Fixed Mortgages
15 vs. 30 Year Mortgage Loans
Whatever happens when you want to purchase property, the chances are you will need some form of mortgage loan. Your home is going to be the most expensive thing you ever buy, and luckily you don't have to be able to afford it all at once. However, getting a mortgage loan requires thought and investigation, as the range of products on offer from loan companies can really be mind-boggling. As you are going to be paying this back for on average 25 years or more, you want to make sure you are getting the best deal for you.
Finding the right mortgage can seem overwhelming, but fortunately there a few things to keep in mind. Mortgage loans should be flexible so that you can retain your options to change products, which can be crucial if the state of the economy suddenly changes. One of the main things that you want to achieve is to save as much money as possble, and unfortunately it is not uncommon for borrowers to lack a full understanding of their total costs. If you consider a 30 year period as the norm, that is thirty years of monthly payments, which may sound like stating the obvious, but as with any loan, every month that you pay accrues interest which obviously you also have to pay off.
One of the common ways to save money is to consider halving the standard term down to 15 years. This is a mathematical calculation that needs to be given some thought. By halving the mortgage term you are going to need to pay back more each month. However, the amount of interest will be less than having the loan over 30 years.
When the calculation is carried out fully, the amount you pay back over 15 years is will almost always be considerably less than the amount you pay back over 30 years, unless you managed to get an amazingly low interest rate on your 30 year mortgage. If you are going to consider going down this route, make sure you can comfortably afford the monthly payment.
A 15-year term won't be a good solution if you are scraping the payment together each month and not having money to live on, as then in the long run you are not going to benefit in any way. If you decide that you can afford the monthly payment then you also need to make sure you get onto a fixed rate mortgage, as this means that no matter what the economy does your payments will remain stable.
While occasionally this could cause you to lose out, in the long run studies show that you are more likely to see increases in rates rather than decreases which could send your payment higher and leave you at increased financial risk. If in the long run this meant your home was repossessed it would have made no sense at all to have taken a shorter-term mortgage loan. Halving the mortgage term is definitely worth consideration, but you do need to make sure you have sought advice before you commit to anything and consider another option if this is too financially tight to allow you to live.
Mortgage Loans & Your Credit History
One of the main issues that affects whether or not you will be offered a mortgage loan is your credit history. This is a record about how individuals conduct their finances, and whether or not they are considered to be a reliable risk. All mortgage loans involve risk, as a financial institution is giving large sums of money on the understanding and promise that it will be paid back. It is therefore quite natural for them to seek to minimize the risk at the time of the loan.
The first step that all companies take is to charge interest. This is partly how they make their money, but is also a form of insurance against any loss. If every mortgage loan recipient has to pay back substantially more than they actually needed because of interest then any money that is lost through bad debt makes less of an impact overall. However, this isn't enough on its own to provide insurance companies with the level of security they need to actually give you thousands or even hundred of thousands of dollars of their money.
They are also going to be looking to check the applicant out in more detail, so getting a mortgage loan is a lengthy process and sees the applicant having to provide a lot of information which will be checked and verified. This is where the credit history checks become important as these can show how you have handled other forms of credit in the past.
These other credit items are things like credit cards, store credit and loans. It holds a record of how many you have applied for and successfully been offered, and then it holds information about your repayment history. Mortgage loan companies are looking to see very little in the way of information, as generally only negative data is actually recorded. Therefore, if you have held a credit card for 5 years and there is no further information then it is assumed that you have met your repayment terms on time each month and the company has no cause to worry about you.
However, if you have defaulted on payments, been late or had to have legal action taken against you to recover an outstanding debt then this will defintely have been recorded and will make companies think twice about trusting you with their money, and rightly so. Therefore, even if you haven't needed a mortgage loan as yet it is always worth keeping your credit history as neat as possible and making sure there are no issues getting flagged up.
This means you need to think before you take on another credit commitment. While it can seem nice to have lots of credit to play with when shopping, it all has to be paid back, so thinking sensibly is worth it. If you have a bad credit rating, do not despair as you can repair it, although it is easier and by far preferable to ensure you manage your credit carefully at all times.
Fixed Mortgages: An Overview
The fixed mortgage is one of the most popular types of mortgages available. Offering a fixed interest rate from typically one to thirty years this type of mortgage offers financial security for many families. However, while there are many clear advantages to a fixed mortgage, there are also a few disadvantages that you should keep in mind. By educating yourself about both the pros and cons you can make the best decision as to whether a fixed mortgage is for you.
A fixed mortgage is designed to give you the same interest rate that you signed up with for a set period of time. They are usually either 15 year mortgages or 30 year mortgages. A 30 year fixed mortgage will provide you with more money left over each month than a 15 year mortgage. However, the longer the mortgages, obviously the longer you will have to pay it back. Also the longer that you pay the mortgage back, the more interest you will pay overall.
There are some fixed mortgages that only offer a fixed rate for up to 12 months. These are typically offers designed to attract new customers who would otherwise have difficulty qualifying for a mortgage. The interest rate is usually quite low to start with but this "teaser rate" does not last long. Once the fixed interest rate has expired the rate will then start to differ according to the housing market. Unfortunately this is not always a good thing! Of course the disadvantage to a fixed mortgage is that when the housing market lowers its prices, you will not benefit from a lower rate. Those with an adjustable rate mortgage will pay either higher and lower rates depending upon the housing market.
The main advantage of a fixed mortgage is that you know exactly how much you are paying every single month. This is great for anyone trying to adhere to a budget, or anyone else where a rise in your monthly mortgage payments would cause problems. Many people fall into the trap of taking on an adjustable rate mortgage when they cannot afford any significant change in their payments. At least with a fixed mortgage you know exactly how much you need to pay every single month.
Another thing that you may not have considered is that with a fixed mortgage if your income increases you don't have to pay anything extra. So you will still have a fixed rate mortgage with extra money to spend on whatever you like. However, if you plan to repay the mortgage early then you will usually find that there can sometimes be high fees included.
Overall a fixed mortgage is a popular choice with more than 70% of homeowners. There is a certain level of security that is included with a fixed mortgage and in this day and age that is definitely an advantage! However, before you do opt for this type of mortgage, make sure that you have looked into the other options available first. That way you will have the best idea of whether a fixed mortgage would be your best option or not.
Interest Rate Changes and Their Impact on Fixed Mortgages
Fixed mortgages are one of the most popular types of mortgages. However, as with all loan deals there are pros and cons to them. Fixed mortgages are as they say: a loan with an interest rate that is fixed at a certain rate for the whole period of the loan, or certainly part of it, and you are therefore tied to that rate no matter what the economy does or how it changes.
Having a fixed mortgage does offer you some piece of mind and is very useful for budgeting your household finances. The monthly repayments can be calculated and are fixed at a set amount each month for the whole duration of the loan. As a result, you never have to worry about your monthly payment increasing, and as this is likely to be your biggest financial commitment each month this makes a lot of sense and is an attractive option for many people.
However, it does mean that if interest rates go down, you will be left paying a much higher rate. In contrast, someone who has a variable rate mortgage will find that their monthly payments drop, sometimes dramatically, leaving them with more surplus cash each month, which is also an attractive idea. However, there are no guarantees that interest rates will go down. It is only a possible outcome, and you could find that during the life of your fixed mortgage there is little to no change in interest rates and you wouldn't have benefited anyway.
What is more worrying is the reverse situation, where interest rates soar and monthly repayments can shoot right up. This can literally mean that your monthly repayment can double or more, leaving lots of people really struggling to find that money. This can put the unfortunate homeowner in a spiral of poor credit, and if you are not careful things can get very serious. It can also mean you begin to default on other bills in an attempt to protect your home, and again this is just going to get stressful and potentially spiral out of all control.
Fixed mortgages like all mortgage loans are secured loans, and this is one of the ways that the mortgage lenders protect themselves. As they are paying for you to have your home, they can also take it away. If you default on your mortgage loan, no matter what the circumstances, the lender has the right to repossess your home. In other words, the bank can remove you from your home and sell it to recover as much of the debt as possible, a situation which sadly happens all too regularly.
It is for this reason that many people feel that although they might miss out on a rate decrease, fixed mortgages still offer the best deal when it comes to security. From day one, they fully know their financial commitment and can rest assured they will never change. This means that they can breathe easily when new interest rates are announced, especially if they start to creep up.
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