The interest rate of a fixed rate mortgage remains constant throughout the loan term. Payments are fixed and will not vary, and this amount is independent of the additional costs on a home including as property taxes and property insurance. Some lenders may require an impound account for both taxes and insurance. This benefits the lender by ensuring that these required payments are made.

If there is very little money down, the lender may require an impound account. But impound accounts can confuse the borrower who is not sure if those payments were actually made. In some instances they may continue to be billed by the county assessor and / or the insurance company.

Adjustable Rate Mortgages have become very popular lately. They are characterized by low initial payments which make it easier for the borrower to qualify. This allows borrowers to qualify and purchase larger homes.

The payments may be adjusted periodically with the interest rate tied to an index. Common indexes include the 11th District Cost of Funds Index (COFI), London Interbank Offered Rate (LIBOR), 12-month Treasury Average Index (MTA), Constant Maturity Treasury (CMT), National Average Contract Mortgage Rate, or the Bank Bill Swap Rate (BBSW).

Adjustable rate mortgages are usually easier to qualify for because the lender is protected from spikes in interest rates. But lenders and investors need to consider the default rates due to hybrid adjustable rate mortgages which offer an initial low payment period. After that period the loan payments are adjusted upward and may even double leading to defaults and foreclosures.

But what do the numbers mean in Hybrid mortgages? A 3/1 ARM means the payment is fixed for a 3-year period and a subsequent 1 year adjustment period. After a specified “reset date” the loan is free to adjust or “float” to the index specified in the loan documents.

When interest rates are high borrowers may prefer an adjustable rate loan. If a borrower feels that he or she may sell their home within five or maybe ten years, they may consider either an adjustable rate mortgage or an Interest Only Loan. If property values increase in that period the home buyer benefits because they invested less money compared to a standard Fixed Rate Mortgage.

Borrowers with Interest Only Loans pay only the interest for a specified period of time. Unlike Adjustable and Fixed Rate Mortgages, no principal is paid on the loan. At the end of interest only period the loan may convert to a regular amortized loan or a balloon payment may become due. The terms are spelled out in the loan agreement.

In the United States a five or ten year interest-only period is typical. After that time the loan usually converts to a regular amortized loan for the remaining term. For instance, a homebuyer may pay interest only for 10 years but then pays both interest and principle for the remaining 20 years of a 30-year loan.

Adjustable rate and interest only mortgages can help buyers qualify for larger loans and homes. There is a risk to both the borrower and note holder when the loan either resets or converts to a regular amortized loan. For this reason lenders will usually require a higher interest rate on these types of loans.

Homeownership offers many advantages when compared to renting. This presentation was not meant to be advice. Always consider all of your options and talk to loan and / or real estate professionals before making your decision.

Duration : 0:5:37

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Duration : 0:1:48

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There are two important types of home loans according to interest rates. Usually, it can either be a fixed home loan rate or an adjustable home loan rate.

1. First type: Fixed home loan rates

Fixed home loan rates are interest rate that determined at the time we take the loan. This loan doesnt change during our payment term because the interest rate is locked. Regardless of how interest rates rise or fall,Individuals who have fixed interest rates on their loans pay the same interest month after month.

People like to apply for fixed home loan rates especially when the offered interest rates at that time are low.This makes the loans very attractive to them.

And in fixed home loan rates it easier to plan your budget and spending over a long period of time,Because the interest is lock or never change.

Fixed home loan rates are believed will be more beneficial to the borrower of the loan than the lender.

2. Second type: Adjustable home loan rates

Adjustable home loan rates modify themselves as interest rates rise and fall according to the current market rates.

You can take advantage of the very small interest rate at the first parts of your loan.
As you know, if the interest rate is low.

Since its subject to an adjustable factor, theres huge possibility that it will increase dramatically in the next few years,Of course this also increasing the monthly payment of your loan

Sudden decreases have the opposite effects, You can check daily quote for home loan rate.A home mortgage loan rate has the ability to change very quickly,Depending on the economy of the country and other factors

For more information about
Home Loan Rates
Please visit our website:
ho-me-refinancing.com/home-loan-rates

Duration : 0:1:47

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But why refinance as opposed to taking out that second loan? The first consideration is the interest rate. If a homeowner has been making their payments on an adjustable rate mortgage that has reset to a higher rate, they may be better off applying for a refinance mortgage. Depending on the credit history, a fixed rate mortgage may be available.

Duration : 0:3:27

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Part 4 (Excerpt)

1099 C is for Cancellation of Debt Income Only, not for Interest Rate and Payment Reduction

So for people who find themselves in a very difficult situation considering these options whether it’s a loan modification or a short sale, whatever they need to do to relieve themselves of this particular burden of a mortgage, that for whatever reason they’re no longer able to maintain, they are not always considering the tax ramifications associated with taking a specific course of action, like this example the short sale option.

Right there is actually two pieces of tax component here, you have the forgiveness of debt income that we talked about, they still have the fact that you sold your house and you have to see if there was a gain on that. Over and above the cost basis of the home.

We talked about the 1099Cs a few moments ago, did you say that the lender sends a copy of the 1099C to the IRS? Absolutely.

Now I’m the guy for a few minutes ago who bailed on $400,000 and sold it for $300,000 am I going to get a copy of the 1099C if I haven’t given my lender my new address. Well that could be a problem, they will send it to the last address they have on record for you. And as a homeowner it’s my problem.

The IRS will get a copy, so they will look for it on your return, if you forget to put it on then you’re going to get a friendly notice from the IRS.

If somebody is going to do a short sale, its a fairly civil transaction and when I say civil I mean going for a short sale is horrible for them and their family, but it beats the alternative which is foreclosure, and I think the real problem is when there’s a foreclosure and the guy just walks away and moves off to El Centro California, he’s the one who’s really getting hurt.

So in the event that somebody takes a course of action, and I know that Velocity financial and Michael Barnes, youre not necessarily advocates for that short sale approach. It’s not normally the best course of action, we’ve been talking about loan modifications and it would help me when I talk to clients, or people who call from radio broadcasts who asked questions about loan modification process as part of a financial strategy, help me with some of the tax ramifications. Let’s say that I have a loan and I know the best thing for me is a loan modification, am I going to be faced with a 1099? A tax bill at the end of a loan modification?

Yes, the first of the two tax implications will apply which will be the debt forgiveness part.

I didn’t mean to interrupt you Mike, well I said there are several different types of loan modifications, I believe are you asking about when the loan modification is where they actually do forgive some of the debt?

Thats a point, I know there’s been a lot of discussion on the use of the TARP funds especially from the federal government regarding these banks that qualify for some of these funds, they have to do principle reductions for their mortgages. So let’s say there isn’t a principal reduction involved, from that aspect, its not a taxable event that could take place, since I’m not reducing my principal, I’m simply getting a reduction in my term or my rate.

That’s right, the only time that taxes would come into play is when the principal gets reduced because thats forgiveness of debt.

So let’s take that one step further, whatever mortgage interest I’m able to deduct on my taxes may be impacted if it’s a lower percentage, right because youll be paying less interest, but there’ll be no surprise 1099 coming your way if its just an interest modification.

One of the things that I like to make thing clear is that were trying to do the best for you the homeowner so you can stay in your home. The situation I’m talking about, the $400,000, the lender is more likely than not is not going to forgive $100,000, however the same lender is more than willing to reduce your interest rate so that your payment would be the same if they have done the principal reduction, because it’s not a permanent loss for the bank. If there is someone out there who’s telling you that they can have your mortgage reduced by tens of thousands or hundreds of thousands of dollars, it’s not going to happen and I doubt it’s going to happen anytime soon.

Duration : 0:5:58

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Part 7 (Excerpt)

The old rules no longer apply and Suze Ormond should know that.

We have Dan Havey the author of Real Estates Future in the studio today.

Michael, I was just curious, back when I got into the industry many, many years ago there used to be a rule of thumb that if you were going to refinance you had to lower your interest rate by at least two percent and I know as time went along and products changed that really became unnecessary, but I am just curious in todays mortgage market its a lot different than we were dealing with even two years ago. Is that still true that there is a 2% rule? Whats going on now?

I happened to catch Suze Orman on television and she was talking about mortgages, the caller who called in to the program, the question became I believe similar to what Dan just asked, her comment was that basically if you’re in 6% interest rate or above now is the time to re-fi. That is what she said, a blanket recommendation. I know a lot of people put a lot of credence into what she says, maybe you could speak to that, the lowest interest rates you’ve seen in your career, you have been doing this for a while.

I have, and they are. You know there was a lot of speak the last couple weeks about the Fed, the Fed funds rate by the way is the lowest it’s ever been in history. As of this week the discount rate is to the point that banks are lending money to each other at nothing, the Fed funds rate for intrabank lending is at zero, the problem is the banks don’t have any money.

To be serious about the refinancing, because its a serious topic, I think people are starting to see their mail boxes filled with lots of advertising crap about refinance. I believe that doing the refinance is no different from doing a loan modification or buying a house, you need to sit down with the human being that’s local, that you can know is a legitimate source. You’re going to give all this personal information about you, your family, your kids, your Social Security number, you want to make sure you have somebody there that you know whos legit.

In regard to the old rule of thumb 2%, nothing could be further from the truth, and I will expand, but to the point of Ms Ormond that if youre at 6% or higher, that is a blanket statement and blanket statements never work. We just did a refinance for a guy who was at 5 1/2%, and it makes sense. Every situation is different, as far as how much do I have to lower my interest rate to make it work? It depends on the type of mortgage that you get.

The only type of loan to get today in December of 2008 is a 30 year fixed. I know that one of the things that was really interesting to me, and that you and I have referred clients to one another for several years, so we share a number of clients, were familiar with those families and those households, and this is Wednesday, on Monday and Tuesday of this week I’ve had seven phone calls from clients who you’ve already done loans for, refinances for, asking if this is the time to refinance a loan that is only a couple years old.

And I know in several of those cases the answer is yes you’re actually helping families right now with that process. I am and we do. To answer the question, you need to determine what the payback term is, in other words when your refinance is done it’s a new loan, there’s the title insurance, appraisals, lots of different things may need to be done, not in every case, but in most cases there are costs associated with that. The cost has to be offset by the amount of savings. Its a breakeven analysis

Absolutely it is, the shorter the breakeven the better the loan. I am working on a case right now which is going to be done in the next couple of days where the guy lowered his interest rate by an1/8 of a percent and it made sense for him. It’s not for everybody, 2 percent or lower, 2% is significant, now you’re talking about really significant savings in terms of cash flow…

Duration : 0:6:31

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