Refinancing your student loans can make good financial sense, and thatâs especially true if your current loans are stuck at a high-interest rate. With a new loan at a lower APR, you could save a bundle of money on interest each month and ultimately pay your student debt off faster. Consolidating several loans into one […]
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Before you make any big financial decision, it’s crucial to learn how it may affect your credit score. If youâre looking to refinance, itâs natural to wonder if it might hurt your credit. Typically, your credit health will not be…
The post Does Refinancing Hurt Your Credit? appeared first on MintLife Blog.
If and when you take out a mortgage, youâll be faced with an important choice. To pay or not pay mortgage points. In short, those who pay points should hypothetically secure a lower interest rate than those who do not pay points, all else being equal. Thatâs because mortgage points, at least the ones that [&hellip
The post An Alternative to Paying Mortgage Points first appeared on The Truth About Mortgage.
Buying a car is almost a rite of passage. Making that first car purchase, negotiating with the seller, and arranging financing (if you need an auto loan) all require a certain amount of savvy. And, once you successfully achieve the car-buying milestone, another signpost looms in the distance: Refinancing. Whether youâre getting an auto loan… Read More
The post A Millennial’s Guide to Getting Your First Car Loan appeared first on Credit.com.
One of the harsh truths of secured loans is that your asset can be repossessed if you fail to make the payments. In the words of the FTC, âyour consumer rights may be limitedâ if you miss your monthly payments, and when that happens, both your financial situation and your bank balance will take a […]
Repossession Credit Scores: What You Need to Know is a post from Pocket Your Dollars.
Look at you, so responsible. You received a financial windfall â stimulus check, tax refund, work bonus, inheritance, whatever â and youâre using it to pay off one of your debts years ahead of schedule. Good for you! Exceptâ¦ make sure you donât get charged a prepayment penalty. Now wait just a minute, you say. [â¦]
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
Queue the panic. Mortgage rates have officially spiked and the media is all over it. Yep, the average rate on a 30-year fixed mortgage increased from 2.65% to 2.79% this week, per Freddie Macâs weekly survey. Freddie Mac Chief Economist Sam Khater noted in the weekly news release that mortgage rates have been under pressure [&hellip
The post Donât Freak Out About the Recent Mortgage Rate âSpikeâ first appeared on The Truth About Mortgage.
What Iâve seen and heard through the years is certain lenders not being so forthcoming with existing customers wanting to refinance their mortgage. For example, when a homeowner goes to inquire about the âawesome low rates,â their first instinct may be to pick up the phone and call the lender who gave them their current [&hellip
The post Donât Let Your Current Lender Talk You Out of a Mortgage Refinance first appeared on The Truth About Mortgage.
When you're ready to buy a home, choosing the best lender and type of mortgage can seem daunting because there are many choices. Since no two real estate transactions or home buyers are alike, it's essential to get familiar with different mortgage products and programs.
Let's take a look at the two main types of mortgages and several popular home loan programs. Choosing the right one for your situation is the key to buying a home you can afford.
What is a mortgage?
First, here's a quick mortgage explainer. A mortgage is a loan used to buy real estate, such as a new or existing primary residence or vacation home. It states that your property is collateral for the debt, and if you don't make timely payments, the lender can take back the property to recover their losses.
In general, a mortgage doesn't pay for 100% of a home's purchase price.
In general, a mortgage doesn't pay for 100% of a home's purchase price. You typically must make a down payment, which could range from 3% to 10% or more, depending on the type of loan you qualify for.
For example, if you agree to pay $300,000 for a home and have $15,000 to put down, you need a mortgage for the difference, or $285,000 ($300,000 – $15,000). In addition to a down payment, lenders charge a variety of processing fees that you either pay upfront or roll into your loan, which increases your debt.
At your real estate closing, the lender wires funds to the closing agent or attorney. After you sign a stack of mortgage and closing documents, your down payment and mortgage money go to the seller and various parties, such as a real estate broker, title company, inspector, surveyor, and insurance company. You leave the closing as a proud new homeowner and begin making mortgage payments the next month.
What is a fixed-rate mortgage?
The structure of your loan and payments depends on whether your interest rate is fixed or adjustable. So, understanding how these two main types of mortgage products work is essential.
A fixed-rate mortgage has an interest rate that never changes, no matter what happens in the economy.
A fixed-rate mortgage has an interest rate that never changes, no matter what happens in the economy. The most common fixed-rate mortgage terms are 15- and 30-years. But you can also find 10-, 20-, 40-, and even 50-year fixed-rate mortgages.
Getting a shorter mortgage means you pay it off faster and at a lower interest rate than with a longer-term option. For example, as of December 2020, the going rate for a 15-year fixed mortgage is 2.4%, and a 30-year is 2.8% APR.
The downside is that shorter loans come with higher monthly payments. Many people opt for longer mortgages to pay as little as possible each month and make their home more affordable.
Here are some situations when getting a fixed-rate mortgage makes sense:
- You see low or rising interest rates. Locking in a low rate for the life of your mortgage protects you against inflation.
- You want financial stability. Having the same mortgage payment for decades allows you to easily budget and avoid financial surprises.
- You don't plan to move for a while. Keeping a fixed-rate mortgage over the long term gives you the potential to save the most in interest, especially if interest rates go up.
What is an adjustable-rate mortgage (ARM)?
The second primary type of home loan is an adjustable-rate mortgage or ARM. Your interest rate and monthly payment can go up or down according to predetermined terms based on a financial index, such as the T-bill rate or LIBOR.
Most ARMs are a hybrid of a fixed and adjustable product. They begin with a fixed-rate period and convert to an adjustable rate later on. The first number in the name of an ARM product is how many years are fixed for the introductory rate, and the second number is how often the rate could change after that.
For instance, a 5/1 ARM gives you five years with a fixed rate and then can adjust, or reset, every year starting in the sixth year. A 3/1 ARM has a fixed rate for three years with a potential rate adjustment every year, beginning in the fourth year.
When shopping for an ARM, be sure you understand how often the rate could change and how high your payments could go.
ARMs are typically 30-year products, but they can be shorter. With a 5/6 ARM, you pay the same rate for the first five years. Then the rate could change every six months for the remaining 25 years.
ARMs come with built-in caps for how much the interest rate can climb from one adjustment period to the next and the potential increase over the loan's life. When shopping for an ARM, be sure you understand how often the rate could change and how high your payments could go. In other words, you should be comfortable with the worst-case ARM scenario before getting one.
In general, the introductory interest rate for a 30-year ARM is lower than a 30-year fixed mortgage. But that hasn't been the case recently because rates are at historic lows. The idea is that rates are so low they likely have nowhere to go but up, making an ARM less attractive.
I mentioned that the going rate for a 30-year fixed mortgage is 2.8%. Compare that to a 30-year 5/6 ARM, which is also 2.8% APR. When ARM rates are the same or higher than fixed rates, they don't give borrowers any upsides for taking a risk that their payment could increase.
ARM lenders aren't making them attractive because they know once your introductory rate ends, you could refinance to a lower-rate fixed mortgage and they'd lose your business after just a few years. They could end up losing money if you haven't paid enough in fees and interest to offset their cost of issuing the loan.
Unless you believe that rates can drop further (or until ARM rates are low enough to offer borrowers significant savings), they aren't a wise choice in the near term.
So, unless you believe that rates can drop further or until ARM rates are low enough to offer borrowers significant savings, they aren't a wise choice in the near term. However, always discuss your mortgage options with potential lenders, so you evaluate them in light of current economic conditions.
RELATED: How to Prepare Your Credit for a Mortgage Approval
5 types of home loan programs
Now that you understand the fundamental differences between fixed- and adjustable-rate mortgages, here are five loan programs you may qualify for.
1. Conventional loans
Conventional loans are the most common type of mortgage. They're also known as a "conforming loan" when they conform to standards set by Fannie Mae and Freddie Mac. These federally-backed companies buy and guarantee mortgages issued through lenders in the secondary mortgage market. Lenders sell mortgages to Fannie and Freddie so they can continuously supply new borrowers with mortgage funds.
Conventional loans are popular because most lenders—including mortgage companies, banks, and credit unions—offer them. Borrowers can pay as little as 3% down; however, paying 20% eliminates the requirement to pay an additional monthly private mortgage insurance (PMI) premium.
2. FHA loans
FHA or Federal Housing Administration loans come with lenient underwriting standards, making homeownership a reality for more Americans. Borrowers need a 3.5% down payment and can have lower credit scores and income than with a conventional loan.
3. VA loans
VA or Veterans Administration loans give those with eligible military service a zero-down loan with no monthly private mortgage insurance required.
4. USDA loans
The USDA or U.S. Department of Agriculture gives loans to buyers who plan to live in rural and suburban areas. Borrowers who meet certain income limits can get zero-down payments and low-rate mortgage insurance premiums.
5. Jumbo loans
Jumbo loans are higher mortgage amounts than what's allowed by Fannie Mae and Freddie Mac, so they're also known as non-conforming loans. In general, they exceed approximately $500,000 in most areas.
Always compare multiple loan products and get quotes from several lenders before committing to your next home loan.
This isn't a complete list of all the loan programs you may qualify for, so be sure to ask potential lenders for recommendations. Remember that just because you're eligible for a program, such as a VA loan, that doesn't necessarily mean it's the best option. Always compare multiple loan products and get quotes from several lenders before committing to your next home loan.