Mortgage Rate
Mortgages How Much Are You Really Borrowing?
How much are you paying back?
When considering a mortgage do you consider all of the right questions, for example do you consider which bank is best because of their reputation or do you instead look solely at the interest rate tables, do you look at the ability to switch mortgage provider or do you look at how long they can guarantee a given mortgage rate? These are of course all important questions and ones that should be given due consideration when choosing a mortgage provider but there are more important questions.
Most of us consider a mortgage to be one of life necessary evils, after all its not nice to be in debt to the tune of the house price right. Well theres actually one question that most people ignore, if youre borrowing 100,000.00 how much are you actually paying back?
The reason that most people ignore this fact when they consider choosing a mortgage, refinancing or embarking on any other kind of equity refinance is that on paper you are borrowing a given sum (100 K in this case).
Wrong!
You are borrowing a few thousand now but that is not the amount that youll be paying back.
This may seem like a bit of a nonsense statement but lets analyse it in a little detail.
We initially borrow 100,000
The interest rate is 4.25% – per year
Our repayments are the interest + 4%
We take the mortgagerefinance over 25 years.
So our yearly figures are as follows:
Year 1:
Interest = 100,000 100 * 4.25 = 4,250
Amortisation (paying back) =100,000 100 * 4 = 4,000
Total to pay back this year 8,250
So now in year two we only owe 96,000, so it looks like this:
Year2:
Interest = 96,000 100 * 4.25 = 4,080
Amortisation (paying back) =100,000 100 * 1 = 4,000
Total to pay back this year 8,080
So as you can see, theres less interest to pay because were clearing the initial balance, but still were paying 4.25% per year, so if we borrowed 100,000 to start with how much are we actually paying back in the end?
Were actually paying back 151,000 in the end, thats right, the interest on the mortgage is 51,000 doesnt seem such a good rate any more does it. But what if you decide to pay back over a longer period, that might help right? Wrong, if you double the term to 50 years (so paying back 2% per year), then the interest effectively doubles the amount of your mortgage to just over 200,000.
Now perhaps when people discuss getting the best rate for the mortgage and seem to be messing about for a few points difference you can see why, perhaps now you can also understand that it is better to take a mortgage over the shortest possible time frame it does mean that youll need to amortise faster but it also means that youll potentially save yourself thousands in interest payments.
If you are not financially in a position to really negotiate initially then perhaps one of the most important questions you should be asking is whether or not there is an early repayment option you might have enough money to pay it of early but whats the point if the bank will still charge you the same amount of interest?
If you want to run the simulation yourself heres the code in C#, simply create a new project, add a button, double click on the button and cutpaste the following code:
int years =25; years for mortgage
float mVal = 100000; total amount borrowed
float intRate = (float)3.00; interest rate
float result =0;
float totalAmountInt =0; total interest payable
float yearlyAmount = mVal years; repayment per year
for (int i = 1, i
I don’t seem to be able to post the rest of the code, email me and I’ll send it to you.
Mortgages. Short Term Advice
There are some new types of home loans coming onto the market which are being advertised at present. Several of the mortgage companies are offering variation of them and they are being marketed as lifetime loans. So might this be the end of the short-term mortgage? Not necessarily so, it appears that there are still bargains out there for those prepared to shop around.
Mortgage brokers usually advise discounted short term mortgages and advise clients to regularly shop around after the two year discount has come to an end to obtain an even better deal. These clients are known to the insurers as rate tarts. But who can blame them for obtaining the best possible deal, especially as the broker does all the work for them, making the whole procedure painless and trouble free.
First of all, if you need to borrow over 150,000 the above advice is still without a doubt the very best and asking your broker to shop around for discounted rates is, in our opinion, essential.
For borrowers of less than 150,000, some of these new mortgages appearing on the market initially sound tempting. They are classed as low-rate lifetime loans. Abbey and Woolwich are two of the building societies offering flat-rate low cost home loans, amongst others.
The Woolwich has a lifetime tracker mortgage rate which has a guarantee of staying at 0.19 percentage points above base rate. At present the Bank of Englands base rate is 4.50%, therefore the rate is 4.69%.
Conversely, the Portman Building Societys two year fixed rate plan presently stands at 4.19%, still cheaper than the Woolwich lifetime. You do, however, have to factor in the cost of shopping around, which we have listed:
Legal fees 350 on average.
Application fee 499.
Valuation fee 300 on average.
Deeds release fee 199.
This is worked out on a loan of 150,000. The above sums come to just under 1,350 and the saving on interest over the Woolwich comes out at 1,500. This means that there is a very small saving on the Portman deal at two years. You would need to find another tempting deal and be ready to switch to it at the end of this period as a 6.5 per cent rate would come into force otherwise.
Abbeys Flexible Plus tracker has a slightly higher rate than the Woolwich, at 5.09% but, as the name implies, it is very flexible and will allow you to reduce the amount of money borrowed by offsetting your mortgage and also permitting you to withdraw money from the mortgage. One advantage is that you can make use of the mortgage as a type of savings account. Money withdrawn is charged at the mortgage rate.
To sum up, these new loans do seem to be competitive, but the mortgage market alters all the time if youre out for the very best deals, check with your on-line broker and find out whats available out there. Theyll search the whole market and get you the very best deal. Thats what theyre there for!
Mortgage Refinancing Basics
Your mortgage may have a 30-year term, but not many homeowners stay with the same loan for that long. In fact, the average American refinances his or her mortgage every four years, according to the Mortgage Bankers Association. Thats because paying off your present mortgage and taking out a new one can mean big savings over several years. However, refinancing comes with a price in the short term, so its important to consider both the costs and benefits before making your decision.
Why refinance?
Here are some reasons to consider refinancing your mortgage:
1. To obtain a lower fixed rate. If you took out a fixed-rate mortgage several years ago and interest rates have since dropped, refinancing may lower your payments considerably. A 150,000 mortgage with a 30-year term and a rate of 8 percent, for example, carries a monthly payment of 1,100. The same mortgage at 6 percent will have a payment of less than 900 a month.
2. To switch to a fixed rate or an adjustable rate mortgage. Adjustable-rate mortgages (ARMs) offer lower interest rates initially, but some homeowners find the fluctuations stressful. If rates are on the way up, you might consider locking in at a fixed rate and consistent monthly payment. On the other hand, if you want to reduce your monthly payments and are comfortable with the interest rate changes of an ARM, it could save you money to refinance to an ARM.
3. To reduce your monthly payments. Refinancing for a longer term will lower the amount you have to pay each month. You will end up paying more in interest charges over the life of your loan, but if youre having difficulty making your current payments, this strategy could provide some relief.
4. To turn home equity into cash. You may want to take out a new mortgage with a larger principal, in order to turn some of your home equity into cash for a major expense. This is called cash-out refinancing. The advantage of taking out a loan secured by your home is that you can get a lower rate of interest than you can with an unsecured loan or credit card. However, if the interest rate offered for your refinanced mortgage is higher than your current rate, a home equity loan or line of credit might be a better choice.
Is refinancing right for you?
If youre refinancing in order to pay less interest, you wont usually see the savings right away. Thats because lenders typically charge fees when you take out a new mortgage, and you may also have to pay a penalty for getting out of your old one. To determine whether refinancing makes financial sense for you, consider these issues:
1. How long you plan to be in your home. If you expect to move in a year or two, you may never realize the potential savings youd get from refinancing. As a rule of thumb, the longer you plan to stay in your current home, the more sense it makes to refinance.
2. The prepayment penalty on your current mortgage. Many mortgages carry a penalty if you pay them off early. The amount varies, but it is usually a small percentage of the outstanding balance, or several months worth of interest payments.
3. The costs of the new mortgage. When you take out a new loan, your lender may charge a number of fees including application, appraisal, origination and insurance fees, plus title search, insurance and legal costs that can add up to thousands of pounds. Lenders may also charge discount points, which are paid upfront to secure a lower interest rate. As a guideline, expect fees to eat up any potential savings unless your new interest rate is at least a half a percentage point lower than your current one.
To learn more about mortgage refinancing and when it makes sense, visit http:www.lendingtree.comcecyourhomeyourmortgagemortgage-refinance.asp
Mortgage Rates – The Benefits of Refinancing
So you’ve lived in your home for some time now and have been content mailing off your mortgage payment every month. Yet when you turn on the nightly news you see that mortgage rates are 1% lower than what you locked into 10 or 15 years ago and realize quickly that you may be paying more money than you have to in interest rates on your mortgage. For millions of people every year, refinancing is an option they take to give their mortgage a “health check” of sorts and to help them lock in lower rates or take advantage of increased property values to make some improvements to their homes.
Nobody likes to pay more than their neighbor did for something – especially their house! Refinancing is an activity that is as much a part of the mortgage process nowadays as taking out a mortgage is to buy a new home. A smart homeowner knows that interest rates will rise and fall and that by keeping track of where they are currently they can save a lot of money over the life of their mortgage note by locking in a lower mortgage rate now, even if it means paying a little money up front. Refinancing helps millions of homeowners get lower rates on their mortgages by paying off their old mortgage and writing a new one.
Of course, as with any financial transaction, you should carefully review all the costs associated with refinancing and the potential benefits versus the risks. Typically, if you only have a few years left on your mortgage note then refinancing is not for you – you simply won’t save enough in interest to make up for the fees you have to pay to rewrite your mortgage. The best time to refinancing, according to some experts, is when at least 40% of your monthly mortgage payment is still going towards interest fees.
If you do decide to refinance it is important to remember all the tricks we’ve talked about before when shopping around for a mortgage. Get plenty of competitive bids, keep a close eye on the fees, and be sure to read and understand the risks involved.
Another reason that many homeowners refinance their mortgages is to take advantage of increased property values as to “cash out” on some of the equity. Say you have a child who is ready for college and you need a way to pay for it. Your home, with cost 100,000 twenty years ago when you took out your 30-year mortgage may now be worth 200,000. By refinancing you can in essence write yourself a check to pay for home repairs or other needs and get the money easier at a better rate then taking out a 2nd mortgage.
For those who use it wisely, refinancing can be one of the best financial tools you have. Not only does it hold the potential to help you save thousands of pounds in interest charges by getting you a lower rate, but it also lets you take advantage of increased property values to help pay for other necessary items that come up in life. Yet another reason why owning a home is truly one of the best financial moves you will ever make.