ANMORE &
BANFF HOMESBuying a new house is one of the most important things a family can do and is one of the most important investments of one’s life. A new home is a new start and creates a new image for one’s family. Unless one is extremely rich buying a new home is going to be too expensive. With all that money down, interest rates and monthly payments the bills can pile up.
What Is a Mortgage?
A home mortgage loan is different from a normal loan in which the debtor (or mortgagor) is using his property as the security or collateral for the repayment of his debt. The house is purchased using money from the creditor (mortgagee) and they claim ownership of the house if the debtor fails to pay his debts to the creditor. Mortgage repayments are made monthly and contain a capital element and an interest element. This is called amortization. In the early years of the loan repayments are largely interest and a small part capital. Towards the end of the life of the loan the payments start becoming mostly capital and a small part interest. The size of the loan can range from short term (10 years) to long term (50 years).
The two types of amortized loans are the fixed rate mortgage (FRM) and adjustable rate mortgage (ARM). With the FRM, the interest rate of the mortgage is fixed throughout the life of the loan. This leads to a more consistent loan; you will always know what you need to pay. The ARM has a fixed interest rate for a short period of time and after that it will adjust monthly or annually based on a market index (usually the Prime Rate, Treasury Index or London Interbank Offered Rate). Although this is more of a gamble it can be beneficial because usually the interest rates fro ARM starts of lower then a FRM.
Deciding on a new home mortgage is a very big decision. Mortgage information on new home mortgage is a necessity. What type of mortgage should you get? For how long? What is the interest rate? These are all questions that need to be answered. There are two types of mortgages:
Amortization - Mortgage repayments are made monthly and contain a capital element and an interest element. This is called amortization. In the early years of the loan repayments are largely interest and a small part capital. Towards the end of the life of the loan the payments start becoming mostly capital and a small part interest. The size of the loan can range from short term (10 years) to long term (50 years).
Interest Only - There is an alternative to amortization and that is an interest-only mortgage. In an interest-only mortgage capital is not repaid throughout the term. With interest-only mortgage a regular contribution is made to a separate investment plan that is designed to build up a lump sum of money to repay the mortgage when it matures. Also known as investment-backed mortgage these types of mortgages are not as common as amortization. This type is a little more risky because you pay off the loan at the end of its term. However, if your investment is profitable you have more flexibility because you are only playing off the interest on the loan.
Disclaimer: Both loans may or may not be available to you based on certain factors.
Choosing an Interest Rate
You must then decide on a fixed rate mortgage or an adjustable rate mortgage. They both have their pros and cons:
Fixed Rate Mortgages are good because they are very predictable. You will know exactly how much interest you will pay over the course of the loan. The total monthly payment is fixed and in the early years the interest can be tax-deductible. This stability does come at a price, the starting interest rate for fixed rate loans are usually higher. If the interest rates drop you will still have to pay your current interest rate because it is fixed.
Adjustable Rate Mortgages main advantage is the initial interest rate is lower then the FRM’s. The early monthly payments will be low and the interest rate adjusts based on the market interest rate. So if that rate falls below your current rate then you will pay less interest. This obviously has a reverse side, if that interest rate goes up your payments go up.
There are various adjustments that the institution issuing a loan may do as well. Discounted loans and capped loans are amongst these but they are rare. Most mortgage loans are 15 years or 30 years but there are some exceptions. Picking the right home mortgage loan is a very important decision and it can get complicated. Shop around for the best mortgage that fits you, research different plans. There is plenty of info on the internet and from finical institutions such as your bank that can help you make this important decision.
Mortgage Refinance
Is your mortgage loan to high? Do you want to take advantage of lower interest rates? It might be time for you to refinance your mortgage loan. You may need mortgage refinance information. Refinancing your mortgage is done to reduce the amount of interest you are paying, reduce risk, reduce monthly payment obligations (by extending the length of the loan) or to liquidate equity. When refinancing one of the biggest mistakes one can make is taking out another loan. Banks have a loophole in which they can hide information about their fees and profits margins on mortgage loans, do not take out another loan!
What to Refinance?
Choosing a fixed rate mortgage or an adjusted rate mortgage can be a really hard decision that could go either way, what if you made the wrong choice? If you chose an adjusted rate mortgage and now the interest rate is skyrocketing you can refinance into a fixed rate loan before too much damage is done. This will remove the risk of interest rates increasing, although it will cost you just like picking a fixed rate mortgage in the first place would cost you. You will probably have to pay a little higher interest rate then normal but it will be worth it for the safety of knowing it will never go up. Refinancing your loan can also help you pay high interest debt, credit card debt being the example. If you extend the length of your loan your monthly payments will go down which would help for the immediate time being. Consult your financial institution, whoever is issuing your current loan and, as always, do your research before deciding how to go about refinancing your loan.
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The Vostner-Bell Real Estate Group with MaxWell Realty
MaxWell Canyon Creek (403) 278-8899
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Jason - direct (403) 830-5800
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Mortgage Information
courtesy of www.writeyourmortgage.com
Once a simple task that meant comparing the fixed interest rate mortgages of a dozen or so lenders, the mortgage search today is more like finding your way through a maze. There are dozens of loan types, hundreds of loan programs and thousands of mortgage brokers, bankers, lenders, finance companies, credit unions, even stock brokerage firms originating loans.
TOP 7 MORTGAGE MYTHS
