Adjustable Rate Mortgage VS. Fixed Rate Mortgage-what is best for you?
When an adjustable-rate mortgage makes sense
When the housing market began declining, many people claimed that adjustable-rate mortgages
(ARMs) were the cause. However, recently they’ve been making a comeback, especially
among affluent borrowers.
Making sense of the story…
An ARM offers an introductory period in which the borrower pays a lower interest rate
than with a fixed loan; after that, the rate can fluctuate up or down.
With rates near historic lows, the safety of locking in a fixed-rate appeals to many
borrowers. But these borrowers are paying a premium for that security. The spread
between rates on 30-year fixed-rate mortgages and the most-popular ARMs now stand
at about one percentage point, more than double the difference just five years ago.
That means that homeowners who are planning to either move or pay off their mortgage
over the next few years can save big with an ARM.
Borrowers can determine if an ARM is the right loan option for them by looking at their
financial situation and the terms of the ARM. ARMs carry risks in periods of rising
interest rates, but can be cheaper over a longer term if interest rates decline. An ARM
may be a good option to consider for borrowers who plan to own the home for only a few
years, expect an increase in future earnings, or the prevailing interest rate for a fixed rate
mortgage is too high.
Before deciding to apply for an ARM, borrowers should consider if their income is likely
to rise enough to cover higher mortgage payments if interest rates increase; whether
they will be taking on other sizable debts such as car loans or school tuition in the near
future; how long they plan to own the home; and whether their mortgage payments can
increase even if interest rates generally do not increase.
Read the full story
http://finance.fortune.cnn.com/2012/08/30/adjustable-rate-mortgage/?iid=HP_River
Sept. 6, 2012
In other news …
The New York Times
Downsizing the jumbo loan
With interest rates still low, many homeowners have been saying goodbye to their “jumbo”
mortgages and refinancing into conventional loans.
Read the full story
http://www.nytimes.com/2012/09/02/realestate/mortgages-downsizing-the-jumboloan.
html?_r=1&ref=realestate
The Los Angeles Times
U.S. home prices make biggest jump in six years
Nationwide home prices shot up 3.8 percent in July, making their largest year-over-year leap
since 2006, according to real estate data provider CoreLogic.
Read the full story
http://www.latimes.com/business/money/la-fi-mo-home-prices-20120904,0,1983417.story
San Francisco Chronicle
Repeat home buyers a rare breed
Millions of people who might otherwise be move-up buyers are stuck in place because their
homes are underwater. Even people who are not fully underwater can’t move, since they need
equity of 5 percent to pay real estate costs in a sale and then another 20 percent for a down
payment.
Read the full story
http://www.sfgate.com/realestate/article/Repeat-home-buyers-a-rare-breed-3829628.php
Sept. 6, 2012
The Wall Street Journal
The serial refinancers
Homeowners eager to lock in lower monthly mortgage payments have discovered serial
refinancing, a practice last in vogue during the housing boom.
Read the full story
http://online.wsj.com/article/SB10000872396390443713704577603201271102114.html?mod=
WSJ_RealEstate_LeftTopNews
The Los Angeles Times
Mortgage settlement with banks starts to ease foreclosure crisis
The nation’s five largest banks are off to a good start on their promise to help ease the
foreclosure crisis, providing nearly 140,000 struggling homeowners with a total of $10.6 billion in
mortgage debt relief, according to a report by Office of Mortgage Settlement Oversight.
Read the full story
http://www.latimes.com/business/la-fi-banks-mortgage-relief-20120830,0,1368246.story
The New York Times
Financing student housing
As college students prepare for fall classes, some of their parents or grandparents will be
studying up on the real estate markets near campus. Investing in student housing may not only
help to reduce the room-and-board portion of the tuition bill, but also provide a revenue source,
and in some cases, a tax deduction.
Read the full story
http://www.nytimes.com/2012/08/26/realestate/mortgages-financing-studenthousing.
html?_r=1&ref=realestate
Sept. 6, 2012
What you should know
Borrowers whose down payments were less than 20 percent of the value of the
home likely were required by their lender to buy private mortgage insurance (PMI), a
policy that protects any losses the lender might take if the borrower does not make
loan payments.
And unfortunately, PMI isn’t cheap. According to a mortgage consumer guide
published by the U.S. Federal Reserve System, PMI could cost anywhere from $50
to $100 per month.
Fortunately, borrowers can get rid of PMI. The first way, of course, is to put down 20
percent when the house is purchased. If that is not feasible, there is still a possibility
of removing the insurance.
According to the Federal Reserve, when borrowers make enough payments to gain
20 percent equity in the home (based on the original purchase price), the owner can
send a written request to the lender to cancel the PMI.
The Federal Reserve adds that federal law required PMI payments to automatically
stop once the home has reached 22 percent equity – again based on the original
purchase price and with a clean payment record.
It’s also important to know that PMI is different than LMPI, which stands for lender’s
private mortgage insurance. Some lenders buy LPMI and charge borrowers a higher
interest rate to cover the expense. According to the Federal Reserve, this type of
insurance does not automatically cancel; instead, the borrower must refinance the
home to possibly remove it.
I hope this has helped you to understand what type of mortgage is best for you! Call me today to be connected with a Top Mortgage Loan Consultant! I am looking forward to assisting you in your quest!