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A fifteen year mortgage is a great bet, if youre inclined to gamble on a couple of things. The first, obviously, is that youre betting on your ability to pay the higher mortgage rate over the long haul. If you have your own business, you have control over your employment situation. Then the question turns to whether your business or your career has the legs to be as successful for the next fifteen years as it is now. Are you in a cyclical business, affected by economic downturns? Most are, and if your fifteen year mortgage is a stretch for you in the first place then its a major gamble. If youre salaried and safe from the slings and arrows of the economy, then its a safer proposition.

How Much is on the Table?

The savings in plain old dollars is substantial. One mortgage calculation tool compares the figures generated by putting a $100,000 mortgage into fifteen year terms and thirty year terms. The monthly payment is about $735 a month over fifteen years and about $955 a month over thirty years, with an interest rate that is a quarter of a point higher. The difference in total interest payments is a little over one hundred thousand dollars: $169,000 versus $64,000. Those are raw dollar figures, however. What is not factored in is your savings on your annual taxes engendered by the higher interest rate attached to the thirty year note.

Money-Managing Alternatives

Also not factored in are a number of intangibles. Where would that extra money go if it werent committed to a fifteen year mortgage payment? Other investment opportunities, perhaps? Perhaps. But theres a reason they call leftover money like that expendable income. The reason is that most of us do expend it, rather than invest or save it. So maybe the thirty year note means better family vacations, a few ski trips during the winter, a nicer car without doubt it means some added flexibility in the family budget.

The value of retiring a mortgage in fifteen years is substantial, but so can be the risk. If youre seeking middle ground, consider a mortgage that accepts accelerated payments on a spot basis. When your family income is humming along, pay a higher monthly mortgage rate and you will get a larger figure attached to your principal reduction. You will be paying the higher (30 year) interest rate with those payments, so your annual tax deduction will go up as well. Youre knocking time off the mortgage, and maintaining your maximized tax deduction.

All the Hypotheticals

Some money managers will call the fifteen year mortgage a suckers bet, because if you took the monthly savings from the lower payment on a thirty year note and added it to the savings from the higher tax deduction on a thirty year note, the total in funds saved would more than offset the difference in total interest.

Its a great theory, probably has some merit, but how many of us will diligently sock away our monthly savings and yearly tax break inherent in the difference between a fifteen year mortgage and a thirty year mortgage? Approximately none of us. Most people look at home appreciation as their return on investment, and let it go at that. Put in a financiers terms, if a thirty year note cuts your sleepless night quotient by a factor of twenty percent or more, its probably worth it.

They’re spreading like wildfire–interest-only mortgages appear to be the panacea for rising home prices and the incomes that cant quite catch up. You can buy “more house” and have a low mortgage payment and a big tax deduction. Who wouldnt want one, right?

Well, a large number of consumers are getting into these loans when they shouldnt. Interest-only mortgages work well for some individuals and are dangerous for most others, yet the number of interest-only loans is rising rapidly.

Take a look at San Diego. In 2004 almost half of the mortgages required interest-only payments in the first few years according to a study done by LoanPerformance, a San Francisco–based real estate information service. Could this have something to do with the housing market? You bet it does. Are home prices rising faster than salaries and incomes? They sure are. So how is one supposed to afford a house in such an expensive housing market? You guessed it–an interest-only loan.

Interest only-loans were originally aimed at more sophisticated investors who wanted to leverage their income by re-directing what would have been the principal portion of their payment to higher yielding investments that exceed the rate of their home appreciation. These types of investors typically have more assets and financial discipline than most and therefore aren’t as likely to get in as much trouble with such a loan.

Today, interest-only loans are being utilized by borrowers who are trying to leverage debt. What they are doing is getting more debt for their buck; they’re borrowing more money but keeping their payments low (initially) in order to compete with other buyers in sellers markets. Here are some of the potential dangers that face such borrowers:

If the principal balance isn’t being reduced, than no equity is being built, and if home prices are stagnant during the interest-only period and the borrower needs to sell, he’ll need to be able to pay sales costs out of whatever equity there is in the house, if there is any. Remember, mortgage amortization is in the borrowers control, appreciation is not.

If theres a downturn in home prices, the borrower could end up upside down, meaning the mortgage balance on the property could end up being greater than the propertys market value. In this case, the borrower would be responsible for sales costs and the remaining mortgage balance which could lead to foreclosure.

Interest-only mortgages make sense for borrowers:

who have seasonal incomes or earn commissions and/or bonuses and have a desire to pay on the principal when its convenient.

upwardly mobile individuals who expect to earn more in a few years and want to buy more house early on rather than later.

who intend on investing their cash flow in higher yielding investments or paying down high-priced debt.

Make sure you know what youre getting into with an interest-only loan. Consult with your mortgage broker or lender to know what the possible repercussions could be, and be sure youre getting the loan for the right reasons. Eventually, you want to own your home, and its better to be planning on that sooner than later.

These days, as people scramble for new and more creative ways to finance buying a home, the interest only mortgage is becoming more common and well known. An interest only mortgage is one in which you have the option of paying only the interest (or just the interest and a portion of the principal) each month in the early years of the mortgage loan. Interest only periods may be applied to adjustable rate mortgages, or 30 year fixed rate mortgages, depending on the lender.

In a traditional mortgage, each month your mortgage payment is divided in two parts – one part is paid on the interest charge, the other on the principal of the loan. The main feature of an interest only mortgage loan is that during a specified initial period of time – usually three, five, seven or ten years – you may choose to make a payment of the interest portion of the loan only. The option is flexible. One month you may choose to make an interest only payment, another you may choose to make an interest-plus-part-of-the-principal mortgage payment, or a full, standard monthly mortgage payment. Needless to say, an interest-only payment will be significantly less than a traditional mortgage payment.

The flexibility of an interest-only mortgage allows you to adjust your mortgage cost on a month by month basis, giving you more control over your monthly cash flow. In any given month during the interest-only period, you have the flexibility to pay as much or as little on your mortgage as you can.

Interest only mortgages aren’t right for everyone. While you have the option of paying interest only each month during the early years, the principal repayment on your mortgage loan is accumulating. At the end of your interest only period, your mortgage payment will take a dramatic jump. Financial experts recommend interest only mortgages for specific types of borrowers: those whose income is supplemented by large commissions or bonuses throughout the year, those who can reasonably expect to be making considerably more income in a few years than they are now, and those borrowers who actually WILL invest the difference between their interest-only payment and their full mortgage payment in profitable investments.

The power of an interest-only loan, according to most experts, is that you can ‘afford to buy more house’. Because you’ll have the choice during the early years of paying only the interest each month, you can effectively afford the monthly payments on a house that’s as much as 30% more expensive than you could with an amortizing (typical) mortgage payment.

You also, however, have the choice each month of paying the interest plus as much on the principal as you wish. If you’re a salesman, for instance, whose standard income is supplemented quarterly and semi-annually by large commissions or bonuses, you could pay interest-only during lean months, saving yourself up to $350 in those months. In the months that you get a large commission though, you could choose to pay down several thousand dollars on the principal.

An interest only mortgage also makes sense if you have a solid investment plan. If a typical mortgage payment would be $900 monthly, and your interest-only payment for the month is $625, then the best financial strategy according to many financial experts is to invest the remaining $275 in a solid, money-making stocks program.

Interest only loans are not for everyone, but they can be a valuable financial tool that can help you control your spending and give your investment power some added oomph. Don’t rush blindly into an interest only mortgage, but do speak to a financial expert or loan officer about whether an interest only loan may be right for you.

Interest Only Mortgages is a risky product and does have its disadvantages it a tricky form of mortgage because it can be misleading as the payment is very small for the first 1,2,5,7 or even 10 years. The Interest Only Mortgage will have a balloon payment for the entire principal balance at the end of the loan term. Interest only mortgages might be beneficial for people in markets where houses appreciate rapidly and the plan is to remain in the house for only a couple of years.

Interest only mortgages are available in both fixed rate and adjustable rate varieties, but most interest only mortgages are of the adjustable rate variety. Since only an interest payment is due, interest only mortgages usually have a lower monthly mortgage payment than mortgages that require principal and interest payments.

For example, if you have taken an interest only mortgage loan for 5 years you only pay the interest on your mortgage for 5 years. The interest only mortgage rate is an adjustable rate determined by the current interest rate. This preset margin will stay fixed throughout the remaining term of the loan while the interest only mortgage rate added to it will change (generally on an annual basis) with the fluctuation of the current index rate. So after the interest only mortgage payment period is over you will be paying the adjusted interest only mortgage rate and the principal, which will increase your interest only mortgage payments.

Interest only mortgages usually have an interest only payment option during the first 1, 3, 5, 7, or 10 years of the mortgage. Interest only mortgage payment does not mean negative amortization on your loan it does mean however that the Interest only mortgage payment are only for a short term. Interest-only loans are the latest tool aimed at offsetting high home prices and it does represent a somewhat higher risk for lenders, and therefore are subject to a slightly higher interest rate. It is however a popular ways of borrowing money to buy an asset that is unlikely to depreciate much and which can be sold at the end of the loan to repay the capital. It helped homeowners afford more home and earn more appreciation during this time period. Interest-only loans may turn out to be bad financial decisions if housing prices drop, causing those borrowers to carry a mortgage larger than the value of the house, which in turn will make it impossible to refinance the house into a fixed-rate mortgage.

It is important to keep in mind the nature of interest only mortgages. Although interest only mortgages play a vital part in the mortgage industry, often providing the only means for first time buyers to hold the key to their own front door, misusing this type of loan is counter-productive. A sample of the 3 payment options on a loan amount of $250,000 would be: Minimum Amount Due $804, Interest Only Mortgage $989, 30 year payment $1304, 15 year payment.

In summary, an Interest Only Mortgage Loan can save you thousands of dollars and possibly earn you thousands more with the right diversified investments over time. An interest only mortgage loan gives people the tools necessary to manage their debts as carefully as they manage their assets. 30 year interest only mortgages typically come with a ten year (often referred to as a 30/10year interest only loan) or fifteen year fixed (30/15) interest only period. Best for people who: Are very focused on money management Want to reduce their monthly mortgage payment and do not intend to be in their homes more than a few years Interest only mortgages and loans as the name suggests, means you pay interest only for the first three, five, seven, ten years of the loan, thereby lowering your monthly mortgage payment by quite a lot. But it is important to also look at the other side of the interest only mortgage if the base interest start to rise your payments can start to rise with it. So have a close look at the relationship between the interest rate and your mortgage payment today before you jump into an interest only loan.

Graduated payment mortgages (GPM) offer financing solutions for those who expect their income to rise in the future. A hybrid of an adjustable rate mortgage and fixed-rate mortgage, a GPM with its fixed interest rate starts with low payments that increase yearly based on the loans terms. If you have considered an interest only mortgage loan in the past, you might want to consider the benefits of a graduated payment mortgage instead.

GPM Features

A GPM offers low monthly payments by increasing payments for the rest of the loans term. At the beginning your mortgage will not completely cover your interest charges (negatively amortizing), but larger payments will be made later on to cover both interest and principal.

Generally, a GPMs beginning payments will be a couple of hundred dollars less than a comparable fixed-rate mortgage. However, in later years you can expect to pay at least a hundred dollars more in monthly payments than a fixed rate mortgage payment.

Lenders also offer several different types of payment plans. The most common is to graduate payments annually for the first seven years, after which payments remain the same. Longer graduated periods or a greater rate of increase can lower your initial payments even more.

GPM Benefits

A GPM allows a borrower to enjoy low monthly payments with the security of a fixed-rate. Most homebuyers expect their income to increase if only due to inflation. A GPM takes advantage of this situation by increase payments as your income should increase.

A GPM also allows you more buying power based on the lower monthly payments and expectation of increased income. With initial reduced payments, you can pay for moving expenses and home furnishings.

GPM Drawbacks

Like with any type of mortgage loan, you need to weigh all the factors before choosing a GPM. One of the risks with a GPM is that you may not be able to afford the higher monthly mortgage payments, which could threaten your financial situation.

You may also find that if you have to move within a couple of years that you may owe on the loan after selling due to negative amortization. Even if you dont owe interest, you will have very little equity in the home until several years into your mortgage.

Consider your financial goals with different financing packages to find the best fit.

The most basic distinction between types of mortgages that are available when you’re looking to finance the purchase of a new home is how the interest rate is determined. Essentially, there are two types of mortgages – fixed rate mortgage and an adjustable rate mortgage. If you choose a fixed rate mortgage, the rate of interest that you are paying on your mortgage remains the same throughout the life of the loan no matter what general interest rates are doing. In an adjustable rate mortgage, the interest rate is periodically adjusted according to an index that rises and falls with the economic times. There are advantages and disadvantages to either, and no easy answer to ‘which is better, a fixed rate mortgage or an adjustable rate mortgage?

The main advantage to a fixed rate mortgage is stability. Since the interest rate remains the same over the entire course of the loan, your monthly payment is predictable. You can count on your monthly mortgage payment to be the same amount each month. On the minus side, because the lending institution gives up the chance to raise interest rates if the general interest rates rise, the interest on a fixed rate mortgage is likely to be higher than that of an adjustable rate mortgage.

A fixed rate mortgage loan makes the most sense for those that are going to settle into their home for many years. While the initial payments may be larger than with an adjustable rate mortgage, stretching the payments over a longer period of time can minimize the effect on your budget.

An adjustable rate is one that is adjusted periodically to take into account the rise or fall of standard interest rates. Generally, the adjustable term is annual – in other words, once a year the lending company has the right to adjust the interest rate on your mortgage in accordance with a chosen index. While adjustable rate mortgages make the most sense in a situation where interest rates are dropping, though it’s dangerous to count on a continued drop in interest rates.

Lenders often offer adjustable rate mortgages with a very low first year ‘teaser’ interest rate. After the first year, though, the interest rate on your mortgage can increase by leaps and bounds. Even so, there are limits to how much an adjustable rate can actually adjust. This is dependent on the index chosen and the terms of the loan to which you agree. You may accept a loan with a 2.3% one year adjustable rate, for instance, that becomes a 4.1% adjustable rate mortgage on the first adjustment period.

Finally, there’s a new kind of loan in town. A hybrid between adjustable rate mortgages and fixed rate mortgages, they’re known as ‘delayed adjustable’ mortgages. Essentially, you lock in a fixed rate of interest for a number of years – say 3 or 7 or 10. At the end of that period, the loan becomes a 1 year adjustable rate mortgage according to terms set out in the agreement you sign with the mortgage or financial institution.

Fixed rate mortgages are the most common type of mortgage loan for home buyers. With predictable payments, long term homeowners can plan their budgets and guard against rising interest rates. But a fixed rate mortgage is not for everyone with its higher interest rates and a reduction in your buying power.

Fixed Rate Mortgage Features

A fixed rate mortgage features set rates, long term low monthly payments, and low risk. Interest rates are determined during your loan application process. Rates are set by the market. You can also lower your interest rate by paying points up front. This option only makes sense if you stay in your home for several years.

Long term low monthly payments are another benefit of this type of home loan. Over time, inflation will raise the price of everything except your mortgage payment. As your salary increases, your mortgage costs will also take a smaller percent of your income.

The low risk of fixed interest rates also appeals to borrowers. You dont have to worry about rising interest rates or a balloon payment. You can also repay your loan early, saving money on interest payments.

Mortgage Terms

Traditionally, fixed rate mortgages were 30 or 15 year terms. Now lenders offer a couple of additional options. 30 year loans are still the most popular with their low monthly payments. A 30 year loan also enables you to qualify for more than shorter loans.

15, 20, and 40 year mortgages are also options. 15 and 20 year loans qualify for lower interest rates, but you will have higher monthly payments between 10% and 15% compared to a 30 year mortgage. Shorter loans also save you interest costs, appealing to those who want their loan paid off before retirement or their children go to college. 40 year mortgages are less common, but offer low monthly payments with higher interest costs.

Biweekly mortgage, as the name implies, requires half your mortgage payment every other week. At the end of the year, you have made an extra mortgage payment. You can have your mortgage repaid in 18 to 19 years. Most lenders also allow you to roll over to a 30 year term with no penalties.

Fixed Rate Drawbacks

Even with their benefits, fixed rate mortgages arent for everyone. Alternative mortgages enable you to borrow more than with a fixed rate mortgage. If you move in less than 7 years, you will also probably pay more in interest payments than if you went with an adjustable rate mortgage. Most homeowners move within the fist 7 years of living in a house. You are also locked into an interest rate that could drop in the future.

Best Refinance Mortgage Rate – Improve Your Odds Of Getting A Low Rate

Obtaining a mortgage refinancing has several benefits. However, the only way to realize these benefits is to qualify for a low rate mortgage. Even though refinancing a home is ideal for securing a fixed rate mortgage, without acquiring a lower rate, you may not save on your monthly mortgage payment. If you are hoping to obtain a low rate mortgage, there are steps you should take.

Establish a Good Payment Record with Existing Mortgage Lender

When applying for a refinancing, the mortgage lender will carefully review your credit and assess your payment history with current mortgage lender. Individuals with a good payment record can expect a low rate on their refi especially if their credit score is high. On the other hand, if you have poor credit, and have submitted several late mortgage payments, a refinance lender may consider you a risky applicant.

Risky applicants may have their refinance application denied. If the application is approved, the lender will likely remit an offer with a high interest rate. In this instance, refinancing is not very beneficial. The ultimate goal is to save money. However, if the savings are minimal, it is not worth the costs to refinance.

If you are contemplating a refinancing, attempt to submit all mortgage payments on time. Furthermore, reduce unnecessary debts, which may boost your credit rating. Homeowners with a good credit score have a better chance of securing a low rate refi.

Compare Various Refinance Mortgage Lenders

Making a side-by-side comparison of various mortgage lenders is very effective. After requesting a mortgage quote, lenders assess an applicants situation and make them an offer. Lender offers will vary. By comparing lenders, you have the power to select the loan package with the lowest refi rate. Those who neglect comparing lenders risk accepting a bad refinancing offer.

Refinance When the Time is Right

Because of declining mortgage rates, many homeowners are jumping on the refinance bandwagon. However, now may not be the right time to create a new mortgage. Prior to applying for a new mortgage, you should consider a few factors. How long do you plan on living in the home? Will a refinancing create a noticeable savings? What is your credit standing? Do you have the funds to pay closing costs?

Refinancing while rates are low is great for obtaining a low, fixed rate mortgage or lowering monthly payments. However, if your current rate is comparably low, or you anticipate a move in the near future, refinancing may not be the wisest choice.

Traditionally, homebuyers could look to two forms of mortgages fixed rate and adjustable mortgages. While there are now many more options, this article takes a look at the adjustable rate mortgage.

What is an ARM Loan?

An adjustable rate mortgage [ARM] is a basic mortgage with one important exception. With an ARM, your interest rate will start low but typically move up throughout the link of the loan. The timing of the movements is dictated by the terms of the loan. The rate may be adjusted every month, but more typical periods are every six or twelve months. Most adjustable rate mortgages also have a cap on the amount the interest rate can be raised in a particular period.

ARM Yourself?

A homebuyer has to be very careful when selecting an adjustable rate mortgage. Buying a home necessarily involves budgeting out how much of a monthly mortgage rate you can afford to pay. With an ARM, you have to keep in mind that your monthly payment amount will go up if the interest rate does the same. While you may be able to afford the loan now, what happens if the rate jumps two percent over the next two years?

In the current real estate market, potential rate increases are a troubling issue. In areas where the real estate market is dramatically appreciating, homebuyers are using ARM loans to get into homes. Put another way, they are using ARM loans to get a mortgage payment they can afford without giving real consideration to rate increases in the future. Mortgage interest rates have been at historic lows for the last few years. What is going to happen to all of these people when rates rise? It could make the savings and loans crisis of the late 80s look like small potatoes.

If you are considering an adjustable rate mortgage, make sure you do the research. Find out how often the rates can increase and by how much. Try to determine whether you can afford payments if the rates go up significantly over the next few years. With Greenspan retiring, now is the time to be very careful when taking on mortgage debt.

Buying a home can be an exciting and stressful time for anyone. While you may be excited at the prospect of owning your own home, especially if it is your first home purchase, the idea of choosing between all of the many different types of mortgages may leave you feeling confused and apprehensive.

Two of the most common choices youll find in the mortgage market are adjustable rate mortgages and fixed rate mortgages. Fixed rate mortgages are the most traditional type of home mortgage, offering a fixed interest rate that does not change throughout the life of your loan. There are a number of important advantages associated with this type of mortgage. First, if you are budget conscious, this type of mortgage will give you the peace of mind in knowing that your monthly mortgage amount will not change. You can budget the remainder of your financial obligations without worrying about a changing mortgage payment to throw things off.

An adjustable rate mortgage works differently. With this type of mortgage you may be able to obtain a lower interest rate than would normally be available with a fixed rate mortgage; however, the interest rate is not fixed. This means that your monthly mortgage rate may change as interest rates change. With such a mortgage you may not be able to regularly plan your budget due to such fluctuations. While there is usually a cap that will keep the interest rate from fluctuating too much, even a little fluctuation can be too much for some homeowners. Of course, there is also the possibility that interest rates will drop and if that is the case, because your mortgage is adjustable, your monthly payments will drop right along with the interest rate.

When deciding whether a fixed rate or adjustable rate mortgage is your best choice, you need to give thought to several factors. Ask yourself whether it is more important to be able to plan your monthly budget without wondering whether your mortgage will fluctuate or whether you would prefer to receive a lower interest rate in the beginning of your mortgage.

Remember that if you decide you would like to obtain the advantages of both you do have other options available to you. For example, if you feel the interest rate offered to you on a fixed rate mortgage is too high but you want the security of not having to worry about a fluctuating interest rate you can always buy down your interest rate by purchasing points. This will mean more up front costs for your mortgage; however, it may be worth it to decrease the interest rate, especially if interest rates are currently high.

If you do elect to go with an adjustable rate mortgage make sure you understand exactly how high the rates may go as well as ensure you have enough wiggle room in your monthly budget to cushion increases if they occur. This may help to keep you out of a tight spot and possibly losing your home due to rising interest rates.