Aug 25
adminCheap Mortgages
Interest Only Mortgages
Interest Only Mortgage is a means to payback a certain mortgage. On availment of interest-only mortgage, monthly amortization does not include any partial payment of the loan. The borrower has to pay only the fixed monthly interest of the loan. The principal amount of the loan is payable at one time and based on borrowers and lenders terms of agreement.
In Interest only mortgage, it is a must to determine how the loan payment should be made. Most borrowers are advice before engaging in this Mortgage to at least save consistently. The purpose of savings is to allow the borrower to come up with a lump sum to pay off the principal obligation. The completion of savings must also be made available before the maturity of terms of mortgage arrives.
Another option a borrower may do to effectively secure the mortgage is to make a conversion to a repayment mortgage. It is ideal for the type of a borrower who does not have big income at the time of engagement to the mortgage but expect an increase on the future income. By means of interest only mortgage the borrowers can enjoy low monthly payments. And when financial condition of the borrower increases, he may pay higher monthly payments for the repayment of mortgage.
Interest only mortgage are usually recommended by lenders and brokers but future borrower should be aware that interest only mortgage is beneficial only to particular type of person. Ideally interest only mortgage are good for workers who earn based on commissions or who expect high earnings in the coming year. Investors who expect big return of investment may also effectively acquire this type of mortgage.
Financial experts advise regular wage earners who opt to choose moderate size home loan not to apply for interest only mortgage. A borrower who cannot make a good plan for investing their savings is likewise not ideal for interest only mortgage.
Repayment Mortgages
Repayment Mortgage is a way of paying a mortgage wherein monthly repayments comprises of repaying the principal amount of obligation including the accrued interest. In simple terms, the borrower has to pay monthly part capital and part-interest. In repayment mortgage, at the end of the mortgage the full amount of the debt obligation will be repaid.
During early years of paying, the charges of the mortgage repayments consist mostly of the interest and because of this, less of the capital is actually paid off.
To determine the applicability of this type of mortgage to a person in need, the borrower must assure repayment of the full amount of the loan at the expiration of the term. The borrower must also consider that interest rate are subject to increases and will also affect the monthly payment premiums.
In repayment of mortgage, the borrower may ask the lender to extend the term of payment in case he is unable to pay the amortization or to allow interest only payments until the borrower can update the payment. This request for changes on the terms will increase the full principal obligation of the loan. But nevertheless, the same must be approved by the lender.
Most lenders provide flexible repayment mortgages to allow the borrowers to pay more than the required monthly premiums when their financial capacity improves. Holiday payments are also given to borrowers when they cannot meet the monthly dues.
Ideally, repayment mortgage is the efficient way to pay off the loan. When the mortgage value reduces, the amount of interest payable is likewise decreases. Hence, after few years of paying your dues the monthly repayment will now consist of an increasing amount of capital and a decreasing amount of interest. Tax relief will likewise decrease. This means that the borrowers will unlikely experience negative equity because the mortgage prevailing balance will also reduce. In the long run, the high equity percentages of the borrower’s property will also increases.
Reverse Mortgages
A Reverse Mortgage is a loan that enables homeowners to convert part of the equity of their home into a tax-free income. In this type of mortgage, homeowners do not have to sell their homes, give up the title, or take on a new monthly mortgage payment. It is termed as reverse mortgage because instead of making monthly payments to a lender as with a regular mortgage, the lender is the one that makes payments to the homeowners.
But not all can avail a reverse mortgage. In order to qualify in this mortgage, the homeowner must be at least 62 years of age. The older the applicant, the higher the loan amount can be. Also, the home to be subjected in reverse mortgage must be the applicant’s principal residence, meaning the applicant is currently residing in that particular house for more than half a year.
Elderly homeowners often use reverse mortgage as an additional source of income since most of them are already retired. Payment proceeds from a reverse mortgage can be also used to pay for the applicant’s health care, home repair or modification, paying off existing debts, taking a vacation and paying property taxes or just get some cash in case of emergencies.
The amount of cash one can have depends on several factors like the age of the home, its value, age at the time of closing, and interest rates. The qualified applicant may choose to receive the money from a reverse mortgage all at once as a lump sum, as a line of credit, fixed monthly payments or a combination of both.
The lump sum is the cash paid to you on the first day of the loan as immediate cash. A line of credit lets you take cash advances whenever you want during the life of the loan and until you use it all up. The mortgage becomes due once the home is passed on to the heirs. The heirs then, had an option to pay the mortgage and keep the home or sell the home and pay off the mortgage. They can keep any excess sales proceeds. The homeowner can never owe more than the value of the home in which time the loan is repaid.
Aug 18
adminCheap Mortgages
What Is An Endowment Mortgage?
An endowment mortgage, in theory, is supposed to lower your mortgage payment. Ideally, endowment mortgages are much cheaper than standard mortgage policies such as repayment mortgages. When you get an endowment mortgage, you pay only the interest on the amount borrowed. In addition to this, you pay an addition small sum into a policy that is supposed to be ever-increasing: the endowment policy. This policy is supposed to grow and grow, and at the end of the mortgage term you use this money to pay off your capital.
The customer pays only the interest on the capital borrowed, thus saving money with respect to an ordinary repayment loan; the borrower instead makes payments to an endowment policy. The objective is that the investment made through the endowment policy will be sufficient to repay the mortgage at the end of the term and possibly create a cash surplus.
-Endowment Mortgages, Wikipedia, June 2006
Endowment mortgage is actually not a legal term. This type of mortgage policy was popular in the 1980s, especially in the UK, but natural fiscal problems and stock market lows made many of these policies practically worthless. An endowment mortgage is always going to be hit or miss. When they work, they really work well. When they dont workthen, things arent so great.
With an endowment mortgage, the borrower only pays the monthly interest to the lender while investing an additional monthly sum into a policy that is usually invested in equities. The theory is that this “endowment policy” should grow sufficiently, with long-term share price rises, over the course of the mortgage (usually 25 years) that the capital debt can be repaid at the end of the term.
-Q & A: Endowment Mortgages, Business Times Online, June 2006
And If Things Go Wrong With My Endowment Mortgage?
With an endowment policy, you lay yourself open to the vagaries of the stock market and the competence of the policy manger. You must also closely monitor the performance of your policy to make sure you are contributing enough.
- Q & A: Endowment Mortgages, Business Times Online, June 2006
Lets say, for instance, that you get an endowment mortgage. This type of mortgage has been getting more and more attention recently, and some consumers are starting to think it might just be a good idea again. So you get an endowment mortgage and start paying off your interest regularly. With equal regularity, you deposit a certain amount of pounds into your endowment policy. Only, the stock market doesnt do so well. Stocks are low, the economy takes a plunge. Twenty-five years go by, and you discover that your endowment policy does not have enough in it to pay off your capital. All your interest has been paid, quite nicely, for two and a half decades, however. So, what about that capital loan that needs to be paid off?
Youd better find a way to pay it offsomehow.
The underlying premise with endowment policies being used to repay a mortgage is that the rate of growth of the investment will exceed the rate of interest charged on the loan. Towards the end of the 1980s when endowment mortgage selling was at its peak, the anticipated growth rate for endowments policies was high (7-12% per annum). By the middle of the 1990s the change in the economy towards lower inflation made the assumptions of a few years ago looks optimistic.
-Endowment Mortgages, Wikipedia, June 2006
When you took out your mortgage with an endowment policy, the aim was that the policy would grow in value. However, as the value of most policies is linked to the performance of the stock market there is usually no guarantee that the policy value will be sufficient to repay the mortgage at the end of the mortgage term.
-Consumer Information, FSA, June 2006
Jul 28
adminCheap Mortgages
What Is Capital and Repayment Mortgage?
Repayment mortgage (also called a capital-and interest loan)
Your monthly payments gradually pay off the amount you owe as well as paying the interest charged on the loan. Provided you make all the agreed payments, the loan will be fully paid off by the end of the mortgage term.
-Consumer Information, FSA, June 2006
Repayment mortgage and capital mortgage (or capital loan) are the exact same thing, made more confusing by the fact that this type of mortgage is known by more than one name. But dont let that confuse you! Capital and repayment mortgage is, in fact, the same thing.
How Do I Know Capital, or Repayment, Mortgage Is Right For Me?
RepaymentCapital mortgage is great for those who want to get their entire mortgage, capital and interest, paid off by the end of their mortgage term. Once the term is up on this type of mortgage, youre done and fully paid off. Many mortgage policies focus on the interest that you owe. Capital and repayment mortgages are popular because they allow homeowners to pay off everything that they owe.
The bank or company that you work with to determine your mortgage policy and payments can give you all sorts of options. Make sure to ask what the interest rate and payment structure on a Capital or repayment mortgage would be. The numbers will help you decide whats right for you. After all, the right mortgage is the one that you can afford.
Do Capital and Repayment Mortgages Cost More Than Other Types of Mortgages?
You usually pay off mostly interest in the early years and then gradually more of the capital debt. It may seem as if this is costing more but that’s because unlike the other types of mortgages you’re paying off the capital and not just the interest.
-Repayment Mortgages, Mortgage Sorter web site, June 2006
While capital and repayment mortgages do not necessarily cost more than other types of mortgages, you may feel that you are paying out for a longer period of time with a capital and repayment mortgage. This is not true, however. Capital and repayment mortgages just allow you to pay off your entire mortgage in one complete payment cycle. And once youre done, youre done. Thats the beauty of a capital and repayment mortgage, one of the most popular types of mortgages used by homeowners.
I Still Dont Know What Kind of Mortgage I Need. What Should I Do?
If you know that you want to finance or re-finance your home or property, its an easy decision to take out a mortgage policy. The only problem is, what kind of mortgage will suit your needs best? With so many options out there, and so much information about different types of mortgages available, it can make your head swim. When youve never had a mortgage before and dont know that much about mortgages in general, how do you decide whats best for you?
The only way to know what type of mortgage will fit your needs is to run the numbers. Have your bank, financial advisor, or the company that youre re-financing with gives you examples of payment plans for many types of mortgages, and be sure to get your questions answered about each policy. You will think up many different questions, some of which can only be answered by those youre working with to establish your mortgage. Youll know whats right for you when you see the plan in black and white, because youre the only one who truly understands what your financial situation is.
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