Brian Jenkins asked:


There are both advantages and disadvantages to adjustable rate mortgages. Your lender may be pushing an adjustable rate mortgage for any number of reasons, including that they are more profitable for the lending company. If you only look at the advantages of an adjustable rate mortgage, they can sound pretty good. You start with a lower interest rate, which means lower monthly payments. Because of the lower payments and rate, you may be able to afford a larger mortgage. Your lender may be pitching it as a way to buy a bigger house than you could otherwise afford, or suggest that it’s a good way to get into the housing market. Most commonly, the lender may suggest that you should take the adjustable rate mortgage for now, and refinance later when the rates adjust up.

While all of these things are true, there are also cons to an adjustable rate mortgage. It’s important that you consider both sides of the issue before making a decision on the type of mortgage that you want to take out.

What an adjustable rate mortgage is

Unlike a fixed mortgage, which comes with a specific interest rate that remains the same for the life of the loan, an adjustable rate mortgage (ARM) has an interest rate that fluctuates according to a specified index. Your adjustable rate may be tied to the interest rate on Treasury Bonds, to the Consumer Price Index or to a number of other indicators. If that index rises, your interest rate – and your monthly payment – will rise. If it drops, so will your interest rate and monthly payment.

Why adjustable rate mortgages can be attractive

When lenders approve a fixed rate mortgage, they are placing a finite limit on the amount of money they’ll make from that mortgage. An adjustable rate mortgage offers the lender the possibility of making more money if interest rates rise over the life of the loan – which is a good possibility. To offset the limit on fixed rate mortgages and make adjustable rate mortgages more attractive to home buyers, lenders typically offer lower interest rates on adjustable rate mortgages than they do on fixed rate mortgages. In essence, they are offering borrowers a more attractive rate in return for assuming the risk that their mortgage rate and monthly payment will rise over the term of the loan.

The down side of adjustable rate mortgages

When looked at in that light, some of the cons of an adjustable rate mortgage become obvious.

1. Interest rates can go up, raising monthly payments as well.

Most borrowers understand and accept that their monthly mortgage payment may rise, but are willing to take the chance that their mortgage will continue to remain affordable. It’s important to know the caps on interest rate rises by which your lender is bound. When you shop around for the best adjustable mortgage, it’s important to look further than the initial interest rate so that you understand exactly what expenses you may be agreeing to.

2. Over time, payments nearly always surpass the payments on a fixed rate loan for the same amount.

If you’re planning to stay in your home for the long haul, this can be an important consideration. Depending on the specific loan agreement that you make, it may be several years before the interest rate and monthly payment reach and surpass the monthly payment for a fixed mortgage. If you’re only planning to stay in your new home for a few years, this can work to your advantage, because you’ll be paying lower monthly payments for most of that time. If, on the other hand, this is your dream home where you plan to live the rest of your life, a fixed rate mortgage is probably more economical.

3. Fluctuating payments can make it difficult for you to make a budget.

While many ARMs only adjust once a year, some may adjust as often as once a month. More frequent adjustments can make it very difficult to fit your monthly mortgage payment into your budget because you will only know what your next month’s payment will be when you receive your notice. Even in the longer term, a fluctuating mortgage payment can make it difficult for you to plan long-term savings and investments.

4. If fixed rate mortgages become favorable enough that you decide to switch, you’ll have to refinance and incur the costs and fees related to refinancing your mortgage.

5. The annual interest cap may not apply to the first interest adjustment, and it may be a big one.

Many lenders offer very low initial interest rates on ARMs to attract first time home buyers. Often, these mortgages exempt the first increase from the annual cap on adjustments. This can be especially difficult if the ARM was one of the hybrids that offered a low fixed rate for one to five years, with a jump to market interest rates at the end of the specified period. When that happens, your monthly mortgage payment can suddenly rise by hundreds or even more than a thousand dollars.

justin narin asked:


is a reverse mortgage?

A reverse mortgage is a loan product that allows homeowners 62 years of age and older to use their equity to generate tax-free income, without having to sell the home or take on a new mortgage payment. In fact the reverse mortgage is exactly what the title states, the reverse of a standard mortgage.

How is a reverse mortgage different from a standard mortgage?

With a standard mortgage, the borrower (or homeowner) makes monthly payments to the lender (or bank or mortgage company), in order to pay back the loan that the lender originally lent to for the purchase or refinance of the house. This payment includes interest that the lender charges the borrower for the loan. In a reverse mortgage, the situation is reversed; the lender makes monthly payments to the borrower. However, in both a standard and reverse mortgage, the lender secures their loan amount by using the house as collateral.

Do I make monthly payments on a reverse mortgage?

No monthly payments are due on the loan and the loan is repaid when the moves or sells the home, passes away, or ownership otherwise changes hands

What factors determine the amount of the reverse mortgage?

There are a few factors that determine how much money a borrower will receive from a reverse mortgage, such as the value of the home, borrower’s (and co-borrower’s) age, current interest rates and any lending limits that may be standard for your geographic area. As a rule of thumb, the older the borrower and the more valuable the home, the larger the available loan amount.

What can we use a reverse mortgage for?

The proceeds from the reverse mortgage can be used for anything, completely at the discretion of the borrower, though most borrowers use the funds for home repairs or modifications, health care expenses, to settle other debts, or for their long-planned vacation! Reverse mortgages are available for nearly all property types with the exception of co-ops, though co-op owners in some metropolitan areas, specifically New York, should have local options.

Can I receive a lump sum payment from a reverse mortgage?

Homeowners can choose how they want to receive their payments, either as a lump sum, monthly payments or as a line of credit. The line of credit is the most popular option, with nearly 60% of reverse mortgage borrowers choosing to the option to draw income or a lump sum off the line at the time of their choosing.

What happens if I decide to sell my house?

If the home is sold and the proceeds of the sale exceed the mortgage amount, the balance belongs to the borrower or their heirs.

What happens to my existing mortgage?

For reverse mortgage borrowers with an existing mortgage, that mortgage will need to be paid off completely, so that the new reverse mortgage will be the only lien on the house. If the proceeds from the reverse mortgage are not ample to pay off the existing mortgage, the borrower will need to access savings or other sources to pay off the rest of existing mortgage amount. In this scenario, the borrower won’t have access to any additional funds from the reverse mortgage; however, they will no longer have a mortgage payment!

Can I get expert advice before I get a reverse mortgage?

One very important facet of the reverse mortgage process is the consumer counseling that is required for borrowers contemplating a reverse mortgage. Your lender can help you find counseling agencies and most programs are approved and monitored by HUD and/ or A A R P. The counseling is required to make sure that the terms and risks of the program are clear to you. Counselors are obligated by law to review with you all of the implications of the new mortgage, and what your potential options are.

For more articles on Reverse Mortgage, visit: http://www.bills.com/reversemortgage

Brian Jenkins asked:


With the housing market in turmoil after the sub-prime mortgage crisis and the Federal bail-out of Freddie Mac and Fannie Mae, the basic requirements to receive a mortgage have tightened up. According to at least one real estate financier, to get a mortgage these days you”practically have to walk on water”. While this is a bit of an exaggeration, it is true that it’s far harder to qualify for a mortgage now than it was just two years ago. It’s not, however, any harder than it was before 2000, when the real estate market went into hyperdrive. According to many professionals in the credit industry, what we’re seeing is a return to the norm.

So exactly what do you need to get a mortgage these days? Says Patricia McClung, of mortgage giant Freddie Mac, creditors are getting back to the basic three C’s of mortgage lending – credit history, capacity and collateral. Here’s what you need to know about each of those three requirements, and how they’ll affect your ability to qualify for a mortgage in the current mortgage market.

Credit History – Do you pay your bills?

The first C in the mortgage triad is credit history – yours. While having a spotty credit history won’t make it impossible to get a mortgage, it will make it more difficult – and more expensive. Lenders are willing to offer far lower mortgage rates to those with the highest credit scores (760-850) than they’ll extend to those with lower credit scores. The difference can be astronomical. According to June 2008 figures, lenders were offering an average of 5.9% mortgage rates to those in the highest credit bracket. Those in the lowest bracket that Fannie Mae will accept (580-619) were being offered rates of 9.4%. On a $250,000 mortgage, that’s a difference in monthly payment of $588.

In order to be considered for a mortgage by most major lenders, you’ll need a credit score of at least 580, though you may still find some lenders willing to take a risk on someone with a lower credit score, particularly if they really shine in one of the other two C’s. The problem, of course, is figuring out exactly what constitutes a credit score of 580. There are many different barometers, and even the major credit reporting bureaus use different reporting criteria. Essentially, in order to qualify for a mortgage, you should have:

5. no missed or late payments on any credit or utility accounts for at least the preceding 12 months

6. a debt to income ratio of .45 or less

7. the legal ability to enter into a contract

8. no outstanding defaults on credit card or other loans

Capacity – Can you pay your mortgage?

In essence,”capacity” simply means ‘do you earn enough to make the payments on the mortgage you are asking for?’ The typical rule of thumb for deciding capacity is that your mortgage payment should be no more than 28% of your monthly gross income. The debt to income ratio referred to above is another way of determining capacity to pay. Follow these steps to calculate your debt to income ratio:

Add up all your sources of income (before taxes) for the month.

Add up your monthly debt. Include all credit card payments and loan payments, including student loans and car loans. Add in your calculated housing costs, including mortgage, insurance, private mortgage insurance and property taxes.

Divide your debt by your income to get a debt to income ratio.

Over the past several years, the acceptable debt to income ratio has crept up as high as .65, but .45 seems to be the new golden number.

Capacity also can include your savings. Most lenders will require that you have the equivalent of six months housing costs in savings in order to approve your mortgage.

Collateral – What have you got?

The final C in the mortgage algorithm is collateral. In banking terms, collateral is something that you own that will be used to ‘secure’ the loan. When you make a secured loan like a mortgage, you are agreeing that if you fail to make payments as agreed upon, the lender can take possession of the collateral and sell it to recover their loan. With a mortgage, the house that you’re buying serves as collateral. If you don’t make the payments as required, the bank or lender may sell the house in order to get their money back.

The amount of the down payment you make is counted as part of the collateral value. While zero down mortgages were not unusual over the past several years, you can expect most lenders to require a down payment of at least five percent of the purchase price of the home. It’s more common for them to require fifteen to twenty percent down on your home. In general, if you put down less than twenty percent on your home, you will have to carry private mortgage insurance (PMI). PMI guarantees repayment of the mortgage if you should default on the mortgage.

Chris Borthwick asked:


The UK mortgage market looks set to improve offering borrower’s new cheap mortgage deals as banks agree to finance support conditions. Banks have agreed that borrowers will be able to get more competitive, cheap mortgage offers with rates set to return to 2007 levels and for at least three years so a cheap mortgage for borrowers looks like its on the cards. Welcome news for UK homeowners as cheap mortgage offers have been disappearing since the credit crunch bit.

The banks have also said they will be cheap mortgage deals for all as they agree to support schemes for those struggling with mortgage repayments to stay in their homes and to support expansion of financial capability initiatives.

Banks taking the government financial help will have to achieve a certain level of funding therefore will need to increase lending so we should start to see a more competitive market and cheap mortgage offers available across the different types of mortgages.

A recent survey of mortgage brokers revealed a return to cheap mortgage for all view is expressed by this group also suggesting a return to a competitive cheap mortgage market. Mortgage brokers’ forecast improved future business compared to May or July this year. Exact figures for the future of the business have been predicted as a decline of between 0.4 per cent (for remortgages) and 2.3 per cent (for first time buyers) over the next two months. Much more positive outlook than was given in May this year of a predicted fall of almost 5 per cent for first time buyer business, 3.6 per cent for home movers and 3.4 per cent set at 3.4 per cent.

Peter Williams of the intermediary Mortgage Lenders Association executive director, said: “These survey results which were obtained before the latest volatility in international markets appear to offer a glimmer of hope that confidence among mortgage brokers is starting to return, very slowly.” So mortgage brokers also believe the market will return to offer cheap mortgage again. Peter went on to say “Although a cheap mortgage may take some time as a recent Bank of England credit conditions survey points towards tighter lending criteria in the fourth quarter.”

Cheap mortgage deals available at Northern Rock as it reduces its variable mortgage rates following the Bank of England rate cut to 4.5 per cent. However if on its standard variable rate (SVR) not so cheap mortgage for you as it is only reducing it by 0.15 percentage point to 7.34 per cent, a  high rate for the market and certainly not a cheap mortgage rate.

This news certainly won’t please borrowers especially existing customers of Northern Rock who have in the past got a much cheaper mortgage, sometimes 100+ per cent cheap mortgage and are now faced with not only finding it impossible to find a cheap mortgage but to remortgage to an improved mortgage deal.

There is a cheap mortgage out there for you. By using the services of a mortgage broker you can find a cheap mortgage. A high quality mortgage broker will search the whole of the market to find a cheap mortgage for you and one with the best conditions.