fees, credit report fees and appraisal fees. The annual percentage rate (APR) consists of the base interest rate with points and other fees.
Mortgage Loan Rates
The mortgage loan comes in a fixed rate and adjustable rate. A fixed rate mortgage loan refers to a loan that features a fixed interest rate and fixed monthly payments for the entire life of a loan. Mortgage lenders typically offer 15- and 30-year fixed rate mortgage loans. An adjustable rate mortgage loan features lower initial rates, which may change as frequently as every six months. Borrowers who prefer going the least expensive way can opt for the 15-year mortgage loan. However, this type of loan is suitable for those who can afford the higher monthly mortgage payments. For people who plan on moving to another home in less than eight years, may find it more appropriate to settle for a 30-year mortgage loan, with its lower monthly mortgage payments.
Mortgage Loan and Down Payment
The down payment made on a house is usually in the range of five to 20 percent. The down payment precedes the mortgage loan, or the amount borrowed on the residual cost of the house. Thus a house that’s worth $450,000, you will require a down payment of $90,000 and a mortgage of $360,000.
Basic Mortgage Interest
Interest rates are prone to fluctuations, which make them highly unpredictable. There are two popular indices of short-term interest rates. The first one is the rate banks offer for six-month certificates of deposits (CDs). The second one is the interest on Treasury Bills, or T-bills. Mortgage lenders operate by charging around 2.5% over the publicly quoted interest rate. Compared to short-term rates, long-term rates are higher since they expose lenders to greater risk when lending money for a long time.
Sunday 9 August 2009 @ 4:45 pm
Smith & Chen asked:
There are three main reasons that consumers consider a Houston refinance mortgage. They are lower rate, cash out (or debt consolidation), and converting from adjustable to a fixed rate.
For a rate refinance an important consideration is the closing costs to be paid. If there are typical closing costs it is usually advisable to refi if you can save ? percent on your rate or more. With a “no closing cost” loan it can make sense to refi with 1/8 percent savings or more. The no closing cost option is not always the best choice. If a mortgage with some closing costs is available at a better rate you should consider the payback time. This is a calculation of how long it would take a rate savings to recover the closing costs. If the payback is 4 years and you plan on having the loan longer than that it may be the better deal.
For cash out refinancing there are rules that are commonly called “Texas cash-out” rules. The key part of this is that the loan may not exceed 80% of your homes appraised value. For example if your home is worth $100,000 and you currently have a $50,000 mortgage, the maximum cash out would be $30,000 (less closing costs). It is usually not advisable to do a cash out refi if it would result in a higher rate than you currently have. If you can’t get a equal or better finance rate it may be better to do a second mortgage or home equity line of credit instead (HELOC). Ask a good loan officer or mortgage broker to show you options and explain the differences.
It is usually advisable to convert from an adjustable to a fixed rate mortgage only if the fixed rate is equal or better. Some adjustable rate loans have a prepayment penalty the first two or three years. In some cases it can be best to wait until after the penalty clause expires to refinance.
For all refinance mortgages it is important to get the best possible rate and terms. Your credit, income, and loan to value ratio will be factors for your rate and terms. Your goal should be to get the best program that you qualify for. There are a lot of mortgage programs available in the marketplace. In general the best include some Fannie Mae/ Freddie Mac programs, and VA conforming loans. Next might be other conventional “A” mortgages or FHA loans which are very good. Alternate A loans are next, these are loans that don’t quite fit the top tier because they are very large (jumbo), or for another reason like not documenting your income. Next could be Fannie/Freddie programs that are for those with less than perfect credit (sometimes called A- mortgages”). Next to last would be “sub-prime” loans. These are for consumers with more difficult to finance mortgages because of credit or other reasons. The lowest category could be called “hard-money” loans. Some lenders will do this type of mortgage at a high rate regardless of severe problems if there is a large amount of equity.
I suggest dealing with a lender that has a large variety of programs to select from. If you shop a lender that only does one type of mortgages you will probably be turned down if you don’t fit their program. When you shop a lender that doesn’t do FHA loans, they may suggest a lower category mortgage with a higher rate. And it is better when a lender offers a choice of programs, rather than just one.
Texas residents can visit our Houston refinance mortgage site for more information. You can also call my office at 281-537-7800.
Mortgage Rate Calculators – Valuable Tools For Getting The Best Loan
Are you looking for some inside information on refinance mortgage rate calculators? Here’s an article that can help provide information for you to find the best rates for your mortgage.
Refinancing is a smart move if you want to lower your monthly payment and overall interest on your bills. With refinance mortgages, you are also able to change the term of the loan to a shorter one so you can pay off the loan earlier and save more on interest.
There are actually several reasons why people want to take a refinance mortgage. This is also why refinance mortgage rate calculators are important. Refinance mortgage rate calculators help consumers determine the amount of savings they can make on their chosen loan type. Refinance mortgage rate calculators also aid you in finding out how much is your monthly payment for your refinancing loan.
The Internet refinance mortgage rate calculators show you the monthly payments you need to make for your mortgage. Aside from that, these refinance mortgage rate calculators also show you the total interest rate. If you’re more concerned on how much saving you will be able to make with a refinancing loan, refinance mortgage rate calculators will also help you on that.
It seems like new information is discovered about something every day. And the topic of refinance mortgage rate calculators is no exception. Keep reading to get more fresh news to help you make a wise financial decision.
The refinance mortgage rate calculator will ask you for your current loan information. For instance, on the refinance mortgage rate calculator, a field labeled Principal Balance will be provided along with the Monthly Payment and Annual Interest Rate fields. You need fill these up in order to start using the refinance mortgage rate calculator.
To complete the process, the website’s refinance mortgage rate calculator will also ask for your new loan information. Another three fields will be provided in the refinance mortgage rate calculator. The refinance mortgage rate calculator fields are: Annual Interest Rate, Term, and closing Costs. By checking on the Finance Closing Costs at the bottom part of the refinance mortgage rate calculator and then hitting the Calculate button, you can determine how many months it will take for your loan to break even on the closing costs.
For example, for the Principal Balance field on the refinance mortgage rate calculator, you put in $150,000 (Take note that the amount you place in this refinance mortgage rate calculator field represents the remaining pay-off balance). The Interest Rate of your current loan is 6% and the data you put in the refinance mortgage rate calculator Monthly Payment field is $899.30.
For the New Loan Information portion of the refinance mortgage rate calculator, you place the following data: 5% Annual Interest Rate, 30-year Term, and $0 for Closing Costs. Make sure that you check the box for Finance Closing Costs at the bottom of the refinance mortgage calculator before hitting the Calculate button.
The results of the refinance mortgage rate calculator would show you that your new monthly payment would be $805.23, $93.77 short of your current loan monthly payment. The refinance mortgage rate calculator would also display the difference in the interest rates of both loans. With the refinance mortgage rate calculator, you will be able to find that the total interest of your current loan would be $173,757.28 while your new interest after refinancing would be $139,883.68. This allows you to save $33,873.61 on interest.
As your knowledge about mortgage calculators continues to grow, you will begin to see how easy it is to get the best loan available. Knowing how these type of tools work is important when making large financial decisions.
There are three main reasons that consumers consider a Houston refinance mortgage. They are lower rate, cash out (or debt consolidation), and converting from adjustable to a fixed rate.
For a rate refinance an important consideration is the closing costs to be paid. If there are typical closing costs it is usually advisable to refi if you can save ? percent on your rate or more. With a “no closing cost” loan it can make sense to refi with 1/8 percent savings or more. The no closing cost option is not always the best choice. If a mortgage with some closing costs is available at a better rate you should consider the payback time. This is a calculation of how long it would take a rate savings to recover the closing costs. If the payback is 4 years and you plan on having the loan longer than that it may be the better deal.
For cash out refinancing there are rules that are commonly called “Texas cash-out” rules. The key part of this is that the loan may not exceed 80% of your homes appraised value. For example if your home is worth $100,000 and you currently have a $50,000 mortgage, the maximum cash out would be $30,000 (less closing costs). It is usually not advisable to do a cash out refi if it would result in a higher rate than you currently have. If you can’t get a equal or better finance rate it may be better to do a second mortgage or home equity line of credit instead (HELOC). Ask a good loan officer or mortgage broker to show you options and explain the differences.
It is usually advisable to convert from an adjustable to a fixed rate mortgage only if the fixed rate is equal or better. Some adjustable rate loans have a prepayment penalty the first two or three years. In some cases it can be best to wait until after the penalty clause expires to refinance.
For all refinance mortgages it is important to get the best possible rate and terms. Your credit, income, and loan to value ratio will be factors for your rate and terms. Your goal should be to get the best program that you qualify for. There are a lot of mortgage programs available in the marketplace. In general the best include some Fannie Mae/ Freddie Mac programs, and VA conforming loans. Next might be other conventional “A” mortgages or FHA loans which are very good. Alternate A loans are next, these are loans that don’t quite fit the top tier because they are very large (jumbo), or for another reason like not documenting your income. Next could be Fannie/Freddie programs that are for those with less than perfect credit (sometimes called A- mortgages”). Next to last would be “sub-prime” loans. These are for consumers with more difficult to finance mortgages because of credit or other reasons. The lowest category could be called “hard-money” loans. Some lenders will do this type of mortgage at a high rate regardless of severe problems if there is a large amount of equity.
I suggest dealing with a lender that has a large variety of programs to select from. If you shop a lender that only does one type of mortgages you will probably be turned down if you don’t fit their program. When you shop a lender that doesn’t do FHA loans, they may suggest a lower category mortgage with a higher rate. And it is better when a lender offers a choice of programs, rather than just one.
Texas residents can visit our Houston refinance mortgage site for more information. You can also call my office at 281-537-7800.
Mortgage Rate Calculators – Valuable Tools For Getting The Best Loan
Are you looking for some inside information on refinance mortgage rate calculators? Here’s an article that can help provide information for you to find the best rates for your mortgage.
Refinancing is a smart move if you want to lower your monthly payment and overall interest on your bills. With refinance mortgages, you are also able to change the term of the loan to a shorter one so you can pay off the loan earlier and save more on interest.
There are actually several reasons why people want to take a refinance mortgage. This is also why refinance mortgage rate calculators are important. Refinance mortgage rate calculators help consumers determine the amount of savings they can make on their chosen loan type. Refinance mortgage rate calculators also aid you in finding out how much is your monthly payment for your refinancing loan.
The Internet refinance mortgage rate calculators show you the monthly payments you need to make for your mortgage. Aside from that, these refinance mortgage rate calculators also show you the total interest rate. If you’re more concerned on how much saving you will be able to make with a refinancing loan, refinance mortgage rate calculators will also help you on that.
It seems like new information is discovered about something every day. And the topic of refinance mortgage rate calculators is no exception. Keep reading to get more fresh news to help you make a wise financial decision.
The refinance mortgage rate calculator will ask you for your current loan information. For instance, on the refinance mortgage rate calculator, a field labeled Principal Balance will be provided along with the Monthly Payment and Annual Interest Rate fields. You need fill these up in order to start using the refinance mortgage rate calculator.
To complete the process, the website’s refinance mortgage rate calculator will also ask for your new loan information. Another three fields will be provided in the refinance mortgage rate calculator. The refinance mortgage rate calculator fields are: Annual Interest Rate, Term, and closing Costs. By checking on the Finance Closing Costs at the bottom part of the refinance mortgage rate calculator and then hitting the Calculate button, you can determine how many months it will take for your loan to break even on the closing costs.
For example, for the Principal Balance field on the refinance mortgage rate calculator, you put in $150,000 (Take note that the amount you place in this refinance mortgage rate calculator field represents the remaining pay-off balance). The Interest Rate of your current loan is 6% and the data you put in the refinance mortgage rate calculator Monthly Payment field is $899.30.
For the New Loan Information portion of the refinance mortgage rate calculator, you place the following data: 5% Annual Interest Rate, 30-year Term, and $0 for Closing Costs. Make sure that you check the box for Finance Closing Costs at the bottom of the refinance mortgage calculator before hitting the Calculate button.
The results of the refinance mortgage rate calculator would show you that your new monthly payment would be $805.23, $93.77 short of your current loan monthly payment. The refinance mortgage rate calculator would also display the difference in the interest rates of both loans. With the refinance mortgage rate calculator, you will be able to find that the total interest of your current loan would be $173,757.28 while your new interest after refinancing would be $139,883.68. This allows you to save $33,873.61 on interest.
As your knowledge about mortgage calculators continues to grow, you will begin to see how easy it is to get the best loan available. Knowing how these type of tools work is important when making large financial decisions.
Sunday 9 August 2009 @ 1:56 pm
Jenny Hoskins asked:
Flexible mortgages are among some of the new mortgage packages that have been created to cater for the modern mortgage market. The modern mortgage market has become more liberal and creative, and therefore this has led to an increase in the choice and diversity of mortgage packages being offered to borrowers. Most major lenders include some kind of flexible mortgage in their product range. The majority of flexible mortgages are sold through the traditional routes and they are increasing their hold in the mortgage market, due to consumer demand.
Essentially a flexible mortgage is a secured loan that can be paid back in varying amounts, and the interest is calculated on the fluctuations of the outstanding balance. Flexible mortgages are particularly suited to today’s lifestyle, for example: ‘jobs for life’ are virtually unknown, you might want a career break to raise a family or you might expect some major life changes in the near future.
A flexible mortgage can offer:
Overpayments
You can pay off your mortgage quicker by making regular overpayments or by paying in a lump sum on an ad hoc basis, without incurring any redemption penalties. A flexible mortgage recalculates your outstanding mortgage balance on either a daily or monthly basis, and your interest payments are quickly adjusted for the overpayments that have been made.
Underpayments
You can reduce your regular mortgage payments or even have a complete payment holiday without being in default. There will be conditions attached to this option, for example: you might have to build up a reserve of overpayments before being allowed to underpay. However, a consequence of underpayment means an increase in your outstanding mortgage balance.
Further loans
You can withdraw lump sums from your mortgage account to be used for any purpose, without the formality of applying for a new loan. There are usually conditions attached to this feature, for example: you might have to build up a reserve of overpayments against which you can borrow, and there will probably be a ceiling on the overall amount you can borrow through your original mortgage.
Not all flexible mortgages offer those features, so you will have to shop around.
The ability to pay off your mortgage early is a necessary feature of all flexible mortgages, and the main point of distinction for a flexible mortgage is the extent to which you are allowed to withdraw funds from your mortgage account. The least flexible mortgage combines overpayment facilities with only the option to take occasional payment holidays.
In a recent survey of flexible mortgages carried out for the Council of Mortgage Lenders, nearly half of the surveyed borrowers had not made use of the flexible options that their mortgage gave them. The borrowers that had made use of the flexible options mainly used the overpayment option to allow them clear their mortgage early by either regular overpayments and/or an occasional lump sum payment.
A more structured approach to the flexible mortgage is offered by the current account mortgage (CAM) and the offset mortgage. With a CAM, there is just one account as it combines your mortgage account and current account. The offset mortgage uses separate accounts for the mortgage, current, and savings account. The interest earnt by the current and savings accounts is offset against the outstanding mortgage capital and the interest is reduced accordingly. It is important to make sure the mortgage rate is competitive because some lenders charge a higher rate than average and thus the benefit is lost.
Flexible mortgages have been around since the 1990’s and they have grown in popularity since then. The future looks good for flexible mortgages, with even more options for borrowers to choose from as time progresses.
Flexible mortgages are among some of the new mortgage packages that have been created to cater for the modern mortgage market. The modern mortgage market has become more liberal and creative, and therefore this has led to an increase in the choice and diversity of mortgage packages being offered to borrowers. Most major lenders include some kind of flexible mortgage in their product range. The majority of flexible mortgages are sold through the traditional routes and they are increasing their hold in the mortgage market, due to consumer demand.
Essentially a flexible mortgage is a secured loan that can be paid back in varying amounts, and the interest is calculated on the fluctuations of the outstanding balance. Flexible mortgages are particularly suited to today’s lifestyle, for example: ‘jobs for life’ are virtually unknown, you might want a career break to raise a family or you might expect some major life changes in the near future.
A flexible mortgage can offer:
Overpayments
You can pay off your mortgage quicker by making regular overpayments or by paying in a lump sum on an ad hoc basis, without incurring any redemption penalties. A flexible mortgage recalculates your outstanding mortgage balance on either a daily or monthly basis, and your interest payments are quickly adjusted for the overpayments that have been made.
Underpayments
You can reduce your regular mortgage payments or even have a complete payment holiday without being in default. There will be conditions attached to this option, for example: you might have to build up a reserve of overpayments before being allowed to underpay. However, a consequence of underpayment means an increase in your outstanding mortgage balance.
Further loans
You can withdraw lump sums from your mortgage account to be used for any purpose, without the formality of applying for a new loan. There are usually conditions attached to this feature, for example: you might have to build up a reserve of overpayments against which you can borrow, and there will probably be a ceiling on the overall amount you can borrow through your original mortgage.
Not all flexible mortgages offer those features, so you will have to shop around.
The ability to pay off your mortgage early is a necessary feature of all flexible mortgages, and the main point of distinction for a flexible mortgage is the extent to which you are allowed to withdraw funds from your mortgage account. The least flexible mortgage combines overpayment facilities with only the option to take occasional payment holidays.
In a recent survey of flexible mortgages carried out for the Council of Mortgage Lenders, nearly half of the surveyed borrowers had not made use of the flexible options that their mortgage gave them. The borrowers that had made use of the flexible options mainly used the overpayment option to allow them clear their mortgage early by either regular overpayments and/or an occasional lump sum payment.
A more structured approach to the flexible mortgage is offered by the current account mortgage (CAM) and the offset mortgage. With a CAM, there is just one account as it combines your mortgage account and current account. The offset mortgage uses separate accounts for the mortgage, current, and savings account. The interest earnt by the current and savings accounts is offset against the outstanding mortgage capital and the interest is reduced accordingly. It is important to make sure the mortgage rate is competitive because some lenders charge a higher rate than average and thus the benefit is lost.
Flexible mortgages have been around since the 1990’s and they have grown in popularity since then. The future looks good for flexible mortgages, with even more options for borrowers to choose from as time progresses.
Sunday 9 August 2009 @ 11:14 am
Ibelet Anselm Ibe asked:
Mortgage is wealth.Are you making a search on mortgage or searching for the following: mortgage refinancing,mortgage calculator,mortgage loan,adjustable rate mortgage,yahoo mortgage calculator,mortgage company,mortgage uk,mortgage rate,mortgage banker,home mortgage,mortgage lender,mortgage broker,bad credit Are you making a search on mortgage or searching for the following:second mortgage,mortgage lead,subprime mortgage,california mortgage,mortgage quote,mortgage payment,california mortgage loan,national city mortgage,yahoo real estate mortgage calculator,mortgage marketing,texas mortgage,online mortgage,well fargo mortgage,nevada mortgage,florida mortgage,low mortgage rate and best mortgage rate,then you should read this article.
Loan Program Choices
Learn about your options in choosing a loan program that is best for you whether you want to qualify to buy more home, get the lowest rate, or shorten your term. Includes information about ARM’s (adjustable rate), FHA (Federal Housing Administration), VA (Veterans Association), and commercial (investment property) loan programs.
About Interest Rates
Get educated about quotes, locks, floats, points, rate sheets, and other helpful lingo to help you get the best rate for your particular program. Includes information about the factors affecting your interest, determine if you should pay points, and learn about adjustable rate mortgages .
Applying for a Mortgage
The internet has made it easier to get started when it is time to apply for your mortgage. Includes information about Choosing the right mortgage company, how to prepare for your initial meeting, and what to do after you complete your application . for instance,you can visit http://www.mortgage.ind.in to apply for a mortgage
Credit and Mortgages
Learn how your credit report can affect your ability to qualify and afford your new mortgage loan. Includes information about obtaining your credit report,how to report errors, and how credit guide scoring works .
Refinance Your Loan
Refinancing can lower your payment, shorten your term, or put money in your pocket. Includes information on how to analyze your savings, pay points to lower your rate, and strategies for consolidating your debt.
Mortgage is wealth.Are you making a search on mortgage or searching for the following: mortgage refinancing,mortgage calculator,mortgage loan,adjustable rate mortgage,yahoo mortgage calculator,mortgage company,mortgage uk,mortgage rate,mortgage banker,home mortgage,mortgage lender,mortgage broker,bad credit Are you making a search on mortgage or searching for the following:second mortgage,mortgage lead,subprime mortgage,california mortgage,mortgage quote,mortgage payment,california mortgage loan,national city mortgage,yahoo real estate mortgage calculator,mortgage marketing,texas mortgage,online mortgage,well fargo mortgage,nevada mortgage,florida mortgage,low mortgage rate and best mortgage rate,then you should read this article.
Loan Program Choices
Learn about your options in choosing a loan program that is best for you whether you want to qualify to buy more home, get the lowest rate, or shorten your term. Includes information about ARM’s (adjustable rate), FHA (Federal Housing Administration), VA (Veterans Association), and commercial (investment property) loan programs.
About Interest Rates
Get educated about quotes, locks, floats, points, rate sheets, and other helpful lingo to help you get the best rate for your particular program. Includes information about the factors affecting your interest, determine if you should pay points, and learn about adjustable rate mortgages .
Applying for a Mortgage
The internet has made it easier to get started when it is time to apply for your mortgage. Includes information about Choosing the right mortgage company, how to prepare for your initial meeting, and what to do after you complete your application . for instance,you can visit http://www.mortgage.ind.in to apply for a mortgage
Credit and Mortgages
Learn how your credit report can affect your ability to qualify and afford your new mortgage loan. Includes information about obtaining your credit report,how to report errors, and how credit guide scoring works .
Refinance Your Loan
Refinancing can lower your payment, shorten your term, or put money in your pocket. Includes information on how to analyze your savings, pay points to lower your rate, and strategies for consolidating your debt.
Sunday 9 August 2009 @ 7:13 am
Rachel Campbell asked:
An offset mortgage basically uses the interest from your savings account against the interest charged on your mortgage. Usually your mortgage lender will link your mortgage and savings account into a single account, with the same financial institution. Each month, the amount you owe on your mortgage is reduced by the amount you have in your account, before working out the interest due on the mortgage. For example, if you had an offset mortgage of £100,000 and you had savings in your offset account of £25,000 you will only pay interest on £75,000. When your savings balance goes up, you pay less on your mortgage. If you continually keep your savings balance high, this could eventually result in your mortgage being paid of early. On the other hand, if your savings go down, you pay more on your mortgage. Your mortgage lender will plan with you the minimum amount you should leave in your account each month.
Offset mortgages are especially attractive for higher rate taxpayers who would otherwise be charged 40% tax on interest earnt on their savings. When the interest earnt on your savings is automatically used to offset your mortgage, you will not have to pay any tax on those saving. According to one major financial lender in the UK, they believe that 25% of existing mortgages holders would be better off with an offset mortgage.
Offset mortgages are also flexible without a penalty. You can make extra payments, under payments and have a break from payments as long as you have made sufficient overpayments over the years.
Not all offset mortgages are the same. The competition among lenders is increasing and as a consequence the borrower has more options to choose from. This can include: free property valuations and free legal work, using two nominated saving accounts to be offset, and additional borrowing facilities. Depending on your lender, the saving accounts of family members can be combined to offset against one person’s mortgage; this is a popular choice for parents who want to help their offspring purchase their first home.
There are some disadvantages to an offset mortgage. Most offset mortgages allow the borrower to have a credit limit; if you are not disciplined about paying this back, then at the end of your mortgage period, you could be left with a big loan to pay. Thus, it takes a lot of budgeting and self-control to ensure the current account mortgage works effectively. Interest rates are different for the current account, savings and mortgage, so you do not have the opportunity to save money at the Standard Variable Rate like you can do with a current account mortgage.
Offset mortgage originally started in Australia and are fairly new to the UK market, however they have quickly gained in popularity. Originally, mortgage lenders only targeted the wealthy but they have now widen the market for customers who are charged basic tax and have savings. As a rough guide, a basic taxpayer needs around £20,000 in savings behind a £100,000 mortgage to make the offset deal better than a traditional mortgage. For a higher rate taxpayer, the savings requirement is about £10,000 although those figures will change as interest rates vary. If you are looking for a mortgage, an offset mortgage is something to seriously consider, particularly if you are a higher rate taxpayer and/or have substantial savings to offset. While the basic concept of an offset mortgage is simple, it does get complicated. This clearly underlines the need to talk things through with a mortgage advisor. It is their job and responsibility to ensure you get the right type of mortgage and the best deal.
An offset mortgage basically uses the interest from your savings account against the interest charged on your mortgage. Usually your mortgage lender will link your mortgage and savings account into a single account, with the same financial institution. Each month, the amount you owe on your mortgage is reduced by the amount you have in your account, before working out the interest due on the mortgage. For example, if you had an offset mortgage of £100,000 and you had savings in your offset account of £25,000 you will only pay interest on £75,000. When your savings balance goes up, you pay less on your mortgage. If you continually keep your savings balance high, this could eventually result in your mortgage being paid of early. On the other hand, if your savings go down, you pay more on your mortgage. Your mortgage lender will plan with you the minimum amount you should leave in your account each month.
Offset mortgages are especially attractive for higher rate taxpayers who would otherwise be charged 40% tax on interest earnt on their savings. When the interest earnt on your savings is automatically used to offset your mortgage, you will not have to pay any tax on those saving. According to one major financial lender in the UK, they believe that 25% of existing mortgages holders would be better off with an offset mortgage.
Offset mortgages are also flexible without a penalty. You can make extra payments, under payments and have a break from payments as long as you have made sufficient overpayments over the years.
Not all offset mortgages are the same. The competition among lenders is increasing and as a consequence the borrower has more options to choose from. This can include: free property valuations and free legal work, using two nominated saving accounts to be offset, and additional borrowing facilities. Depending on your lender, the saving accounts of family members can be combined to offset against one person’s mortgage; this is a popular choice for parents who want to help their offspring purchase their first home.
There are some disadvantages to an offset mortgage. Most offset mortgages allow the borrower to have a credit limit; if you are not disciplined about paying this back, then at the end of your mortgage period, you could be left with a big loan to pay. Thus, it takes a lot of budgeting and self-control to ensure the current account mortgage works effectively. Interest rates are different for the current account, savings and mortgage, so you do not have the opportunity to save money at the Standard Variable Rate like you can do with a current account mortgage.
Offset mortgage originally started in Australia and are fairly new to the UK market, however they have quickly gained in popularity. Originally, mortgage lenders only targeted the wealthy but they have now widen the market for customers who are charged basic tax and have savings. As a rough guide, a basic taxpayer needs around £20,000 in savings behind a £100,000 mortgage to make the offset deal better than a traditional mortgage. For a higher rate taxpayer, the savings requirement is about £10,000 although those figures will change as interest rates vary. If you are looking for a mortgage, an offset mortgage is something to seriously consider, particularly if you are a higher rate taxpayer and/or have substantial savings to offset. While the basic concept of an offset mortgage is simple, it does get complicated. This clearly underlines the need to talk things through with a mortgage advisor. It is their job and responsibility to ensure you get the right type of mortgage and the best deal.
Sunday 9 August 2009 @ 6:58 am
Matt Peters asked:
A lot of people who plan to buy a house often wonder what kind of mortgage is right for them: an adjustable rate mortgage or a fixed rate mortgage. To be able to determine the suitability of a mortgage type, potential buyers should familiarize themselves with the advantages and disadvantages. This way, they enable themselves to come up with informed decisions.
Depending on the term of the mortgage and a borrower’s financial needs, both the adjustable rate mortgage and the fixed rate mortgage are appealing to various types of homebuyers. But it is essential that homebuyers become aware of the difference between the two kinds of mortgages.
An adjustable rate mortgage, or an ARM for short, is commonly known as a variable rate mortgage. This mortgage features an interest rate linked to an economic index. Interest rates and mortgage payments are occasionally adjusted in keeping with the changes in the said index. The primary interest rate for an adjustable rate mortgage is lower compared to the rate of a fixed rate mortgage, which features an interest rate that remains unchanged for the entire life of the loan. In contrast to the fixed rate mortgage, the adjustable rate mortgage offer borrowers the choice to make an early repayment of the initial principal borrowed without a penalty charge.
A principal reason why you should consider an adjustable rate mortgage is that you may end up with a lower monthly mortgage payment. Because you’re taking a risk with unpredictable interest rates, you are rewarded with an initial rate that’s lower compared to an adjustable rate mortgage. You can consider an adjustable rate mortgage a good option if: you plan to stay in your home for only a few years; you anticipate an increase in your future income; or, the existing interest rate for a fixed rate mortgage is too high.
One disadvantage of the adjustable rate mortgage is that there is a risk that the rates will rise on you, which means that your monthly mortgage payment will increase significantly. It is possible that the payment can get too high that you may have to default on your loan.
On the other hand, a fixed rate mortgage features an interest rate that is fixed for the entire life of the loan, even if the mortgage lender’s interest rate rises and falls in the future. Because the payments are predetermined, homeowners can budget the amount they need to set aside for their monthly mortgage payment. They can also afford to plan their finances for the long-term.
The drawback is that this type of mortgage comes with higher interest rates. Also, with a fixed rate mortgage, lenders often set up a prepayment penalty that dissuades borrowers from paying off their mortgage early or refinancing their mortgage loan with a lower interest rate. This type of mortgage also puts borrowers at a disadvantage when interest rates fall. However, borrowers can shift to a mortgage program that enables them to benefit from lower interest rates. One way to do this is to qualify and pay for mortgage refinancing.
Compared to an adjustable rate mortgage, the fixed rate mortgage is a more attractive choice for borrowers who opt for a long-term plan. The fixed rate mortgage also offers more security for buyers and is best suited for homeowners who wish to keep their houses for a longer period of time.
A lot of people who plan to buy a house often wonder what kind of mortgage is right for them: an adjustable rate mortgage or a fixed rate mortgage. To be able to determine the suitability of a mortgage type, potential buyers should familiarize themselves with the advantages and disadvantages. This way, they enable themselves to come up with informed decisions.
Depending on the term of the mortgage and a borrower’s financial needs, both the adjustable rate mortgage and the fixed rate mortgage are appealing to various types of homebuyers. But it is essential that homebuyers become aware of the difference between the two kinds of mortgages.
An adjustable rate mortgage, or an ARM for short, is commonly known as a variable rate mortgage. This mortgage features an interest rate linked to an economic index. Interest rates and mortgage payments are occasionally adjusted in keeping with the changes in the said index. The primary interest rate for an adjustable rate mortgage is lower compared to the rate of a fixed rate mortgage, which features an interest rate that remains unchanged for the entire life of the loan. In contrast to the fixed rate mortgage, the adjustable rate mortgage offer borrowers the choice to make an early repayment of the initial principal borrowed without a penalty charge.
A principal reason why you should consider an adjustable rate mortgage is that you may end up with a lower monthly mortgage payment. Because you’re taking a risk with unpredictable interest rates, you are rewarded with an initial rate that’s lower compared to an adjustable rate mortgage. You can consider an adjustable rate mortgage a good option if: you plan to stay in your home for only a few years; you anticipate an increase in your future income; or, the existing interest rate for a fixed rate mortgage is too high.
One disadvantage of the adjustable rate mortgage is that there is a risk that the rates will rise on you, which means that your monthly mortgage payment will increase significantly. It is possible that the payment can get too high that you may have to default on your loan.
On the other hand, a fixed rate mortgage features an interest rate that is fixed for the entire life of the loan, even if the mortgage lender’s interest rate rises and falls in the future. Because the payments are predetermined, homeowners can budget the amount they need to set aside for their monthly mortgage payment. They can also afford to plan their finances for the long-term.
The drawback is that this type of mortgage comes with higher interest rates. Also, with a fixed rate mortgage, lenders often set up a prepayment penalty that dissuades borrowers from paying off their mortgage early or refinancing their mortgage loan with a lower interest rate. This type of mortgage also puts borrowers at a disadvantage when interest rates fall. However, borrowers can shift to a mortgage program that enables them to benefit from lower interest rates. One way to do this is to qualify and pay for mortgage refinancing.
Compared to an adjustable rate mortgage, the fixed rate mortgage is a more attractive choice for borrowers who opt for a long-term plan. The fixed rate mortgage also offers more security for buyers and is best suited for homeowners who wish to keep their houses for a longer period of time.
Sunday 9 August 2009 @ 6:37 am
Debbie Johnson asked:
Did you know that on your typical 30-year mortgage, it takes approximately 21 years just to pay down less than half of the principal of your loan?
The Mortgage industry’s big secret has been kept away from the public since the Roosevelt administration. This little known secret has been taking you (and every other homeowner) for a very costly ride. Your 6% LOW INTEREST MORTGAGE IS REALLY costing you upwards of 60% or more!
You might be asking how you could possibly be paying THAT much without knowing it?
I is beause ALL mortgages are front end loaded, meaning you’re paying off the interest first. So during all of those first years, you aren’t paying down the principle. Instead, you’re buying the banker a new Mercedes.
Most of us realize how a mortgage works, and we are aware that we’re paying off the interest first, but no one has come out and spelled out exactly what affect that has on the total interest you end up paying. This withholding of information is the biggest “little white lie” in the banking world today.
Does this scare you at all? Hopefully it makes you a bit angry as well. We have been led to believe, that this is simply the way mortgages work, and that we have no choice. After all, who has the cash to just go out and pay cash for their home?
The banking industry is perfectly content with the way things are. Have you noticed that in virtually every town in the US, there seems to be a bank on every corner? Have you ever stopped to think that the banking industry is a business that earns money by using money? Your Money! What’s more of an eye opening statistic is that in just 5 years now, the bank has already made a great profit on the average mortgage.
Let’s look at a traditional 30 year fixed mortgage for $150,000 at 6%. Let’s take a good look at what is happening here:
(If you would like a visual, there are many online mortgage calculators that will allow you to print the amortization table and see these facts:)
Each year, the consumer pays $10,792 but a different portion of that total gets credited to Principal and to Interest. In the first year, $8950 of the payments goes straight to the lender and the remaining $1842 gets credited back to the consumer. Here are some other facts gleamed from this schedule:
- It takes 19 years before just half the monthly payment goes to Principal, the consumer ($5482 to Principal, $5309 to Interest).
- After 7 years, the consumer has paid $75,600 but only $15,541 goes to Principal.
- After 10 years, over 84% of the starting balance is still owed.
- After 21 years, half of the starting balance is still owed. At that point, the consumer will have paid $226,800 with only $75,000 of it going to Principal.
The numbers are heavily skewed in favor of the lender because they are designed to be. It’s due to something many consumers are familiar with, front-end loaded interest. Even though the monthly payment is fixed, each payment has a different contribution to Principal than Interest, and the contribution to Interest in the first years is much greater than in the last years. The result of this system is that the lender collects their interest first, up front!
Most consumers know that the interest on mortgage loans is front-end loaded, purposely stacked against them. But we also found that those same consumers, no matter how educated, as well as mortgage industry experts, do not realize that the front-end loaded interest completely throws off the fixed interest rate schedule.
Take a close look back at Year 1. The consumer pays $10,792 but only $1842 of it gets credited back to Principal. That’s all?
What if he sold his house after that first year? Would it seem like he paid a 6.0% rate? Even after 10 years, the consumer pays the lender almost $108,000 but less than $25,000 of that is going back to pay off the Principal. That’s not a 6.0% rate is it? The same holds true for even longer periods of time like 20 and 25 years. So if a 30-year fixed is kept for even 1 month less than 30 years, the rate consumers really wind up paying on it is higher. How much higher? The Effective Rate Formula reveals what the actual, real interest rate would be if a front-end loaded loan was kept for less than the entire 30-year term.
Holding on to that low 6.0% fixed-rate 30-year loan for 10 years results in paying an actual 43.48% interest rate. Keeping it for 7 years results in paying a staggering 68% interest rate to the lender. Keeping it for only 5 years results in the equivalent of a 102% rate. Holding it for 3 years yields an actual 182% rate and 1 year a 580% rate!
The numbers prove that the 30-year fixed rate mortgage is equivalent to a giant credit card with an astronomical APR. Millions upon millions of American consumers have this credit card, this massive liability, which serves as nothing but a giant mountain standing in the way of their financial hopes and dreams. The mountain’s bigger than Mount Everest yet remains invisible due to the deceptive nature of the game. And no matter how much more consumers earn at work and no matter how much their other investments return, it winds up being meaningless in the long run because that home loan, that 107% APR’d “credit card” is ******* all the wealth-building power out of them.”
Homeowners are being taken on a 30-year cab ride with the meter running. There must be a better way!
It’s a week night, and after a hard days work you have plopped down on the couch to watch a little t.v. You are making payments on your 30 Mortgage and the television commercials are telling you its time again to refinance. “Consolidate that Credit Card Debt”, “Lower Your Monthly Payments…..“Refinance NOW & Save”, “It’s Easy…No Closing Costs”. You’ve heard it all before, right?? Do you think its possible that the banking industry wants you to refinance so that they can sell you yet another frontloaded mortgage and leaving you with a principal to pay off in another 20 – 30 (and now even 40 & 50) years? Do you see how their game has them raking in that interest. They have the wonders of compound interest working FOR the bank, and against YOU the homeowner.
So how do we beat the banks at their own game? Well I believe that United First Financial is certainly taking a step in the right direction with their Money Merge Account.
The Money Merge Account (MMA) System is a work-around solution designed to achieve an accelerated pay down of home loan mortgages in the United States, and is provided by United First Financial.
It is based on the Current Account Mortgage concept based in the UK, Australia and Europe (see: http://en.wikipedia.org/wiki/The_One_account ) which results in homeowners paying less than half (on average) of the normal interest they would have paid on a normal amortization schedule. This concept has been around for over 10 years and 1/3 of all mortgages in these countrys are current account mortgages.
There is much misinformation about this concept among the American public… and especially by those who have not actually used the software themselves, and who do not understand the varying impacts of a closed end loan, versus an open-ended line of credit. Because this program achieves dramatic results, many are naturally skeptical. However this concept is based on math, and once the math is understood, the concept is understood.
In the US, banks make a huge amount of money off of “money float.” Consumers pay 6% for a mortgage, but get 2-3% for a savings account, and usually 0-1% interest for a checking account. That money sitting in the bank results in profits for the bank (money float), but the money is not being put to work efficiently for the account holder.
A CAM – Current Account Mortgage – puts the money float to work for the customer. One of the most heavily praised (and awarded) CAM mortgages is the One Account – now owned by the Royal Bank of Scotland, but started by Richard Branson of Virgin Airline fame.
The concept of the One Account / CAM is that the homeowner finances the home in an equity line of credit, deposits income into it and writes checks out of it. This puts every penny, not being spent, to work to keep the principle balance of the loan down, thus saving interest. In 1999, research from NOP Financial and David Goldreich of London Business School proved that eight out of every ten people in the UK with borrowings of more than £50,000 would be better off with a One Account mortgage.
This is NOT exactly how the Money Merge Account works… but because the exact concept of the Current Account Mortgage cannot be achieved in the US easily, due to US banking laws, The Money Merge Account utilizes two accounts to achieve the beneficial effects of the CAM. An opened ended line of credit is used, in conjunction with the closed ended primary mortgage, and a software program makes specific calculations based on the homeowner’s own financial variables.
The software that is part of the Money Merge Account is sophisticated… recalculating the variables with each new transaction recorded into the software (outgoing bills, dates and amounts paid, interest rates, income and dates received, etc.) The algorithm used for the software is designed to optimize the results of the Money Merge Account and, in effect, it learns from the client’s history, thus becoming even more efficient at producing targeted results.
The Money Merge account will pay off a 30 year mortgage (on average) in as little as 8 to 11 years, saving thousands in interest. This pay down is accomplished without the homeowner changing their lifestyle, or the way they spend their money. It often has no effect on the current cash flow at all… and accomplishes the acceleration of the mortgage by simply putting the homeowners money float to work FOR the homeowner, instead of for the bank.
Results will vary from client to client based on debts rolled into equity line account, discretionary income and individual money float. All clients are given a detailed financial analysis prior to purchasing the software and the company (United First Financial) provides a MONEY BACK GUARANTEE based on the software performing as good, or better, than the Analysis. When the Analysis shows the mortgage paid off… this also INCLUDES all debt included in the numbers. The Analysis also shows the total interest paid… which includes all interest on the Equity Line of Credit side as well. The program is about becoming debt free… not just mortgage free.
However, while the program will pay down a mortgage balance more quickly… the average life of a mortgage [in the USA] is just three to five years, estimates Douglas Duncan, chief economist at the Mortgage Bankers Association of America. [1] Other estimates place the historical average mortgage life at between five to seven years before it is either refinanced or paid for one reason or another, and/or before the owners sell the property.
For homeowners who do not keep their home or mortgage more than a few years, the Money Merge Account is simply an equity-building program. Since homes only appreciate through 2 methods… principal pay down or rising RE values. In slow market conditions, where homes are not appreciating, building equity through principle pay down is the only means of building equity at all.
This is important to know for people who financed their homes with Adjustable Rate Mortgages, or Negative Amortization mortgages. Right now, in the US there are two conditions coming together that are perilous for some homeowners… a slow real estate market in many areas (keeping real estate values flat, or even dropping in some cases), as well as a period when ARM’s are about to have a rate adjustment. Experts are predicting that 1 in 4 ARM’s will go into foreclosure.
In any market conditions… building equity faster means homeowners have more financial stability. If the homeowners income has not risen to where they can easily handle the interest rate increases for the ARM… the equity in the home can be tapped through several means (including the MMA – Money Merge Account), OR simply having more equity means the homeowner can move into their next home even faster.
Real estate investors are also finding the software tool invaluable in building a portfolio more quickly. Faster equity building in property 1, means that the property can be leveraged to get property 2 even faster. Savvy investors and financial planners are combining the power of the MMA with their investment know-how to build wealth much faster for themselves, and their clients.
For more information about this program… ask someone who actually OWNS the software to show you their results. Have an Analysis run on YOUR numbers, attend a product education seminar or webinar. See if the MMA is right for you… and if you can qualify.
This is not magic… it is math.
The truth lies in the bottom line.
Knowledge is power.
http://www.u1stFlorida.com
Special Thanks To The Asher Institute for Consumer Affairs for their Statistics
Did you know that on your typical 30-year mortgage, it takes approximately 21 years just to pay down less than half of the principal of your loan?
The Mortgage industry’s big secret has been kept away from the public since the Roosevelt administration. This little known secret has been taking you (and every other homeowner) for a very costly ride. Your 6% LOW INTEREST MORTGAGE IS REALLY costing you upwards of 60% or more!
You might be asking how you could possibly be paying THAT much without knowing it?
I is beause ALL mortgages are front end loaded, meaning you’re paying off the interest first. So during all of those first years, you aren’t paying down the principle. Instead, you’re buying the banker a new Mercedes.
Most of us realize how a mortgage works, and we are aware that we’re paying off the interest first, but no one has come out and spelled out exactly what affect that has on the total interest you end up paying. This withholding of information is the biggest “little white lie” in the banking world today.
Does this scare you at all? Hopefully it makes you a bit angry as well. We have been led to believe, that this is simply the way mortgages work, and that we have no choice. After all, who has the cash to just go out and pay cash for their home?
The banking industry is perfectly content with the way things are. Have you noticed that in virtually every town in the US, there seems to be a bank on every corner? Have you ever stopped to think that the banking industry is a business that earns money by using money? Your Money! What’s more of an eye opening statistic is that in just 5 years now, the bank has already made a great profit on the average mortgage.
Let’s look at a traditional 30 year fixed mortgage for $150,000 at 6%. Let’s take a good look at what is happening here:
(If you would like a visual, there are many online mortgage calculators that will allow you to print the amortization table and see these facts:)
Each year, the consumer pays $10,792 but a different portion of that total gets credited to Principal and to Interest. In the first year, $8950 of the payments goes straight to the lender and the remaining $1842 gets credited back to the consumer. Here are some other facts gleamed from this schedule:
- It takes 19 years before just half the monthly payment goes to Principal, the consumer ($5482 to Principal, $5309 to Interest).
- After 7 years, the consumer has paid $75,600 but only $15,541 goes to Principal.
- After 10 years, over 84% of the starting balance is still owed.
- After 21 years, half of the starting balance is still owed. At that point, the consumer will have paid $226,800 with only $75,000 of it going to Principal.
The numbers are heavily skewed in favor of the lender because they are designed to be. It’s due to something many consumers are familiar with, front-end loaded interest. Even though the monthly payment is fixed, each payment has a different contribution to Principal than Interest, and the contribution to Interest in the first years is much greater than in the last years. The result of this system is that the lender collects their interest first, up front!
Most consumers know that the interest on mortgage loans is front-end loaded, purposely stacked against them. But we also found that those same consumers, no matter how educated, as well as mortgage industry experts, do not realize that the front-end loaded interest completely throws off the fixed interest rate schedule.
Take a close look back at Year 1. The consumer pays $10,792 but only $1842 of it gets credited back to Principal. That’s all?
What if he sold his house after that first year? Would it seem like he paid a 6.0% rate? Even after 10 years, the consumer pays the lender almost $108,000 but less than $25,000 of that is going back to pay off the Principal. That’s not a 6.0% rate is it? The same holds true for even longer periods of time like 20 and 25 years. So if a 30-year fixed is kept for even 1 month less than 30 years, the rate consumers really wind up paying on it is higher. How much higher? The Effective Rate Formula reveals what the actual, real interest rate would be if a front-end loaded loan was kept for less than the entire 30-year term.
Holding on to that low 6.0% fixed-rate 30-year loan for 10 years results in paying an actual 43.48% interest rate. Keeping it for 7 years results in paying a staggering 68% interest rate to the lender. Keeping it for only 5 years results in the equivalent of a 102% rate. Holding it for 3 years yields an actual 182% rate and 1 year a 580% rate!
The numbers prove that the 30-year fixed rate mortgage is equivalent to a giant credit card with an astronomical APR. Millions upon millions of American consumers have this credit card, this massive liability, which serves as nothing but a giant mountain standing in the way of their financial hopes and dreams. The mountain’s bigger than Mount Everest yet remains invisible due to the deceptive nature of the game. And no matter how much more consumers earn at work and no matter how much their other investments return, it winds up being meaningless in the long run because that home loan, that 107% APR’d “credit card” is ******* all the wealth-building power out of them.”
Homeowners are being taken on a 30-year cab ride with the meter running. There must be a better way!
It’s a week night, and after a hard days work you have plopped down on the couch to watch a little t.v. You are making payments on your 30 Mortgage and the television commercials are telling you its time again to refinance. “Consolidate that Credit Card Debt”, “Lower Your Monthly Payments…..“Refinance NOW & Save”, “It’s Easy…No Closing Costs”. You’ve heard it all before, right?? Do you think its possible that the banking industry wants you to refinance so that they can sell you yet another frontloaded mortgage and leaving you with a principal to pay off in another 20 – 30 (and now even 40 & 50) years? Do you see how their game has them raking in that interest. They have the wonders of compound interest working FOR the bank, and against YOU the homeowner.
So how do we beat the banks at their own game? Well I believe that United First Financial is certainly taking a step in the right direction with their Money Merge Account.
The Money Merge Account (MMA) System is a work-around solution designed to achieve an accelerated pay down of home loan mortgages in the United States, and is provided by United First Financial.
It is based on the Current Account Mortgage concept based in the UK, Australia and Europe (see: http://en.wikipedia.org/wiki/The_One_account ) which results in homeowners paying less than half (on average) of the normal interest they would have paid on a normal amortization schedule. This concept has been around for over 10 years and 1/3 of all mortgages in these countrys are current account mortgages.
There is much misinformation about this concept among the American public… and especially by those who have not actually used the software themselves, and who do not understand the varying impacts of a closed end loan, versus an open-ended line of credit. Because this program achieves dramatic results, many are naturally skeptical. However this concept is based on math, and once the math is understood, the concept is understood.
In the US, banks make a huge amount of money off of “money float.” Consumers pay 6% for a mortgage, but get 2-3% for a savings account, and usually 0-1% interest for a checking account. That money sitting in the bank results in profits for the bank (money float), but the money is not being put to work efficiently for the account holder.
A CAM – Current Account Mortgage – puts the money float to work for the customer. One of the most heavily praised (and awarded) CAM mortgages is the One Account – now owned by the Royal Bank of Scotland, but started by Richard Branson of Virgin Airline fame.
The concept of the One Account / CAM is that the homeowner finances the home in an equity line of credit, deposits income into it and writes checks out of it. This puts every penny, not being spent, to work to keep the principle balance of the loan down, thus saving interest. In 1999, research from NOP Financial and David Goldreich of London Business School proved that eight out of every ten people in the UK with borrowings of more than £50,000 would be better off with a One Account mortgage.
This is NOT exactly how the Money Merge Account works… but because the exact concept of the Current Account Mortgage cannot be achieved in the US easily, due to US banking laws, The Money Merge Account utilizes two accounts to achieve the beneficial effects of the CAM. An opened ended line of credit is used, in conjunction with the closed ended primary mortgage, and a software program makes specific calculations based on the homeowner’s own financial variables.
The software that is part of the Money Merge Account is sophisticated… recalculating the variables with each new transaction recorded into the software (outgoing bills, dates and amounts paid, interest rates, income and dates received, etc.) The algorithm used for the software is designed to optimize the results of the Money Merge Account and, in effect, it learns from the client’s history, thus becoming even more efficient at producing targeted results.
The Money Merge account will pay off a 30 year mortgage (on average) in as little as 8 to 11 years, saving thousands in interest. This pay down is accomplished without the homeowner changing their lifestyle, or the way they spend their money. It often has no effect on the current cash flow at all… and accomplishes the acceleration of the mortgage by simply putting the homeowners money float to work FOR the homeowner, instead of for the bank.
Results will vary from client to client based on debts rolled into equity line account, discretionary income and individual money float. All clients are given a detailed financial analysis prior to purchasing the software and the company (United First Financial) provides a MONEY BACK GUARANTEE based on the software performing as good, or better, than the Analysis. When the Analysis shows the mortgage paid off… this also INCLUDES all debt included in the numbers. The Analysis also shows the total interest paid… which includes all interest on the Equity Line of Credit side as well. The program is about becoming debt free… not just mortgage free.
However, while the program will pay down a mortgage balance more quickly… the average life of a mortgage [in the USA] is just three to five years, estimates Douglas Duncan, chief economist at the Mortgage Bankers Association of America. [1] Other estimates place the historical average mortgage life at between five to seven years before it is either refinanced or paid for one reason or another, and/or before the owners sell the property.
For homeowners who do not keep their home or mortgage more than a few years, the Money Merge Account is simply an equity-building program. Since homes only appreciate through 2 methods… principal pay down or rising RE values. In slow market conditions, where homes are not appreciating, building equity through principle pay down is the only means of building equity at all.
This is important to know for people who financed their homes with Adjustable Rate Mortgages, or Negative Amortization mortgages. Right now, in the US there are two conditions coming together that are perilous for some homeowners… a slow real estate market in many areas (keeping real estate values flat, or even dropping in some cases), as well as a period when ARM’s are about to have a rate adjustment. Experts are predicting that 1 in 4 ARM’s will go into foreclosure.
In any market conditions… building equity faster means homeowners have more financial stability. If the homeowners income has not risen to where they can easily handle the interest rate increases for the ARM… the equity in the home can be tapped through several means (including the MMA – Money Merge Account), OR simply having more equity means the homeowner can move into their next home even faster.
Real estate investors are also finding the software tool invaluable in building a portfolio more quickly. Faster equity building in property 1, means that the property can be leveraged to get property 2 even faster. Savvy investors and financial planners are combining the power of the MMA with their investment know-how to build wealth much faster for themselves, and their clients.
For more information about this program… ask someone who actually OWNS the software to show you their results. Have an Analysis run on YOUR numbers, attend a product education seminar or webinar. See if the MMA is right for you… and if you can qualify.
This is not magic… it is math.
The truth lies in the bottom line.
Knowledge is power.
http://www.u1stFlorida.com
Special Thanks To The Asher Institute for Consumer Affairs for their Statistics
Saturday 8 August 2009 @ 10:53 pm
Justin Rose asked:
The choice and diversity of mortgage packages being offered to borrowers has increased dramatically in recent years to cater for the modern mortgage market. Most high street lenders offer some find of flexible or offset mortgage in their product range. Below is a quick guide to some of the main types:
Flexible Mortgages
Essentially a flexible mortgage is a secured loan that can be repaid in varying amounts. The interest is calculated on the fluctuations of the outstanding balance and while a flexible mortgage has a higher interest rate, the ability to make overpayments and lump sum payments means the mortgage can be paid off earlier.
Offset Mortgages
Offset mortgages basically use the interest from your savings account against the interest charged on your mortgage. Usually your mortgage provider will combine your mortgage and savings account into a single account. Each month, the amount you owe on your mortgage is reduced by the amount you have in your account, before working out the interest due on the mortgage.
Current Account Mortgages
Current account mortgages have been around for well over 10 years in the UK and are a type of flexible mortgage. Current account mortgages work by combining your mortgage and current account into a single account, usually with the same financial institution. The balance is calculated daily and the home owner only pays interest on the balance. Any saved income you have in your current account at the end of the month is automatically deducted from the mortgage debt you owe.
Flexible Loans
A loan for building a home is known as a ‘self build mortgage,’ and there are several different types of self build mortgages currently available in the market place. Recently, home buyers who want to build a property for themselves or for investment purposes opted for flexible loans. A self build mortgage is different from a traditional mortgage. The money is released in stages and to acquire a self build mortgage, the providers will want to see plans, timescales and the end-value of the property as well as enthusiasm for the project.
Self Cert Offset Mortgage
A self cert offset mortgage combines the benefit of declaring your own income with the freedom of an offset mortgage that allows over payments, lump sum payments, under payments, and payment holidays.
Offset Tracker Mortgages
Offset tracker mortgages are relatively new in the market place. They combine the benefits of an interest rate that tracks the Bank of England’s base lending rate, with the ability to ‘offset’ the interest earned on savings and current account against the interest charged on the mortgage.
Flexible Tracker Mortgages
Flexible tracker mortgages offer the benefits of two types of mortgages rolled into one. The mortgage not only offers financial control due to different repayment options, the mortgage interest rates tracks the Bank of England Base Rate.
Cheque Book Mortgage
A cheque book mortgage main feature is that it is designed to be user friendly. All your savings, debts and mortgage are rolled into one account, with the same financial institution, for easy management of your finances, and the mortgage is flexible, which is an attractive feature for many borrowers.
Discount Offset Mortgage
A discount offset mortgage is an offset mortgage with a discount on the standard variable rate of interest for a set amount of time.
Conclusion
With such a wide array of mortgage products available it’s important you shop around and seek the advice of an independent mortgage broker. Understand the features, benefits and negative aspects of each option so that you are equipped with the knowledge to select the package that best suits your specific personal circumstances.
The choice and diversity of mortgage packages being offered to borrowers has increased dramatically in recent years to cater for the modern mortgage market. Most high street lenders offer some find of flexible or offset mortgage in their product range. Below is a quick guide to some of the main types:
Flexible Mortgages
Essentially a flexible mortgage is a secured loan that can be repaid in varying amounts. The interest is calculated on the fluctuations of the outstanding balance and while a flexible mortgage has a higher interest rate, the ability to make overpayments and lump sum payments means the mortgage can be paid off earlier.
Offset Mortgages
Offset mortgages basically use the interest from your savings account against the interest charged on your mortgage. Usually your mortgage provider will combine your mortgage and savings account into a single account. Each month, the amount you owe on your mortgage is reduced by the amount you have in your account, before working out the interest due on the mortgage.
Current Account Mortgages
Current account mortgages have been around for well over 10 years in the UK and are a type of flexible mortgage. Current account mortgages work by combining your mortgage and current account into a single account, usually with the same financial institution. The balance is calculated daily and the home owner only pays interest on the balance. Any saved income you have in your current account at the end of the month is automatically deducted from the mortgage debt you owe.
Flexible Loans
A loan for building a home is known as a ‘self build mortgage,’ and there are several different types of self build mortgages currently available in the market place. Recently, home buyers who want to build a property for themselves or for investment purposes opted for flexible loans. A self build mortgage is different from a traditional mortgage. The money is released in stages and to acquire a self build mortgage, the providers will want to see plans, timescales and the end-value of the property as well as enthusiasm for the project.
Self Cert Offset Mortgage
A self cert offset mortgage combines the benefit of declaring your own income with the freedom of an offset mortgage that allows over payments, lump sum payments, under payments, and payment holidays.
Offset Tracker Mortgages
Offset tracker mortgages are relatively new in the market place. They combine the benefits of an interest rate that tracks the Bank of England’s base lending rate, with the ability to ‘offset’ the interest earned on savings and current account against the interest charged on the mortgage.
Flexible Tracker Mortgages
Flexible tracker mortgages offer the benefits of two types of mortgages rolled into one. The mortgage not only offers financial control due to different repayment options, the mortgage interest rates tracks the Bank of England Base Rate.
Cheque Book Mortgage
A cheque book mortgage main feature is that it is designed to be user friendly. All your savings, debts and mortgage are rolled into one account, with the same financial institution, for easy management of your finances, and the mortgage is flexible, which is an attractive feature for many borrowers.
Discount Offset Mortgage
A discount offset mortgage is an offset mortgage with a discount on the standard variable rate of interest for a set amount of time.
Conclusion
With such a wide array of mortgage products available it’s important you shop around and seek the advice of an independent mortgage broker. Understand the features, benefits and negative aspects of each option so that you are equipped with the knowledge to select the package that best suits your specific personal circumstances.
Saturday 8 August 2009 @ 10:14 pm
Grant Eckert asked:
An adjustable rate mortgage, commonly referred to as an ARM, is a mortgage where the interest rate on the mortgage changes periodically, on a schedule, according to an index. The most common indexes used to determine the interest rates are:
One-year constant maturity treasury securities (CMT)
Cost of Funds Index (COFI)
London Interbank Offered Rate (LIBOR)
A lending institution’s own costs of funds.
The mortgage payment that you pay will thusly change, either up or down, to ensure a steady margin for the lending institution.
For many people who are looking at mortgages, the adjustable rate mortgage can seem like a great idea, however there are many pros and cons to an adjustable rate mortgage – items that need to be weighed over the short and long term to decide whether an adjustable rate mortgage is right for you or not.
The Pros of an Adjustable Rate Mortgage
The initial interest rate on an adjustable rate mortgage looks great on paper. Most often, the adjustable rate mortgage inserts rate is much lower than a fixed rate mortgage, which also means that the payment is lower. As a borrower, this lower interest rate can also mean that they can qualify for a higher loan amount if the lender is willing to base their ability to pay on the initial monthly payment amount. It’s important to do some research on the interest rates and see where they are sitting at in comparison to the six months to a year prior.
An adjustable rate mortgage is a good idea for people who only plan on staying in a house for a few years – from three to five years. Taking advantage of the lower interest rate that accompanies an adjustable rate mortgage is a good idea in this case. It means that you will ‘pay less’ for the home that you will be living in over the period of the three to five years, and gain more in equity in your home.
The Cons of an Adjustable Rate Mortgage
The biggest issue with an adjustable rate mortgage is that the interest rate will rise and thusly, so will your monthly mortgage payments. You have to decide whether the gamble is worth it or not. If you are looking at getting a raise in the next year from your job, then you may be able to handle an increase in your mortgage payments.
Some of the adjustable rate mortgages that are offered by lending institutions have a prepayment penalty, which you incur if you pay the mortgage off early. By having this prepayment penalty, you could be opening yourself up to a lot of strife – having a prepayment penalty on your mortgage contract is never a good idea because you simply just do not know what the future will bring.
You must also consider the payment cap. A payment cap sounds great – your mortgage payment can not go above “x” amount of dollars, however, that doesn’t mean that the interest charge is capped. If the interest rate raises high enough that you go over your payment cap, the lender adds the interest to your mortgage debt, which then finds you in the position of paying interest on the interest. This can translate to you paying much more for your home than you did when you bought it – this is called negative amortization. Many lenders have a cap on negative amortization that you can have, and if you reach that point, your payment cap goes out the window and your mortgage’s monthly payments are adjusted to begin repaying the negative amortization debt.
Factors that can go either way
There are a few factors of adjustable rate mortgages that can fall on either side of the pro/con debate. Due to the fact that there are many different types of adjustable rate mortgages available from different lenders, it’s important that you research the adjustable rate mortgage and find out whether it is right for you. Some of the ‘ambiguous’ factors that you have to consider can make or break the decision to go with an adjustable rate mortgage.
One of the first things you need to consider is the lifetime interest rate cap on the mortgage. This is the maximum amount that the interest rate can raise through the period of the mortgage. There are also the periodic adjustment caps that limit the amount that your mortgage interest rate can raise from one adjustment period to the next. The law states that adjustable rate mortgages have some type of lifetime cap.
Most lenders use one of the index rates to base their interest rates on. The index rates change and fluctuate with the movement of the economy. To determine the interest rate that you will be charged, the lender adds a margin (profit percentage) to the index rate. The margin that the lender will add is also important – it determines your future interest rates with an adjustable rate mortgage. The margin is different from lender to lender, so it’s important to find out what the margin is.
An adjustable rate mortgage, commonly referred to as an ARM, is a mortgage where the interest rate on the mortgage changes periodically, on a schedule, according to an index. The most common indexes used to determine the interest rates are:
One-year constant maturity treasury securities (CMT)
Cost of Funds Index (COFI)
London Interbank Offered Rate (LIBOR)
A lending institution’s own costs of funds.
The mortgage payment that you pay will thusly change, either up or down, to ensure a steady margin for the lending institution.
For many people who are looking at mortgages, the adjustable rate mortgage can seem like a great idea, however there are many pros and cons to an adjustable rate mortgage – items that need to be weighed over the short and long term to decide whether an adjustable rate mortgage is right for you or not.
The Pros of an Adjustable Rate Mortgage
The initial interest rate on an adjustable rate mortgage looks great on paper. Most often, the adjustable rate mortgage inserts rate is much lower than a fixed rate mortgage, which also means that the payment is lower. As a borrower, this lower interest rate can also mean that they can qualify for a higher loan amount if the lender is willing to base their ability to pay on the initial monthly payment amount. It’s important to do some research on the interest rates and see where they are sitting at in comparison to the six months to a year prior.
An adjustable rate mortgage is a good idea for people who only plan on staying in a house for a few years – from three to five years. Taking advantage of the lower interest rate that accompanies an adjustable rate mortgage is a good idea in this case. It means that you will ‘pay less’ for the home that you will be living in over the period of the three to five years, and gain more in equity in your home.
The Cons of an Adjustable Rate Mortgage
The biggest issue with an adjustable rate mortgage is that the interest rate will rise and thusly, so will your monthly mortgage payments. You have to decide whether the gamble is worth it or not. If you are looking at getting a raise in the next year from your job, then you may be able to handle an increase in your mortgage payments.
Some of the adjustable rate mortgages that are offered by lending institutions have a prepayment penalty, which you incur if you pay the mortgage off early. By having this prepayment penalty, you could be opening yourself up to a lot of strife – having a prepayment penalty on your mortgage contract is never a good idea because you simply just do not know what the future will bring.
You must also consider the payment cap. A payment cap sounds great – your mortgage payment can not go above “x” amount of dollars, however, that doesn’t mean that the interest charge is capped. If the interest rate raises high enough that you go over your payment cap, the lender adds the interest to your mortgage debt, which then finds you in the position of paying interest on the interest. This can translate to you paying much more for your home than you did when you bought it – this is called negative amortization. Many lenders have a cap on negative amortization that you can have, and if you reach that point, your payment cap goes out the window and your mortgage’s monthly payments are adjusted to begin repaying the negative amortization debt.
Factors that can go either way
There are a few factors of adjustable rate mortgages that can fall on either side of the pro/con debate. Due to the fact that there are many different types of adjustable rate mortgages available from different lenders, it’s important that you research the adjustable rate mortgage and find out whether it is right for you. Some of the ‘ambiguous’ factors that you have to consider can make or break the decision to go with an adjustable rate mortgage.
One of the first things you need to consider is the lifetime interest rate cap on the mortgage. This is the maximum amount that the interest rate can raise through the period of the mortgage. There are also the periodic adjustment caps that limit the amount that your mortgage interest rate can raise from one adjustment period to the next. The law states that adjustable rate mortgages have some type of lifetime cap.
Most lenders use one of the index rates to base their interest rates on. The index rates change and fluctuate with the movement of the economy. To determine the interest rate that you will be charged, the lender adds a margin (profit percentage) to the index rate. The margin that the lender will add is also important – it determines your future interest rates with an adjustable rate mortgage. The margin is different from lender to lender, so it’s important to find out what the margin is.
Saturday 8 August 2009 @ 9:08 pm
Berk Akman asked:
Size of the Turkish Mortgage Market
The Turkish mortgage market has shown promising growth in the last few years. While the existing mortgage loans had a share of only 0.6 percent of the GDP in 2004, the share jumped to 2.6 percent in 2005, and then to 4 percent in 2006. Currently the existing mortgage loans are about 31 billion YTL, which is about 5 percent of GDP.
These statistics clearly show that mortgage market has been growing faster than the rest of the economy. As described below we expect that it will likely to continue this trend in the near future too. The rapid growth has been fueled by primarily by economic factors such as falling interest rates and improving economic stability but also by characteristic factors for Turkey such as solid population growth and strong ownership culture.
For 2008 we anticipate that the fast growth in the mortgage market will continue amid the continued decrease in the interest rates. Assuming that inflation will move towards targeted 4 percent and Turkey’s macroeconomic indicators will not get weaker in 2008, we expect that the interest rates will continue to fall in 2008. In addition, when the secondary mortgage market starts, capital markets will start to share the risk of mortgages and the cost of getting a mortgage loan will likely decrease further.
Based on these conjectures, we anticipate that the annualized growth in the mortgage market in the beginning of 2008 will average about 40 percent and then will accelerate to about 50 percent as long run interest rates decrease to 1 percent in the second half of 2008. Based on these predictions, we find that by the end of 2008, the mortgage loans will be about 47 billion YTL, making about 6.5 percent of the GDP then.
Looking even further, based on the assumption of continued decrease in the interest rates, and recently announced plan of inflation falling to 4 percent as planned in 2008, 2009, and 2010, our models predict that by end of 2012 the mortgage loans can be as large as 15 to 18 percent of the GDP.
Let’s also note that we believe that there two major risks to our forecasts for 2008: The first is a turmoil in the global economy and especially world’s financial markets driven by a recession in the USA. The second one is a domestic financial crisis probably caused by a current account imbalance. In either case, it would be very hard to predict the growth of the mortgage market for 2008.
Predictions on the Structure of the Mortgage Market
We believe that in 2008, the Turkish mortgage market structure will start to see several important changes:
1) Increase in refinance activity: Currently the majority of the new mortgage agreements are issuances of new mortgages and refinancing of mortgages does not take a large share in the market, however, we believe that starting in 2008, the refinancing will start to take a significant share in the market amid the decreasing interest rates. If the interest rates continue to decrease, the share of refinance activity can be even more than half of the total mortgage applications in a very short time.
2) Variable rate mortgages: Currently 99.9 percent of all mortgages are fixed rate mortgages. This is not surprising as variable rate instruments are very new in Turkey and the risk and benefits of these new instruments are not very understood yet. In addition, the very large movements in the interest rates and exchange rates in early 2000s and accompanying bankruptcies are still fresh in the memories of Turkish people and created a crisis-awaiting culture. However, we believe that the advantages of the variable rate mortgages will start to draw more people and its share will start to increase slowly in 2008. But for this, banks should reduce the interest rates of the variable rate mortgages, which did not happen so far because of the lack of competition in this type of products. We anticipate that as the competition among mortgage lenders increase, we will start to see more favorable variable rate mortgage instruments soon.
3) Lending institutions: Currently all mortgages are offered by banks; however, in 2008 consumer funding companies that are allowed to invest in capital markets to create funds for the home loans will start to offer mortgages. These new lenders will start to change the market structure as they may be less structured and flexible than the banks.
4) Secondary mortgage market: Secondary mortgage market is expected to start in 2008. We expect that at the beginning, the secondary market will be experimental without causing a significant immediate change in the interest rates, however, as the market matures, it will be one of the most important pillars of the mortgage market. It is hard to predict the role of the secondary market right now, but it is worth noting that secondary mortgage markets tend to play an important role in a few years after it started. For example, in the USA, mortgages trades in the secondary market started in 1970, and in 1972 it represented 4 percent of the total mortgage debt, the share increased to 9 percent in 1979, and then to 16 percent in 1982. In order to see comparable growth in the Turkish secondary mortgage market, corporations such as Freddie Mac should be founded, otherwise, the growth will be much slower.
The benefits of the securitization are reduced interest rates for the borrower, increase in the credit availability, liquidity increase for the lenders, and increased efficiency in the mortgage markets.
When mortgage markets merge with the capital markets through securitized mortgage loans, the market interest rates will quickly impact the mortgage interest rates.
Briefly, we expect that in 2008, growth of the mortgage market will continue its pace and in addition it will continue going through important structural changes that will cause even more growth in the coming years.
Size of the Turkish Mortgage Market
The Turkish mortgage market has shown promising growth in the last few years. While the existing mortgage loans had a share of only 0.6 percent of the GDP in 2004, the share jumped to 2.6 percent in 2005, and then to 4 percent in 2006. Currently the existing mortgage loans are about 31 billion YTL, which is about 5 percent of GDP.
These statistics clearly show that mortgage market has been growing faster than the rest of the economy. As described below we expect that it will likely to continue this trend in the near future too. The rapid growth has been fueled by primarily by economic factors such as falling interest rates and improving economic stability but also by characteristic factors for Turkey such as solid population growth and strong ownership culture.
For 2008 we anticipate that the fast growth in the mortgage market will continue amid the continued decrease in the interest rates. Assuming that inflation will move towards targeted 4 percent and Turkey’s macroeconomic indicators will not get weaker in 2008, we expect that the interest rates will continue to fall in 2008. In addition, when the secondary mortgage market starts, capital markets will start to share the risk of mortgages and the cost of getting a mortgage loan will likely decrease further.
Based on these conjectures, we anticipate that the annualized growth in the mortgage market in the beginning of 2008 will average about 40 percent and then will accelerate to about 50 percent as long run interest rates decrease to 1 percent in the second half of 2008. Based on these predictions, we find that by the end of 2008, the mortgage loans will be about 47 billion YTL, making about 6.5 percent of the GDP then.
Looking even further, based on the assumption of continued decrease in the interest rates, and recently announced plan of inflation falling to 4 percent as planned in 2008, 2009, and 2010, our models predict that by end of 2012 the mortgage loans can be as large as 15 to 18 percent of the GDP.
Let’s also note that we believe that there two major risks to our forecasts for 2008: The first is a turmoil in the global economy and especially world’s financial markets driven by a recession in the USA. The second one is a domestic financial crisis probably caused by a current account imbalance. In either case, it would be very hard to predict the growth of the mortgage market for 2008.
Predictions on the Structure of the Mortgage Market
We believe that in 2008, the Turkish mortgage market structure will start to see several important changes:
1) Increase in refinance activity: Currently the majority of the new mortgage agreements are issuances of new mortgages and refinancing of mortgages does not take a large share in the market, however, we believe that starting in 2008, the refinancing will start to take a significant share in the market amid the decreasing interest rates. If the interest rates continue to decrease, the share of refinance activity can be even more than half of the total mortgage applications in a very short time.
2) Variable rate mortgages: Currently 99.9 percent of all mortgages are fixed rate mortgages. This is not surprising as variable rate instruments are very new in Turkey and the risk and benefits of these new instruments are not very understood yet. In addition, the very large movements in the interest rates and exchange rates in early 2000s and accompanying bankruptcies are still fresh in the memories of Turkish people and created a crisis-awaiting culture. However, we believe that the advantages of the variable rate mortgages will start to draw more people and its share will start to increase slowly in 2008. But for this, banks should reduce the interest rates of the variable rate mortgages, which did not happen so far because of the lack of competition in this type of products. We anticipate that as the competition among mortgage lenders increase, we will start to see more favorable variable rate mortgage instruments soon.
3) Lending institutions: Currently all mortgages are offered by banks; however, in 2008 consumer funding companies that are allowed to invest in capital markets to create funds for the home loans will start to offer mortgages. These new lenders will start to change the market structure as they may be less structured and flexible than the banks.
4) Secondary mortgage market: Secondary mortgage market is expected to start in 2008. We expect that at the beginning, the secondary market will be experimental without causing a significant immediate change in the interest rates, however, as the market matures, it will be one of the most important pillars of the mortgage market. It is hard to predict the role of the secondary market right now, but it is worth noting that secondary mortgage markets tend to play an important role in a few years after it started. For example, in the USA, mortgages trades in the secondary market started in 1970, and in 1972 it represented 4 percent of the total mortgage debt, the share increased to 9 percent in 1979, and then to 16 percent in 1982. In order to see comparable growth in the Turkish secondary mortgage market, corporations such as Freddie Mac should be founded, otherwise, the growth will be much slower.
The benefits of the securitization are reduced interest rates for the borrower, increase in the credit availability, liquidity increase for the lenders, and increased efficiency in the mortgage markets.
When mortgage markets merge with the capital markets through securitized mortgage loans, the market interest rates will quickly impact the mortgage interest rates.
Briefly, we expect that in 2008, growth of the mortgage market will continue its pace and in addition it will continue going through important structural changes that will cause even more growth in the coming years.
