Refinance Home Mortgage Guide

Obtaining a mortgage loan is the simplest way to finance your new home purchase. There are many new types of mortgage loans that allow individuals with little income or down payments to purchase their homes. Your mortgage is the loan you receive that is secured using your home as collateral. Mortgage interest rates are at historically low levels; this makes new home purchases and the refinancing of old loans very attractive for homeowners.

Mortgage loans come in two flavors when it comes to interest paid. Fixed rate mortgage loans come with a fixed interest rate that does not change over the life of the loan. Adjustable rate mortgage loans (ARM) have an interest rate that changes depending on economic and market conditions. These changes in your mortgage interest rate on an adjustable interest rate mortgage will cause your monthly payment to change up or down based on the corresponding changes in the interest rate.

The process of applying for a mortgage loan is not unlike applying for any other type of loan. You will be required to complete an application outlining your personal information, annual income, credit information, and the details of the home you wish to purchase. You may be required to submit documentation such as pay stubs or bank statements to verify your income.

Once you have completed your mortgage application, a loan officer will verify your information and if you meet the lender’s criteria for borrowing make you an offer for a mortgage loan. This offer will include the conditions that you will have to meet to secure the loan as well as the interest rate you will be charged. It is this interest rate along with the length (term) of the loan that set your monthly payment amount.

Keep in mind that your mortgage loan is amortized based on the term you choose. The most popular term is a 30 year loan. Mortgages with longer terms have lower payments; however, these mortgage loans also carry higher interest rates. Lower payments with higher interest rates means you will build equity in your home at a much slower rate while paying your lender much more in interest payments.

Short term mortgages with terms ranging from ten to 15 years have higher monthly payments; however, these loans come with lower interest rates. To learn more about choosing a mortgage loan or refinancing your current mortgage sign up for our free guide to mortgages and mortgage refinancing.

Here’s a mortgage tip every homeowner can use before Christmas. Make your January mortgage payment in December. If you do this you will receive a larger deduction on your income taxes. The mortgage interest you pay by making this payment in December is counted for your next income tax deduction. By making this one payment you will increase your mortgage interest deduction by approximately 8%.

If you decide to do this don’t just pay the principal on top of your December mortgage payment. Make both payments for December and January; you’ll have to pay the principal and interest for both months to receive the increase in your mortgage interest deduction.

There numerous types of mortgages available to finance your home. Interest only mortgage loans are one non traditional mortgage loan on the market today. These loans are often referred to as balloon mortgages. This type of mortgage is as the name implies an interest only loan. You will not pay back any or the principal balance or build equity in your home. At the end of the mortgage’s term the principle balance is due.

This type of mortgage loans is a popular choice for homeowners looking for the lowest monthly payment possible. Homeowners typically can qualify for a much larger amount with an interest only mortgage loan than they would be with a traditional mortgage loan.

To put this into context consider the mortgage on a $150,000 property. A traditional fixed interest rate mortgage with a 7% interest rate over 30 years would cost a homeowner $1000 a month. An interest only mortgage for the same property would have a monthly payment of only $690. This is a very attractive option for homeowners with a limited cash flow.

A good financial advisor will tell you to avoid these mortgages like the plague. These loans are ideal for homeowners who only plan on staying in the property for a few years; for anyone else steer clear. The problem with these loans is that you do not build equity in your home.

There are a few circumstances where interest only loans make sense, for example with investment homes. If you are purchasing a home to live in this is not the mortgage for you!

Interest rates for fixed thirty year mortgages dropped for the second week in a row; however, industry experts say rates will resume their rise as the Fed raises interest rates again to battle inflation. According to a survey of national mortgage lenders interest rates fell to 6.26% this week, down from 6.28% the previous week. This is the interest rate for a traditional thirty year fixed mortgage. Industry experts state this decline is due to the markets unease over the state of the economy.

Mortgage rates are dropping slightly as the markets react to inflation and the overall state of the economy according to Freddie Mac. Many experts think the drop in rates will be short-lived as the Federal Reserve resumes raising short term interest rates in a futile attempt to slow the US economy.

As for 15 year fixed interest rates a hot choice for homeowners refinancing their homes, rates average 5.81% this week. This rate remains unchanged from the previous week. One year adjustable rate mortgage loans (ARM) crept up to 5.16% from 5.14% the week before. Five year hybrid mortgages average 5.76%; these ARM loans were at 5.75% the week before.