Mortgage on a property is a very serious commitment one which you should not enter into lightly. The very first point to consider is the product which suits you. Since there are a lot of different products on the market, so choosing the right one is the first hurdle to cross. Below is a list of different mortgages:-
1)Repayment mortgage.. Where your monthly payments include interest on the outstanding money on your mortgage as well as a portion of the capital itself.
2)Interest only mortgages.. Your monthly payments just the interest element on the money that your borrowed.
3)Discounted mortgages.. Interest rate on your borrowing is discounted by an amount for a fixed period of time. For example, discounted for 2 years and then they revert back to the normal variable interest rate.
4)Tracker mortgage… These as the name suggest track the interest rate of the central bank. For example, the borrower agrees to pay 0.65 above the central bank rate as his interest.
5)The much talked about … the endowment mortgage. With this type of mortgage, you buy an insurance policy and use that as cash builder to hopefully pay for your mortgage when it falls due at the end of the full term.
6)One account mortgages.. Where payments can be made as flexible as you want but the interest rate accrues for the holiday periods chosen by you.
The above list is by no means exhaustive. There are other products on the market as well and more in the pipeline each and everyday.
Which mortgage suits you?
Each mortgage option has implications for your monthly outgoing. For example, paying just the interest element on your mortgage may appear to be the cheaper option for your cashflow but at the end of the term you still owe the lender the money which you borrowed to acquire your property. The repayment mortgage on the other hand may well be the best option but your monthly outgoing are likely to be higher.
Because any mortgage will drastically reduce your cost of living, choosing the right mortgage should be your top priority to provide both a home for yourself as well as maintaining a reasonable standard of living.
Finally before you can have any mortgage you need to satisfy the lender of two essential criterion:-
1)Property value… as the lending is secured against the property, the value of the property should be higher or equivalent to the money being borrowed.
2)Your affordability.. Whether you can afford to keep up with the payments hence the reason for tests such as proof of income and previous track record are used to provide for an independent assessment of your ability to service the borrowing.
http://article-86-30661.at.xyarticles.com/Mortgage_Consider_All_Mortgages_And_Options_Before_Committing_Yourself/
Monday, August 27, 2007
Repayment Mortgage and its Elements.
Repayment mortgage is a more traditional mortgage for it is a very simple form of borrowing for residential home purchases. For its shear simplicity, it is also the oldest product on the market. A customer borrows money to buy their home… provided they fulfil the lending criteria.. money is advanced and the transaction is made.
The provided of the money actually secures his/her money for the most part against the property/home itself. The borrower for his/her part makes regular monthly payments over a pre-agreed time period. All being well, the borrower and the lender part company, hopefully amicably, at the end of the mortgage duration.
Mortgages used to run for 20 to 25 year period in the UK and elsewhere in Europe. However, since property prices have been rising upwards over the past 50 years, there are mortgage products available for 30 or so year periods. In Japan, it is not uncommon to find mortgage products on the market that run their course over a couple of generations; 50 to 100 year period.
Opting for a repayment mortgage appears to have advantages over other mortgages. One distinct advantage is that you are actually paying your capital as well as the interest right from day one. It is an advantage because you are not relying on some other mechanism to generate money to repay your mortgage. Consider the example of an endowment mortgage… where an investment is made into a fund.. which grows at the rate of the market… The rate of growth can vary between 5% to 20% depending on the market conditions. The difference in growth between 5% and 20% exposes the investor to some very serious risk. Using the repayment mortgage, you pre-empt any risk of shortfalls when you reach your agreed term time.
Senerio: How does the repayment mortgage actually work?
Total borrowing: $100,000
Term: 20 years
Initial interest rate: 5%
Each payment instalment contains an interest element and a capital repayment component. Therefore, first instalment @ 5% interest rate
= $416.67 + $300 (to repay the capital) = $716.67
12 months later, the monthly instalment will be =$401.67 + $ 300 = $701.67. The reason for reduction is interest element is as follows:-
1)The payment for the capital over 12 months period are $3,600.
2)This $3,600 (money paid) reduces the capital still outstanding to $96,400 from $100,000 the amount originally borrowed.
3)The reduction in interest payment to $401.67 from $416.67 per month is due to reduction in capital
The point being that the interest element will continue to reduce at a constant rate. In fact, towards the end of the mortgage term the bigger of the two elements namely the interest and the capital portion will be the capital element. The monthly outgoing will reduce in proportion to the reduction in the interest portion.
Finally, although the payment for the repayment mortgage started high. Admittedly, the initial payments are higher by comparison to say an interest only mortgage. Therefore, there are implications in cashflow terms and also standard of living for the borrower. This factor alone may appear to be a distinct disadvantage at the very start but the borrower is better off in the long run. Better off, because the monthly repayments reduce on a sliding scale to a much lower figure towards the end of the term. The other huge benefit for the borrower is that he/she does not have to make any lump sum payment at the end of the mortgage term. So, when you make your 240th payment the property is your to do as you please … it is totally unencumbered… free from any debt.. so no third party is holding any legal charge over it…
http://article-180-3014.at.xyarticles.com/Repayment_Mortgage_and_its_Elements/
The provided of the money actually secures his/her money for the most part against the property/home itself. The borrower for his/her part makes regular monthly payments over a pre-agreed time period. All being well, the borrower and the lender part company, hopefully amicably, at the end of the mortgage duration.
Mortgages used to run for 20 to 25 year period in the UK and elsewhere in Europe. However, since property prices have been rising upwards over the past 50 years, there are mortgage products available for 30 or so year periods. In Japan, it is not uncommon to find mortgage products on the market that run their course over a couple of generations; 50 to 100 year period.
Opting for a repayment mortgage appears to have advantages over other mortgages. One distinct advantage is that you are actually paying your capital as well as the interest right from day one. It is an advantage because you are not relying on some other mechanism to generate money to repay your mortgage. Consider the example of an endowment mortgage… where an investment is made into a fund.. which grows at the rate of the market… The rate of growth can vary between 5% to 20% depending on the market conditions. The difference in growth between 5% and 20% exposes the investor to some very serious risk. Using the repayment mortgage, you pre-empt any risk of shortfalls when you reach your agreed term time.
Senerio: How does the repayment mortgage actually work?
Total borrowing: $100,000
Term: 20 years
Initial interest rate: 5%
Each payment instalment contains an interest element and a capital repayment component. Therefore, first instalment @ 5% interest rate
= $416.67 + $300 (to repay the capital) = $716.67
12 months later, the monthly instalment will be =$401.67 + $ 300 = $701.67. The reason for reduction is interest element is as follows:-
1)The payment for the capital over 12 months period are $3,600.
2)This $3,600 (money paid) reduces the capital still outstanding to $96,400 from $100,000 the amount originally borrowed.
3)The reduction in interest payment to $401.67 from $416.67 per month is due to reduction in capital
The point being that the interest element will continue to reduce at a constant rate. In fact, towards the end of the mortgage term the bigger of the two elements namely the interest and the capital portion will be the capital element. The monthly outgoing will reduce in proportion to the reduction in the interest portion.
Finally, although the payment for the repayment mortgage started high. Admittedly, the initial payments are higher by comparison to say an interest only mortgage. Therefore, there are implications in cashflow terms and also standard of living for the borrower. This factor alone may appear to be a distinct disadvantage at the very start but the borrower is better off in the long run. Better off, because the monthly repayments reduce on a sliding scale to a much lower figure towards the end of the term. The other huge benefit for the borrower is that he/she does not have to make any lump sum payment at the end of the mortgage term. So, when you make your 240th payment the property is your to do as you please … it is totally unencumbered… free from any debt.. so no third party is holding any legal charge over it…
http://article-180-3014.at.xyarticles.com/Repayment_Mortgage_and_its_Elements/
Rent To Own As A Path To Home Ownership
The traditional method of buying a home is putting 20% down, after qualifying for a mortgage from a reputable financial institution. It also includes meeting the bill of a perfect to premium credit rating.
The traditional method works great for those who have all the requirements to fulfill their dreams of home ownership.
But, what happens if you've hurt your credit rating as a result of divorce, medical bills or slow payment?
Does it mean you are destined to life as a renter?
It doesn't have to be that way if you are aware of how one can Rent To Own a home and rebuild their credit at the same time.
The Rent To Own option also doesn't require a whooping 20% down, perfect or premium credit rating or a stamp of approval from a banking institution.
So, what does Rent To Own require and why would someone consider the option to Rent To Own to become a homeowner?
What Rent To Own requires:
1. Is that you want to own a home ... over being a renter?
2. You are capable of paying your monthly payment on time every month. This is a critical step as it allows one to season the loan in their name.
It's important that you understand the importance of seasoning the loan with you as the payer of that loan month after month.
So, what exactly is seasoning a loan?
Seasoning is an important step because what it provides is that through one's monthly payments on the home they will be contracting to purchase through Rent To Own, they make those monthly payments in their name, which is termed Seasoning The Loan... At the same time, a professional Mortgage Broker is guiding them along the path to ensure that they fully qualify for a loan within 12-24 months based on their making timely monthly payments on the home, while living in the home with a contract with the Option To Purchase the home within the 12-24 months, or whatever terms are agreed upon by the seller and buyer.
It is important that you understand that you will have the option to purchase the home within the 12-24 months or agreed upon time frame.
This means that one can change their mind and decide not to purchase the home (choose not to Exercise The Option), within the 12-24 months and choose to move out and move on with their life.
Who would consider Rent To Own as a path to home ownership?
1. Someone who has found out they have to relocate because their job has transferred. (A Rent To Own offers someone who has to relocate the option to move into a home with a limited amount of money, known as option consideration money, which will be applied to the sale price of the home if the buyer decides to exercise their option to purchase and close on the home in the next, normally 12-24 months.)
2. Another situation that would benefit from a Rent To Own as a path to home ownership is a person or couple who want to purchase a home but haven't managed to save up the 20% down required by a banking institution.
This person or persons may have very little credit or a slightly unfavorable credit rating, which would prevent them from immediately qualifying for a bank institution home loan.
3. The Rent To Own path can also be a path for someone who has gone through a bankruptcy. Yes, it is possible to acquire a home through the Rent To Own path if you've gone through a bankruptcy.
The Rent To Own path to home ownership is as implied, meaning you have the right to exercise your option to purchase the home at the agreed upon price within the time frame agreed upon... but you don't have to exercise your option to purchase the home.
It is equally important to know the terminology of Rent To Own, also known as Lease Option, Lease Option To Purchase, Lease Option To Buy and in some situations (OWC) Owner Will Carry...
There are also words and phrases that signal the opportunity of a Rent To Own ... Words, such as: No Bank Qualifying; No Credit Qualifying; Rent Credit; Creative Financing, etc.
So ... what a Rent To Own offers is a path to home ownership over a lifetime as a renter.
There are many other Rent To Own arrangements to home ownership, which are agreed upon by the parties entering into the Rent To Own agreement.
Rent To Own is far from a one size fits all and opens up an array of creative terms and conditions that satisfy both the Seller and the Buyer. (And that Rent To Own Buyer can be you.)
http://article-102-157721.at.xyarticles.com/Rent_To_Own_As_A_Path_To_Home_Ownership/
The traditional method works great for those who have all the requirements to fulfill their dreams of home ownership.
But, what happens if you've hurt your credit rating as a result of divorce, medical bills or slow payment?
Does it mean you are destined to life as a renter?
It doesn't have to be that way if you are aware of how one can Rent To Own a home and rebuild their credit at the same time.
The Rent To Own option also doesn't require a whooping 20% down, perfect or premium credit rating or a stamp of approval from a banking institution.
So, what does Rent To Own require and why would someone consider the option to Rent To Own to become a homeowner?
What Rent To Own requires:
1. Is that you want to own a home ... over being a renter?
2. You are capable of paying your monthly payment on time every month. This is a critical step as it allows one to season the loan in their name.
It's important that you understand the importance of seasoning the loan with you as the payer of that loan month after month.
So, what exactly is seasoning a loan?
Seasoning is an important step because what it provides is that through one's monthly payments on the home they will be contracting to purchase through Rent To Own, they make those monthly payments in their name, which is termed Seasoning The Loan... At the same time, a professional Mortgage Broker is guiding them along the path to ensure that they fully qualify for a loan within 12-24 months based on their making timely monthly payments on the home, while living in the home with a contract with the Option To Purchase the home within the 12-24 months, or whatever terms are agreed upon by the seller and buyer.
It is important that you understand that you will have the option to purchase the home within the 12-24 months or agreed upon time frame.
This means that one can change their mind and decide not to purchase the home (choose not to Exercise The Option), within the 12-24 months and choose to move out and move on with their life.
Who would consider Rent To Own as a path to home ownership?
1. Someone who has found out they have to relocate because their job has transferred. (A Rent To Own offers someone who has to relocate the option to move into a home with a limited amount of money, known as option consideration money, which will be applied to the sale price of the home if the buyer decides to exercise their option to purchase and close on the home in the next, normally 12-24 months.)
2. Another situation that would benefit from a Rent To Own as a path to home ownership is a person or couple who want to purchase a home but haven't managed to save up the 20% down required by a banking institution.
This person or persons may have very little credit or a slightly unfavorable credit rating, which would prevent them from immediately qualifying for a bank institution home loan.
3. The Rent To Own path can also be a path for someone who has gone through a bankruptcy. Yes, it is possible to acquire a home through the Rent To Own path if you've gone through a bankruptcy.
The Rent To Own path to home ownership is as implied, meaning you have the right to exercise your option to purchase the home at the agreed upon price within the time frame agreed upon... but you don't have to exercise your option to purchase the home.
It is equally important to know the terminology of Rent To Own, also known as Lease Option, Lease Option To Purchase, Lease Option To Buy and in some situations (OWC) Owner Will Carry...
There are also words and phrases that signal the opportunity of a Rent To Own ... Words, such as: No Bank Qualifying; No Credit Qualifying; Rent Credit; Creative Financing, etc.
So ... what a Rent To Own offers is a path to home ownership over a lifetime as a renter.
There are many other Rent To Own arrangements to home ownership, which are agreed upon by the parties entering into the Rent To Own agreement.
Rent To Own is far from a one size fits all and opens up an array of creative terms and conditions that satisfy both the Seller and the Buyer. (And that Rent To Own Buyer can be you.)
http://article-102-157721.at.xyarticles.com/Rent_To_Own_As_A_Path_To_Home_Ownership/
Home Buying – What Can You Afford?
Okay, you’ve decided to buy a home and are trying to figure out what you can afford. Before you go home buying, you need to carefully consider what you can afford as far as a mortgage payment.
Mortgage Payments
The first step you should take in determining what you can afford is to talk to a mortgage lender. In fact, the best step you can take is to go through the loan process to the extent required to get a pre-qualification letter. A pre-qualification letter tells you and a seller how big of a home loan the lender will give you.
So, once you have the loan in hand, that must be the amount you can afford? The answer is maybe or maybe not. The prequalification letter is based on a number of factors such as your earnings and credit. It is not based on a picture of your life, which can lead to problems.
Other Expenses
There is nothing worse than buying a home and straining to make the monthly mortgage payments. This situation occurs when a homebuyer relies solely on the pre-qualification letter or their own wishful thinking. You may have purchased your dream home, but don’t let the payments be a nightmare.
In determining how much you can afford to expend on a home purchase, you must consider your overall financial situation. Although you may be in a decent financial situation at the moment, do you have future expenses that will put pressure on your finances? Such situations might include:
1. Planning to have kids in the next year or so?
2. Are your current children going to college soon?
3. If you own a business, is the financial outlook stable?
4. If you work for a company, are you reasonably sure the company is headed in the right direction?
5. Do you have any concerns regarding the dreaded downsizing?
6. If you are the sole bread winner, what would happen if you were unable to work for a few months because of health issues?
These general questions are intended to wake you up to the possibility of over extending yourself on a mortgage. Every situation is different, so make sure you take a careful look at your life to make sure you are committing to a loan you can afford now and in the future.
http://article-99-16716.at.xyarticles.com/Home_Buying_What_Can_You_Afford/
Mortgage Payments
The first step you should take in determining what you can afford is to talk to a mortgage lender. In fact, the best step you can take is to go through the loan process to the extent required to get a pre-qualification letter. A pre-qualification letter tells you and a seller how big of a home loan the lender will give you.
So, once you have the loan in hand, that must be the amount you can afford? The answer is maybe or maybe not. The prequalification letter is based on a number of factors such as your earnings and credit. It is not based on a picture of your life, which can lead to problems.
Other Expenses
There is nothing worse than buying a home and straining to make the monthly mortgage payments. This situation occurs when a homebuyer relies solely on the pre-qualification letter or their own wishful thinking. You may have purchased your dream home, but don’t let the payments be a nightmare.
In determining how much you can afford to expend on a home purchase, you must consider your overall financial situation. Although you may be in a decent financial situation at the moment, do you have future expenses that will put pressure on your finances? Such situations might include:
1. Planning to have kids in the next year or so?
2. Are your current children going to college soon?
3. If you own a business, is the financial outlook stable?
4. If you work for a company, are you reasonably sure the company is headed in the right direction?
5. Do you have any concerns regarding the dreaded downsizing?
6. If you are the sole bread winner, what would happen if you were unable to work for a few months because of health issues?
These general questions are intended to wake you up to the possibility of over extending yourself on a mortgage. Every situation is different, so make sure you take a careful look at your life to make sure you are committing to a loan you can afford now and in the future.
http://article-99-16716.at.xyarticles.com/Home_Buying_What_Can_You_Afford/
Benefits of Owning Your Own Home
The Best Investment
As a fairly general rule, homes appreciate about five percent a year. Some years will be more, some less. The figure will vary from neighborhood to neighborhood, and region to region.
Five percent may not seem like that much at first. Stocks (at times) appreciate much more, and you could earn over six percent with the safest investment of all, treasury bonds.
But take a second look…
Presumably, if you bought a $200,000 house, you did not pay cash for the home. You got a mortgage, too. Suppose you put as much as twenty percent down – that would be an investment of $40,000.
At an appreciation rate of 5% annually, a $200,000 home would increase in value $10,000 during the first year. That means you earned $10,000 with an investment of $40,000. Your annual "return on investment" would be a whopping twenty-five percent.
Of course, you are making mortgage payments and paying property taxes, along with a couple of other costs. However, since the interest on your mortgage and your property taxes are both tax deductible, the government is essentially subsidizing your home purchase.
Your rate of return when buying a home is higher than most any other investment you could make.
If you are moving to a home for the first time, you are going to be very pleased with all the new space you have available. You may have to even buy more "stuff."
http://www.mercerisland.net/real_estate/library/homebuying/benefits.asp
As a fairly general rule, homes appreciate about five percent a year. Some years will be more, some less. The figure will vary from neighborhood to neighborhood, and region to region.
Five percent may not seem like that much at first. Stocks (at times) appreciate much more, and you could earn over six percent with the safest investment of all, treasury bonds.
But take a second look…
Presumably, if you bought a $200,000 house, you did not pay cash for the home. You got a mortgage, too. Suppose you put as much as twenty percent down – that would be an investment of $40,000.
At an appreciation rate of 5% annually, a $200,000 home would increase in value $10,000 during the first year. That means you earned $10,000 with an investment of $40,000. Your annual "return on investment" would be a whopping twenty-five percent.
Of course, you are making mortgage payments and paying property taxes, along with a couple of other costs. However, since the interest on your mortgage and your property taxes are both tax deductible, the government is essentially subsidizing your home purchase.
Your rate of return when buying a home is higher than most any other investment you could make.
If you are moving to a home for the first time, you are going to be very pleased with all the new space you have available. You may have to even buy more "stuff."
http://www.mercerisland.net/real_estate/library/homebuying/benefits.asp
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