ARM vs Fixed-rate Mortgages
ARM vs Fixed-rate Mortgages
The mortgage market is constantly changing, and smart consumers keep a close eye on those changes to determine the most strategic time to apply for a mortgage. At this point, the difference in interest rates between an adjustable-rate mortgage (ARM) and a fixed-rate loan has narrowed significantly. Therefore, more applicants are opting for a fixed-rate mortgage when purchasing a home. And an increasing number of homeowners are refinancing their existing ARM with a new fixed-rate mortgage. The most recent economic indicators show that inflation is, indeed, being held in check, said Freddie Mac s Frank Nothaft. That news allowed long-term mortgage rates to drift a little lower in recent weeks. Shorter-term rates, however, rose in reaction to comments by Chairman Bernanke, of the Federal Reserve Board, that hinted at continuing rate hikes this year. The housing industry remains fundamentally fit as we continue to progress into the spring home buying season, Nothaft said. Fortunately, mortgage interest rates are still at historic low levels, while home prices continue to rise. An increasing number of applicants are applying for 35 and 40 year term mortgages as a means of reducing their monthly payments while staying with a fixed-rate loan. This also makes it easier to qualify for a needed mortgage. The concern about an ARM loan s increasing interest rates and payments in future months and years is understandable. Many recent applicants are seeking more peace of mind by applying for a fixed-rate loan when purchasing a home or refinancing their mortgage.
Copyright 2006 TheLow Quote.com Syndicated real estate columnist and feature writer Mortgage / Real Estate Update Report www.TheLowQuote.com
Mortgage Calculators Confusion!
When you first start using a mortgage calculator such as Karl Jeacle’s Graphing calculator, you might easily get confused, especially if you are new to the world of buying property. The sliding scales on this calculator aren’t what some people are used to seeing.
Most people are used to typing their numbers into boxes with familiar features. But don’t be dazzled only by the graph, boxes are still available further down the page so that you can use numbers instead of the scales. Using Karl Jeacle’s mortgage calculator against one on a different website can give you different a different feel for what looks like the same set of figures.
It’s all to do with the basic programming that has developed around mortgage calculator. Some mortgage calculators are very basic, they input very simple basic numbers and a few calculations take place in the program behind the scenes on your computer. They give you suggested figures that, although not perhaps 100% accurate, will give an approximate idea of what the property will cost you.
There are other factors that need to be taken into account when a mortgage is computed, such as your age and state of health for example. Many basic mortgage calculators won’t take this into account, but some more sophisticated programs can. These will give a more accurate analysis of the mortgage situation you would face as it will have more information about you personally. The more the mortgage calculator knows about you, and the property, the more detailed and accurate the answers it gives will be.
This is another reason why sliding scales such as Karl Jeacle’s Graphing calculator might not work for some people. Sliding scales are often better for approximation rather than specific numbers. Perhaps 48 instead of 50 is “almost” right, but it’s not going to create the most accurate analysis and the hard figures you need to figure out your budget and finances. The various colors on this mortgage calculator are also a little less clear than straight forward numbers.
So why even mention Karl Jeacle’s mortgage calculator? Even though it won’t give you precise numbers, and no calculator does, the graphics give you a feel for just how much that mortgage is really costing you. You can see for yourself, graphically, how adding a little bit to your monthly mortgage payment makes a large difference down the road.
Using a variety of different mortgage calculators gives you a good overall feel for how a mortgage on a particular property would affect your budget.
But, make sure that you know what their figures are based on. For example, the mortgage calculator may not ask you for a mortgage term, but somewhere on the calculator site there may be a note to say that calculations are based on 30 year mortgages.
The same could be true about interest rates. While some mortgage calculators ask you to input the interest rate, others assume an “approximate” rate. Mortgage calculators linked to specific lenders could take the interest rate automatically from the lenders financial pages so they are the current default rate and not able to be altered even if you have perfect credit.
Use one calculator at first to pin down your basic options and figures. Then test those numbers out on a variety of mortgage calculators to get the best feel for how your new mortgage will affect your finances and change your life.
For More Information on Mortgage Calculators, please visit: <a href="http://www.greatpublications.com/Mortgage%20Calculator%20Clues.htm" title="http://www.greatpublications.com/Mortgage%20Calculator%20Clues.htm" target="_blank">http://www.greatpublications.com/Mortgage%20Calculator%20Clues.htm</a>
Adjustable vs Fixed Rate Mortgages
Adjustable vs Fixed Rate Mortgages
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Mortgage rates can either be fixed for the duration of your loan or can be adjustable. An adjustable rate mortgage is a loan that is set up with an interest rate that changes based on pre-determined criteria, primarily tied to the federal interest rate. If the interest rates are up, then your interest rate on your loan will be higher, if the interest rates are low then the interest rate on your loan will go down.
Adjustable rate mortgages (ARM’s) are generally fixed interest rates for a period of time and then become adjustable. Generally speaking, the introductory interest rate for an ARM loan will be lower than a fixed rate mortgage. This is done in order to lower initial payments and allow people to take out larger mortgages, or give them smaller payments for the introductory period. This is attractive to people who may know that their income will be increasing over that period of time.
Whether or not to choose an ARM or a fixed rate mortgage has been debated for as long as there have been ARM’s. Though people feel strongly in both camps, simple mathematics can assist you in determining which mortgage is best for you and your personality. Your personality? Yes. Some people are not comfortable with any uncertainty in their lives. The idea of having an uncertain mortgage payment in the future may cause them more stress than the money they are saving is worth. Therefore, factor your own comfort level into the equation.
Generally speaking, ARMs are 2, 3 or 5 years, though they can be longer or shorter. At the end of that period your interest rate will become variable unless you sell your home or refinance. If you think that the likelihood of your selling or refinancing within the period of the ARM is strong, than the lower interest rates of the ARM loan will be of great benefit to you. If you think it is unlikely that you will sell or refinance within that period, then you may not benefit from an ARM.
Bob and Robyn are a young married couple just starting out. Bob is in advertising sales and Robyn is a teacher. Bob is fairly confident that his income will continue to increase over the next several years as he works his way up to becoming an account executive. Robyn’s income is more predictable and is on an upward trend. Being a young couple they do not have the finances for large mortgage payments.
Bob and Robyn are presented with two mortgage proposals for their $150,000 mortgage. Proposal one is a 30-year fixed rate mortgage at 6% and the other is a 5-year ARM at an introductory rate of 5.25%. The fixed rate mortgage payments would be $899.33 per month, not including taxes. The ARM would have a 5-year period where payments would be $828.31 per month, not including taxes. Bob knows that even if he can afford the extra $70.00 per month for the fixed rate mortgage, that $70 per month may be better spent knocking down principle during the ARM period. He is further confident that as his salary increases, he is likely to upgrade his home within five years or refinance to make home improvements. Bob and Robyn took the ARM loan.
John and Catrina are a married couple with three grown children. John has been employed at the same company for 18 years and Catrina has been with her company for 12 years. They have consistent and stable income. Neither John nor Catrina expect any substantial increases in their salaries. After their last child moved out of the home they decided to downsize and buy a smaller home. They have a substantial down payment and will only be taking a mortgage of $100,000 on their new home. John and Catrina are presented with the same loan options as Bob and Robyn were. John and Catrina, however, know that it is unlikely they will sell or refinance in the next five years. They are comfortable with the payment schedule and, therefore, prefer the certainty of the fixed rate mortgage.
There are countless websites that offer mortgage calculators to determine your mortgage payment. For your convenience we offer one on our site. You can review the different payment schedules based on the interest rates quoted for the fixed-rate and the ARM. Once you know the different payment amounts you will be able to determine which loan makes the most sense for you and your unique circumstances.
Your mortgage professional should also be able to assist you in reviewing the options and making the best decision for you. The more open and honest you are with your mortgage professional the more helpful they will be. It is only if they are armed with full and honest information that they will be able to make recommendations to you. About the Author: Max Hunter is the author of many credit related articles. If you are looking for help with Home Loans or any type of credit issue please visit us at http://www.wolverinefinance.com For Credit Repair Software, other products, ebooks & articles, visit http://www.globalbizwiz.com
I own a mortgage company and want to keep people in the know! I also have a For Sale By Owner website where you can post your home for free. www.MyUglyYellowSign.com By the way…Keep your credit clean…You'll always pay more if your credit is poor!
A Fixed Rate Mortgage Could Be the Right Choice
In today s economy, a fixed rate mortgage is the best route for most people to go through. With the interest rates threatening to rise, locking in a low rate today could save you lots of money in the future. A fixed rate mortgage is usually a little higher than an adjustable rate mortgage. This is because the lender is forced to offer the same rate no mater what the prime rate may rise to in the future. In the 70 s and early 80 s, people with fixed rate mortgages were in a nice position as flexible rate mortgages climbed into the 20% rates. There is an exception to the fixed rate rule, but it takes some serious discipline. If you can make yourself pay off the loan BEFORE the first interest rate hike then a flexible rate will work for you. You get a lower interest rate which means you pay less in finance charges. If paying off your mortgage early is your goal then you need to check with your lender to make sure there are no prepayment penalties. Some companies write in a clause to prevent you from paying off the loan early so they are sure to get all their finance charges. What ever direction you choose to go with your mortgage, whether you get a fixed rate mortgage or a flexible rate mortgage, aim for the shortest term length you can manage. It will mean higher payments on the front end, but it will mean a great savings in the finance charges on the back end of the loan. For the first time buyer or for those who have had financial difficulties in the past, a fixed rate mortgage could keep them from being pushed into future financial problems. Keep in mind that as times change, and interest rates fall, it is a good idea to examine your mortgage situation to see if a new route could be a better one.
Kathryn Lang is a freelance writer covering the finance industry. She has written various articles on <a href="http://www.fairinvestment.co.uk/mortgage.aspx">fixed rate mortgage</a> products and <a href="http://www.financemarkets.co.uk/category/mortgages/">mortgage news</a> in general.
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