Different Mortgage Types Match Your Finance Needs
If you are thinking about making a real estate purchase, you may find the financing options quite confusing. Before you can proceed, you have to know your terms, and understand what your options are.
There are two variables to consider – mortgage type, and interest rates. These are the most important considerations when deciding on real estate, so it is essential that you have a basic understanding of what they are. Your two main options are repayment and interest-only types, and under those are more specific kinds.
Repayment Mortgages
This type of financing operates like a simple loan. Every month, you make a payment and the money goes to both the capital (the actual home itself) and the interest. The loan lasts a certain period of time, and if you make all of your payments according to schedule, you will have both the interest and capital paid off at the end of that term.
Interest-Only Mortgages
With this type of payment option, you are making your payments to the lender for the interest only. These loans have other options for paying off the capital in a lump sum. These have their benefits, but they are only good for those who can definitely make those payments according to schedule. If you do not keep up your payments, you risk losing the loan.
You will be saving the money for the capital in a savings plan of some sort, like a pension plan, ISA or endowment. At a certain time, that saved money will be used to pay for the mortgage, and the interest will already have been paid off.
- Endowment Mortgages.
With this type of financing, you are paying money into a life insurance plan. Those funds will eventually be used for the house. At the end of the term, this money will go to the house. The advantage is that you are not only saving for your mortgage, but also getting life insurance. If you die during the payment period, the loan will still be paid off so your family doesn’t have to worry. You also might end up with extra cash left over after it’s paid off.
- ISA Mortgages. With an ISA, your monthly payments are being split two ways. One part is used to pay the interest on the principle (or original amount you borrowed), and the other goes into an ISA plan, which is invested. Part of the ISA plan will be simple savings, and the rest will go into stocks and other investments. This is an excellent way to pay off your loan like a repayment mortgage, but save lots of money on taxes.
- Pension Mortgages. You pay money into a pension that will be used to pay for the house when you retire. This option is usually only available to those who are self-employed. You are basically saving for both your home and retirement, so you have to make sure that there will be enough when you retire for the house and to take care of you throughout the rest of your life. With this type, you pay almost no tax on your house, and end up saving all that extra money.
Once you’ve decided which payment plan is best for you, you will have to choose an interest rate. Whether you need a fixed interest rate, variable rate or capped rate will depend on your lender and your own personal needs. Having advanced knowledge about your options will let you select the plan best suited to you and your future.
Knowing which of the different mortgage types suits you helps with financing your home. The terms can often be complicated, so awareness of your financing and payment options can only make things easier. Get the information you need from a New Orleans Realtor. http://www.thelatourteam.com
Mortgage Financing FAQ:
Question: Can you apply for both a conventional and FHA mortgage at the same time?
We are purchasing a new home and the builder is upset we are applying for a FHA Mortgage. The contract was written that we would go conventional, however, FHA is a lower monthly payment, lower interest rate. They are telling me that I need to get a commitment for both types of mortgages – can I do that?
Answer: The question might be, “Would you even want to do that?” And, “Will the lender do it?”
Sadly, there are those in the real estate business these days who feel that more work AND time are required to process FHA mortgages. Some also falsely believe that the borrower who can qualify and obtain a conventional mortgage loan is a “better” applicant for the mortgage. For them, “better” applicants mean a higher likelihood that everything will go okay and they will sell the house and get their commission check or fee. The “commission” is what it all boils down to.
I am equally amazed that this builder cannot see that requiring you and the lender to do double work could cause a delay in closing the loan. More is likely to go wrong just because the buyer has 2 files being processed. Is the home being built or is it already standing? And what about the fees to lock in the interest rate for 2 loans if your lender requires you to pay a lock fee? I can imagine that if you want 2 loans processed, and the lender agrees, expect to pay for it in some way.
It will boil down to how much you want this house and how desperate the builder is (if at all). AND what happens on the lender side will be crucial. If you decide to go along with this scenario, then you certainly would want a lender who does both FHA and conventional. Along with a mortgage person who has no problem doing double duty in crunch time.
Question: I am late on my mortgage and 4 credit cards…?
I would like to seek legal advice but do not know what type of attorney can help me with this. I am looking to possibly lower my current mortgage amount, down to what my home is currently valued at. Also, I’d like to make amends with the credit card companies that I owe so that I can get back on track. Any suggestions?
Answer: You really don’t need a lawyer. You just need to call the mortgage compant and see if you’re late enough for them to lower your mortgage or interest rate; it may take a few days for them to respond since everyone’s asking the same thing.
The same with the credit cards: you can call and ask if they’ll take 50 cents on the dollar, or what they’ll do to reinstate your account. Just call these guys. It’s not like a few years ago–now they are more willing to work with you.
Question: Which mortgage should I get ?
My parents took half of the value of their property (they were mortgage free) so that I could buy my first house. They had Interest only for 2 years, which is now coming to an end. So I own my property outright, but I obviously have to repay them! The trouble is I’m so confused about the different types of mortgages that are available, what do I need if I own the property outright? I need to take around 68k out of my property to pay them back, my house is probably only worth approx 75k at the moment (we still have a little work to do on it).
I’m sure I want a fixed rate mortgage but I’m not classed as a first time buyer, or remortgage or buy to let or anything else! Is equity release the only way ?
Answer: You really need to speak to an independent mortgage adviser who will ask you various other questions (incomes etc), and then explain your options. You need to raise a remortgage on an ‘unencumbered property’.
Based on your figures you will need a 90% mortgage, which is almost impossible in the current market.
You will probably have to pay your parents interest only payments until the market picks up.
By the way ‘Equity Release’ is the term normally given to roll up interest mortgages for the over 55′s.
Question: Hope for Homeowners mortgage help?
I went through 6 months of working with Chase bank to modify my mortgage under the Hope for Homeowners program, which I qualify for. I finally get a letter from them saying that the investor objects, so my loan will not be altered. Are there any other possibilities in this type of situation? At this point, if nothing is done, my home will go into forclosure in the next year.
Answer: You could try calling 888 995 HOPE to see if there are any other programs out there to help you. Some options, ask lender to accept deed in lieu of for closure, if no, then ask if you can short sale the propriety. You could talk with Realtors in the area to see if there are any investors who might be interested in buying your home. Maybe you could take in a renter for awhile, until you can get on your feet. If you plan to let the house go back to the bank, at least you would have some additional income from the renter with which to use in finding a place to rent once you do have to move. Last resort file bankruptcy.
Question: What type of mortgage FHA or Conventional? Looking to put down 20%.?
My wife and I have found a condo in NYC that we are close to making an offer on. We have 20% to put down and have already been pre-approved. Which loan type is better, FHA or Conventional? We will be going through the options with our lender, but I would like to get some 3rd party feedback here beforehand. We are first time buyers, so any help much appreciated.
Answer: If you have 20% down conventional is always better- no mortgage insurance required and slightly lower rates & costs. FHA insured loans are primarily for people who can’t afford the insurance for their conventional loan. And since you’re a first time home buyer and have no “hardships” established with a previous home, I think you’ll end up with a conventional loan.
Question: I have a question regarding private mortgage loans?
This might be a really dumb question but it’s legit. This is about investing by doing private mortgage loans. I was wondering when you are doing a private mortgage loan and your charging… lets say 10% interest on a $50,000 loan… does that mean your charging 10% interest a month or does that mean a year? If you can give me any kind of feedback about this type of investing.
Answer: That normally means you are charging 10% per year. Mortgage rates are normally quoted as annual rates. It’s all good until a bankruptcy judge writes down the debtor’s debt and you eat the difference.
Question: Fha mortgage tradeline question?
I need 2 more tradelines to obtain a mortgage. Do instant approval prepaid type cards that report to all the credit bureaus count as a tradeline?
Answer: Yes they do, you can also add alternative trade lines to your credit report.
Question: Anyone familiar with financing a home mortgage with “premium pricing”?
I will be closing on a new home in November. Because I will pay off the entire mortgage within 19 months of closing, one mortgage company suggested that we finance the mortgage with “premium pricing” in order to minimize closing costs, etc. I just wondered if this option is available today given the current interest rates and is this a good approach for me to take.
Answer: You will have to compare the numbers, but the “premium” is designed to make the lender money even though you plan to pay the loan off quickly and he won’t make any interest income after you do.
According to one web article, lenders generally do not make money on a loan until the second year, which is right when you want to pay of the loan.