Mortgage Lowdown

Of late, many buyers faced with the rigid rise in home prices turned to interest-only mortgage loans that can offer lower monthly payments during an initial period of just interest payments. Financial experts are however not too happy with this trend because they feel there is a possibility of borrowers having difficulty making the payments for their homes when the interest-only period of the loan ended, particularly when the loans carried an adjustable rate and interest rates were rising. Washingtontimes.com reports:

"People like not having to worry about a rate change for 10 years," Mr. Gill says. "But they need to be aware that there’s quite a comeuppance at the end of 10 years, with an increase in the payment of one and a half or two times. A lot of people will probably want to get out of it at that time by refinancing or selling the home," said Bob Gill, branch manager for First Horizon Home Loans in Centreville.

Read more: Interest-only mortgages remain popular

It’s confirmed now — the bubble has burst and the housing bust is here to stay. Growing numbers of homeowners can’t make their payments. A little over a year ago, the housing sector was overheated and business couldn’t have been better. Contrast that with today when homeowners are struggling to make their monthly payments — we’ve definitely come a long way in one year. And homeowners who have taken Adjustable Rate Mortgages are the worst hit as rates finally rise and create havoc in their tightly stretched budgets. They are unable to make payments and are forced into the corner.

What follows with these homeowners is even worse — they are forced to sell their homes because they cannot afford it any longer but there are no buyers since almost everybody else is pretty much in the same boat. Msn.com reports:

People who have ARMs are "all of a sudden finding their budgets out of whack because their house payments went up 25% or 30%," according to a Pasadena bankruptcy attorney whose comment serves as the Journal story’s subtitle. According to Credit Suisse: "The portion of adjustable-rate mortgages that were at least 90 days past due has climbed 140% this year. And, according to a UBS study: About $137.5 billion face resets this year and about $524 billion face resets over the next four years."

Read more: Face it: The housing bust is here

So, you’re shopping for a mortgage that will meet your requirements and will also go easy on your wallet. You’ve probably already done the rounds of a couple of mortgage firms. So how about doing some shopping from within your home? For starters, you will need to switch on your PC and get online. Shopping for a mortgage on-line has now become one of the easiest and best means of finding the best mortgage available. It involves finding the best price among the different single-lender web sites that price your mortgage. There are numerous benefits of shopping for mortgage on-line.

One of the first things you will notice is that on-line prices are easier to find and to shop. You can easily find and compare different quotes from various sites at the same time. However, if you tried to do it the traditional way, you will realize that mortgage firms seldom provide the hard copy media in as much detail as you would find online.

You will also find that you can get better pricing online than off it. When you acquire a loan through a website, you will often be able to avail of lower prices. This is because online lenders manage to avoid the costs of maintaining retail lending facilities and they pass on this cost advantage to buyers like you.

Another advantage of shopping for mortgage rates online is that you can avoid getting caught in the inherently volatile mortgage market. Usually, lenders reset their prices every morning. So unless you get price quotations from different loan providers at the same time, you will be running from one to the other without getting proper comparable rates. However, on the Internet, you can be assured that the rates are updated as soon as they are changed. So, you can compare almost immediately and choose the best rate available.

If you have close relatives with mortgage loan problems that could escalate into foreclosure, a helping hand from you would definitely benefit them. But while you do your Good Samaritan act, do ensure that you don’t end up with problems yourself. Marketwatch.com reports:

If your debt load is too heavy, they can help arrange a debt-repayment plan requiring you to pay a set amount to the agency each month, which it then forwards to your creditors on your behalf.

Read more: The best ways to help relatives with mortgage woes

You’ve got yourself a nice cushy job and are now looking to settle down. So, you choose the place you want to call home and now scour the market for the best mortgage loan available. You don’t want to go in for ARMs and prefer a fixed-rate mortgage. But what if you don’t qualify?

The recent reintroduction of the 30-year bond has created quite a bit of interest among consumers. So, how does this translate into benefits for you? Well the longer the loan period, the lower the monthly payments. There are plans among lenders to even introduce a 50-year home loan! Of course, none of these are new on the market and may have been around earlier. But the recent past belonged to adjustable rate mortgages with most people giving fixed rate mortgages the go by.

So how does this news bode for young first time homebuyers? Agreed the real estate market prices are on the rise and are you probably may not be able to afford the house of your dreams unless you take a 30 or 40-year loan. So what are the things you need to remember when you do take such a long-term loan.

Firstly, don’t get cowed down by the long repayment period. Most borrowers don’t stick with these loans to full term. What you could do is take a 30 or 40-year loan and then refinance into 15-year loans or lesser. This will help you repay your loan faster.

Another thing you need to remember when taking a 30-year loan is that the interest rate on such a long-term loan is higher than shorter-term loans. This means that though payments will be lower, you may end up paying a lot more as interest.

If you are a first time homebuyer or have less than perfect credit, because of which you may think your loan options are dim, here’s a word of advice—quit worrying. There are many ways in which a person with a not-too-good credit can get a loan. One of them is 100% mortgage financing. There are many sub prime lenders that offer 100% financing on a bad credit loan. In some instances, you may qualify for 103% financing. The extra money helps you pay the closing costs and other fees.

So what exactly is a 100% financing mortgage loan? It is essentially a no-money-down loan. Lenders have different guidelines for the 100% and 103% financing loans. To qualify for 103% financing, borrowers need a credit score of at least 600. For a full doc 100% mortgage financing, credit scores must be at least 580.

We’ve discussed mortgage loans, how painful they are and whether repayment is a good option or not. All through this I probably overlooked the fact that we haven’t checked out the different types of mortgage loans on offer. Well, I didn’t totally ignore them; I mean how can anybody ignore Adjustable Rate Mortgages (ARMs)? However, there are other types as well and choosing the right type of mortgage will not only save you a lot of money, it will also help you avoid a lot of heartache. Let us begin with the most popular of the lot — ARMs.

Adjustable Rate Mortgage Loans: The reason these loans were so popular is their really low introductory interest rate. These rates were so ridiculously low, that just about anybody and everybody wanted a share of the ARM pie. What most people forget in the rush is that the low interest rate is only valid for a period of time specified in the loan contract. At the end of the introductory period the mortgage lender adjusts the interest rate and payment amount.

Fixed Interest Rate Mortgage Loans: While the popularity of this traditional form of loan did take a dipping in the recent past, it is still the safest and best mortgage option for most people. Your monthly payment does not change over the life of the mortgage.

Jumbo Mortgages: I’d written about this type of mortgage loans recently. In case you need to borrow more than $417,000 for your home, you may need a jumbo mortgage loan. There’s quite a bit of risk involved with this type of loan as the interest rates are quite high.

Balloon Mortgages: Do you need short-term financing with a low monthly payment? Go in for a balloon mortgage loan. At the end of your loan period, you will have to pay back the entire balance. However, if you cannot pay off the balance or refinance the loan you could lose your home.

Foreclosures are a painful reality in Bay Area as increasing numbers of homeowners are in danger of losing their homes. These people are finding themselves unable to pay their home mortgages or sell for enough money to cover their loans. Nearly 3,000 homeowners in the nine-county Bay Area got default notices from their mortgage lenders in the April-through-June period.

According to experts, house values are not appreciating at the expected rate. At the same time, homeowners are unable to handle rising monthly payments on their adjustable-rate mortgages. These increasingly popular and controversial loans have made homeowners rush to loan officers. They want to refinance their adjustable-rate mortgages or second mortgages into fixed-rate loans. Mercurynews.com reports:

Experts said the spike in defaults suggests that as home prices flatten or drop and higher interest rates squeeze household budgets, even more Californians will slide toward foreclosure in the coming months.

Read more: Bay Area foreclosures spike; still near historic lows

Online mortgage companies have finetuned the art of luring customers and sometimes, you could end up in big trouble if you are not careful when dealing with these firms. When you consider closing costs and other finance charges, mortgages from online companies may not be the bargain that you as a home buyer is expecting. Zwire.com reports:

"Yes, you do get your fixed rate at the 6.5, or whatever it is, but how much the fees-the prepaid finance charges-are shows you what you’re really paying right up front. And that’s what people are to compare with other lenders," said Jeanie Reiswig, loan officer at Central National Bank, Hillsboro branch.

Read more: Compare APR when shopping for a home mortgage

Is your mortgage loan scheme costing you much more time and money than you were led to believe? You are not alone. Every day in America, consumers are victims of such mortgage loan officer schemes. This phenomenon even has a name: predatory lending a term that has become quite common nowadays.

However, not everyone is taking this injustice lying down. Tammy Butler, a Certified Mortgage Banker with over 20 years of industry experience is one such person. Ms. Butler and her team have created a unique, new Self-Serve mortgage lending technology, which allows the consumer, real estate agent or builder to go online in a secure environment. Within 15 minutes, they receive a true loan approval for themselves or their client without ever having to speak with a loan officer. Financevisor.com reports:

HomeOwnerDirectLending.com evaluates each individual person’s specific financial situation including credit, and in real-time matches and presents the borrower with a selection of lending products from tens of thousands of mortgage options.

Read more: New Self-Serve Mortgage Technology Eliminates Predatory Lending, Wins Industry Praise