Apr
13
Timing for Call Risk
Filed Under Finance | Leave a Comment
Ravi Verma asked:
plained in the previous post,many bonds contain a provision that allows the issuer to retire,or “call all or part of the issued before the maturity date”.This issuer usually retains this right to refinance the bond in the future if market interest rates decline below the coupon rate.
From the investor’s perspective,there are three disadvantages of the call provision.
The cash flow pattern of the callable bond is not known with certainty.
The issuer will call the bonds when interest rates have dropped.
The capital appreciation potential of a bond will reduced because the price of a callable bond may not rise much above the price at which the issuer may call the bond.
Many long treasury and agency bonds,most corporate and muncipal bonds,and almost all mortgage-backed securities have embedded in them the option on the part of the borrower to call,or terminate the bond before the ststed muturity date.Even though the invester is usually compensated for talking the risk of call means of a lower price or a higher yield,it is not eacy to determine of this compensation is sufficient.In any case,the returns from a bond with call risk can be dramatically different from those obtained from a nonmalleable bond.
The magnitude of this risk depends upon the various parameters of the call as well as on market conditions.Timing risk is so pervasive in fixed income portfolio management that many market participants concider it second only to interest arte risk in importance.
In the case of mortgage-backed securities,the cash flow depends or prepayments of principal made by the homeowners in the pool of mortgages that serves as collatevral for the security. The timing risk in this case is called prepayment risk.It includes cantraction risk-therisk that homeowners will prepay all or part of therir mortgages when mortages interest rates decline.If interest rates rise,however investors would benifit from perpayments.The risk that prepayments will fall down when mortage interest rate is called extension risk.Thus,timing risk in the case of motage backed securities is called prepayment risk,which included contraction risk and extension risk.
JOHNATHAN
plained in the previous post,many bonds contain a provision that allows the issuer to retire,or “call all or part of the issued before the maturity date”.This issuer usually retains this right to refinance the bond in the future if market interest rates decline below the coupon rate.
From the investor’s perspective,there are three disadvantages of the call provision.
The cash flow pattern of the callable bond is not known with certainty.
The issuer will call the bonds when interest rates have dropped.
The capital appreciation potential of a bond will reduced because the price of a callable bond may not rise much above the price at which the issuer may call the bond.
Many long treasury and agency bonds,most corporate and muncipal bonds,and almost all mortgage-backed securities have embedded in them the option on the part of the borrower to call,or terminate the bond before the ststed muturity date.Even though the invester is usually compensated for talking the risk of call means of a lower price or a higher yield,it is not eacy to determine of this compensation is sufficient.In any case,the returns from a bond with call risk can be dramatically different from those obtained from a nonmalleable bond.
The magnitude of this risk depends upon the various parameters of the call as well as on market conditions.Timing risk is so pervasive in fixed income portfolio management that many market participants concider it second only to interest arte risk in importance.
In the case of mortgage-backed securities,the cash flow depends or prepayments of principal made by the homeowners in the pool of mortgages that serves as collatevral for the security. The timing risk in this case is called prepayment risk.It includes cantraction risk-therisk that homeowners will prepay all or part of therir mortgages when mortages interest rates decline.If interest rates rise,however investors would benifit from perpayments.The risk that prepayments will fall down when mortage interest rate is called extension risk.Thus,timing risk in the case of motage backed securities is called prepayment risk,which included contraction risk and extension risk.
JOHNATHAN
Mar
9
Mortage Refinance 2008 Year End Numbers
Filed Under Finance | Leave a Comment
Sara Vlazny asked:
The rising unemployment rate, and a shrinking U.S. economy, has struggling consumers looking for relief through Mortgage Refinance. A smaller amount of buyers seeking new loans and those seeking lower monthly payments on current Loans, are currently raising the number of applications. The percentage increase ending January 9, 2009, includes both mortgage refinance and purchase loans. This happens to be the highest combined percentage increase since 2003.
The Index hit an eight year low with a 35.9% drop, in November of 2008, and The Mortgage Bankers Association has their seasonally adjusted purchase index showing a 14.1% drop, although applications for mortgage refinance have jumped by 25.6 percent. Mortgage applications helped the four week average by rising 10.8 percent last week alone.
Everyone is hoping the low mortgage rates will spike demand for new Mortgage applications, even though the purchase market shows slower growth than the refinance market. The Mortgage Refinance sector will show an increase in applications due to the weakening economy as consumers continue looking for ways to reduce their expenditures.
Mortgage Refinance jumped from 79.8 to 85.3 last week, which is the highest increase for the Refinance sector, solely, since 1990. Several factors including the climbing unemployment rate and its role in slowing the economy have contributed to shaky financial markets, keeping buyers from applying for mortgage finance.
The World is watching and waiting for positive change in a situation some have called, the worst housing downturn since the Great Depression. There seems to be little sign of recovery even with a significant rise in applications for Mortgage Refinance so it is hard to tell what is going to happen over the next 6 months to a year. We have to rely on Government proposals and plans for right now.
People will not be comfortable with the way the housing market shows instability, no matter how low the interest rates are, if job security is in question, it will directly affect income and individual ideas about spending. In order to benefit from low mortgage rates or a Mortgage Refinance, these factors have to be.
The 30 year mortgage rates in this Nation dramatically declined in November of 2008, when the Federal Reserve announced its plan to buy approximately $500 billion worth of mortgage securities that were backed by Fannie, Ginnie and Freddie. The Federal Government, prompted by the dive of the finance market, has made a commitment to keep consumers borrowing costs down through the purchase of mortgage-backed securities. As for Mortgage Refinance, now is a great time to lock in at a low rate since we know rates will not stay down forever.
Requests for loans are up 200 percent from two months ago according to one online real estate service company. Companies offering mortgage services say they are working hard to handle the increase in work load from the dramatic increase in applications for Mortgage Refinance. Some mortgage companies happily predict a continuation over the next few months, on average, given the mortgage rates will remain low for at least 6 more month.
JOHNNIE
The rising unemployment rate, and a shrinking U.S. economy, has struggling consumers looking for relief through Mortgage Refinance. A smaller amount of buyers seeking new loans and those seeking lower monthly payments on current Loans, are currently raising the number of applications. The percentage increase ending January 9, 2009, includes both mortgage refinance and purchase loans. This happens to be the highest combined percentage increase since 2003.
The Index hit an eight year low with a 35.9% drop, in November of 2008, and The Mortgage Bankers Association has their seasonally adjusted purchase index showing a 14.1% drop, although applications for mortgage refinance have jumped by 25.6 percent. Mortgage applications helped the four week average by rising 10.8 percent last week alone.
Everyone is hoping the low mortgage rates will spike demand for new Mortgage applications, even though the purchase market shows slower growth than the refinance market. The Mortgage Refinance sector will show an increase in applications due to the weakening economy as consumers continue looking for ways to reduce their expenditures.
Mortgage Refinance jumped from 79.8 to 85.3 last week, which is the highest increase for the Refinance sector, solely, since 1990. Several factors including the climbing unemployment rate and its role in slowing the economy have contributed to shaky financial markets, keeping buyers from applying for mortgage finance.
The World is watching and waiting for positive change in a situation some have called, the worst housing downturn since the Great Depression. There seems to be little sign of recovery even with a significant rise in applications for Mortgage Refinance so it is hard to tell what is going to happen over the next 6 months to a year. We have to rely on Government proposals and plans for right now.
People will not be comfortable with the way the housing market shows instability, no matter how low the interest rates are, if job security is in question, it will directly affect income and individual ideas about spending. In order to benefit from low mortgage rates or a Mortgage Refinance, these factors have to be.
The 30 year mortgage rates in this Nation dramatically declined in November of 2008, when the Federal Reserve announced its plan to buy approximately $500 billion worth of mortgage securities that were backed by Fannie, Ginnie and Freddie. The Federal Government, prompted by the dive of the finance market, has made a commitment to keep consumers borrowing costs down through the purchase of mortgage-backed securities. As for Mortgage Refinance, now is a great time to lock in at a low rate since we know rates will not stay down forever.
Requests for loans are up 200 percent from two months ago according to one online real estate service company. Companies offering mortgage services say they are working hard to handle the increase in work load from the dramatic increase in applications for Mortgage Refinance. Some mortgage companies happily predict a continuation over the next few months, on average, given the mortgage rates will remain low for at least 6 more month.
JOHNNIE
Nov
21
Residual Income=Financial Freedom
Filed Under Finance | Leave a Comment
Jerry Cannon asked:
As I made my morning coffee,viewing out of my kitchen window at the rual road 1/2 mile from my front gate, a car passed at 5.58am.
Well you say, that is no big deal, yep everyone sees cars every day. Not here, the world must be growing beyond our bounds.
I then ,after viewing the rising sun and the cool morning,very unusual this september in Texas, I drove to nearby big city to see how other’s pursued their day.
What a mess, bumper to bumper traffic,women putting on makeup, men reading the morning paper,kids crying and young adults just going home after an all nighter with foggy eye’s.
I could already feel my blood pressure rising. After five miles of this I turned around and drove the twenty five miles back to my home and ordered the carpet cleaner my wife wanted from petsmart on my computer,having it shipped UPS for $6.95. Much less than the price of my presious diesel fuel at $4.39 a gallon for the one ton truck which is so necessary on our Ranch. Some how I just cannot grasp pulling a 12,000 pound trailer of hay for cattle with a golf cart sized truck powered by bass boat batteries like the one’s member’s of congress want us to drive. I guess they really do just flyover.
I know,what does your morning have to do with Residual Income you ask? I suppose nothing and everything. As much as I view this as aggrevation ,life in a big city must seem like an unscratchable itch, and I thank God every day I found the secret of Residual Income = Financial Freedom many years ago.
We retired and sold our Business 8 Years back ,believing I had made good investments and sufficient income to provide for my wife and I with the business we had built on the kitchen table back in the 70’s. Six years into our golden years my misfiguring revealed itself, first in the form of 2% interest rates so people could buy homes they could not afford, and business could borrow cheaply money to grow their business and keep alive the American dream,and of course keep paying foreign countries for oil.
As I returned to a monthly budget the need for outside income slapped me squarely in the face. If I don’t do something we might outlive our money, now that is a scary thought.
Today the U.S.Government has Nationalised the largest lenders for homes and the largest insurance company in the world,and talkes about buying the bad loans from mortage companies,that loaned on houses that people wanted but could not afford because congress wanted everyone to own a home,and mandated rules for lenders to lend money to people who could not pay it back.
Did common sense take a vacation?
Well any way, that’s the U.S. today,and you had better get on with learning how to create wealth or you will be in a boat smaller than mine and yours is going to have two big holes in it and sinking fast .
Residual Income, income that comes in every month for the rest of your life, is the best way to build wealth and financial freedom.
The pursuit of residual income comes in many flavor’s and is availabe in many businesses, but the one with the most promise for the average John Doe American is the Internet.
Why You say? It is the largest marketplace in the World, that’s why, it crosses all borderlines and culture’s,and is growing expotentially. How do I do it?
Learn and Learn fast, pick a good product that has long term growth projected and is reasonable in cost’s, learn how to market that product, then learn how to build a website, and most of all learn how to develop and generate leads to market your business .
All of these have been combined into one program and can be found on website’s operated by ethical internet marketer’s.
CARY
As I made my morning coffee,viewing out of my kitchen window at the rual road 1/2 mile from my front gate, a car passed at 5.58am.
Well you say, that is no big deal, yep everyone sees cars every day. Not here, the world must be growing beyond our bounds.
I then ,after viewing the rising sun and the cool morning,very unusual this september in Texas, I drove to nearby big city to see how other’s pursued their day.
What a mess, bumper to bumper traffic,women putting on makeup, men reading the morning paper,kids crying and young adults just going home after an all nighter with foggy eye’s.
I could already feel my blood pressure rising. After five miles of this I turned around and drove the twenty five miles back to my home and ordered the carpet cleaner my wife wanted from petsmart on my computer,having it shipped UPS for $6.95. Much less than the price of my presious diesel fuel at $4.39 a gallon for the one ton truck which is so necessary on our Ranch. Some how I just cannot grasp pulling a 12,000 pound trailer of hay for cattle with a golf cart sized truck powered by bass boat batteries like the one’s member’s of congress want us to drive. I guess they really do just flyover.
I know,what does your morning have to do with Residual Income you ask? I suppose nothing and everything. As much as I view this as aggrevation ,life in a big city must seem like an unscratchable itch, and I thank God every day I found the secret of Residual Income = Financial Freedom many years ago.
We retired and sold our Business 8 Years back ,believing I had made good investments and sufficient income to provide for my wife and I with the business we had built on the kitchen table back in the 70’s. Six years into our golden years my misfiguring revealed itself, first in the form of 2% interest rates so people could buy homes they could not afford, and business could borrow cheaply money to grow their business and keep alive the American dream,and of course keep paying foreign countries for oil.
As I returned to a monthly budget the need for outside income slapped me squarely in the face. If I don’t do something we might outlive our money, now that is a scary thought.
Today the U.S.Government has Nationalised the largest lenders for homes and the largest insurance company in the world,and talkes about buying the bad loans from mortage companies,that loaned on houses that people wanted but could not afford because congress wanted everyone to own a home,and mandated rules for lenders to lend money to people who could not pay it back.
Did common sense take a vacation?
Well any way, that’s the U.S. today,and you had better get on with learning how to create wealth or you will be in a boat smaller than mine and yours is going to have two big holes in it and sinking fast .
Residual Income, income that comes in every month for the rest of your life, is the best way to build wealth and financial freedom.
The pursuit of residual income comes in many flavor’s and is availabe in many businesses, but the one with the most promise for the average John Doe American is the Internet.
Why You say? It is the largest marketplace in the World, that’s why, it crosses all borderlines and culture’s,and is growing expotentially. How do I do it?
Learn and Learn fast, pick a good product that has long term growth projected and is reasonable in cost’s, learn how to market that product, then learn how to build a website, and most of all learn how to develop and generate leads to market your business .
All of these have been combined into one program and can be found on website’s operated by ethical internet marketer’s.
CARY
Nov
3
Best way to find a home loan
Filed Under Finance | Leave a Comment
Gbeminyi asked:
When the easy money was flowing, you could get a great deal on a mortgage from just about anyone. But in today’s credit-challenged world, all the avenues for finding a mortgage come with their own set of problems.
Many banks have tightened lending standards and scaled back offerings. Some banks are no longer working with mortgage brokers, who are under fire for pushing bad loans during the boom.
And while online lending sites hold the promise of one-stop shopping, some have developed a reputation for playing bait-and-switch on rates and not fully disclosing fees.
All this adds up to a major shopping hassle. If you want to get the best rate, you’ll need to tap at least two of the sources below.
Scour the Web Shopping
for a mortgage online has come a long way from the days of one-size-fits-all rate listings. At some sites, including Bankrate.com, Mortage marvel.com, Zillow.com,you can now shop anonymously and get accurate rates. Keep in mind that all these sites act as referral services, so eventually you’ll have to close the deal with a bank or mortgage broker.
Best for: If you know what kind of loan you’re looking for, the Web should be your starting point; getting a handle on the current rates and fees will help you know whether you’re getting a good rate when you sit down with a broker or bank officer later on.
If you’re not sure what kind of mortgage you need, however, you’ll want to seek counsel from a real person right away.
What to watch out for: Sites that ask for your Social Security number and address upfront. They might pull your credit report, which could hurt your score if you don’t end up getting a mortgage.
Also make sure that all the fees are clearly disclosed on a site’s rate quote. Otherwise you may get a sorry surprise when you receive the paperwork from a lender.
How to get the best deal: When inputting data into the online mortgage tool, don’t guesstimate your income, your credit score, or other key stats. If you submit incorrect information, you probably won’t get the rate that you’ve been quoted.
Go directly to a bank
At the height of the credit crisis, there seemed to be little point in asking a bank for a mortgage. But banks are lending these days, albeit with some caution.
Best for: Borrowers who are looking for a conforming loan (less than $417,000 in most areas), since some lenders have stopped underwriting jumbos. Also, if you’re refinancing, call your current lender first: To keep you as a customer, it may be willing to undercut the competition.
What to watch out for: Novice loan officers. “In the heyday, underwriting was a matter of pushing a button,” says Steve Curnutte, a former mortgage broker. “Now you have to know what you’re doing.” To prevent your financing plan from fizzling out midway, ask to work with a loan officer who has been in the business for five-plus years, or since before the credit boom took off.
How to get the best deal: Shop locally. A loan officer who’s familiar with the housing stock and the players in your area may have greater latitude to offer you a lower rate than one based elsewhere. Try the local branches of big-name banks as well as community banks and credit unions, which may be using the crisis as an opportunity to snag business from their larger brethren.
Call on a broker
Mortgage brokers doled out plenty of bad loans during the boom. But a good broker can give you more hand-holding than you’ll get online and will scour the market more thoroughly than you’re likely to do on your own.
When it makes sense: If you’re in the market for a jumbo mortgage or financing for investment property, or you just don’t fit the conforming mold, a broker will identify lenders who underwrite unconventional loans. “The more exotic your needs, the harder it is to find a loan right now,” says
Keith Gumbinger, vice president of mortgage information site HSH. “Finding that little niche is what a broker does best.”
What to watch out for: Fees. Most brokers make money on the difference between the rate you could get and the rate you actually pay, and they aren’t required to disclose their cut. One way around it: Work with a fee-only broker (you can find one in your area at upfrontmortagebrokers.org
How to get the best deal: Obtain rate and fee info from banks and Web sites before you talk to a broker. After all, a good broker can more than make up for his cost if he finds you a better rate than you’d get on your own. But if he can’t, there are plenty of others who would love to have your business
DALE
When the easy money was flowing, you could get a great deal on a mortgage from just about anyone. But in today’s credit-challenged world, all the avenues for finding a mortgage come with their own set of problems.
Many banks have tightened lending standards and scaled back offerings. Some banks are no longer working with mortgage brokers, who are under fire for pushing bad loans during the boom.
And while online lending sites hold the promise of one-stop shopping, some have developed a reputation for playing bait-and-switch on rates and not fully disclosing fees.
All this adds up to a major shopping hassle. If you want to get the best rate, you’ll need to tap at least two of the sources below.
Scour the Web Shopping
for a mortgage online has come a long way from the days of one-size-fits-all rate listings. At some sites, including Bankrate.com, Mortage marvel.com, Zillow.com,you can now shop anonymously and get accurate rates. Keep in mind that all these sites act as referral services, so eventually you’ll have to close the deal with a bank or mortgage broker.
Best for: If you know what kind of loan you’re looking for, the Web should be your starting point; getting a handle on the current rates and fees will help you know whether you’re getting a good rate when you sit down with a broker or bank officer later on.
If you’re not sure what kind of mortgage you need, however, you’ll want to seek counsel from a real person right away.
What to watch out for: Sites that ask for your Social Security number and address upfront. They might pull your credit report, which could hurt your score if you don’t end up getting a mortgage.
Also make sure that all the fees are clearly disclosed on a site’s rate quote. Otherwise you may get a sorry surprise when you receive the paperwork from a lender.
How to get the best deal: When inputting data into the online mortgage tool, don’t guesstimate your income, your credit score, or other key stats. If you submit incorrect information, you probably won’t get the rate that you’ve been quoted.
Go directly to a bank
At the height of the credit crisis, there seemed to be little point in asking a bank for a mortgage. But banks are lending these days, albeit with some caution.
Best for: Borrowers who are looking for a conforming loan (less than $417,000 in most areas), since some lenders have stopped underwriting jumbos. Also, if you’re refinancing, call your current lender first: To keep you as a customer, it may be willing to undercut the competition.
What to watch out for: Novice loan officers. “In the heyday, underwriting was a matter of pushing a button,” says Steve Curnutte, a former mortgage broker. “Now you have to know what you’re doing.” To prevent your financing plan from fizzling out midway, ask to work with a loan officer who has been in the business for five-plus years, or since before the credit boom took off.
How to get the best deal: Shop locally. A loan officer who’s familiar with the housing stock and the players in your area may have greater latitude to offer you a lower rate than one based elsewhere. Try the local branches of big-name banks as well as community banks and credit unions, which may be using the crisis as an opportunity to snag business from their larger brethren.
Call on a broker
Mortgage brokers doled out plenty of bad loans during the boom. But a good broker can give you more hand-holding than you’ll get online and will scour the market more thoroughly than you’re likely to do on your own.
When it makes sense: If you’re in the market for a jumbo mortgage or financing for investment property, or you just don’t fit the conforming mold, a broker will identify lenders who underwrite unconventional loans. “The more exotic your needs, the harder it is to find a loan right now,” says
Keith Gumbinger, vice president of mortgage information site HSH. “Finding that little niche is what a broker does best.”
What to watch out for: Fees. Most brokers make money on the difference between the rate you could get and the rate you actually pay, and they aren’t required to disclose their cut. One way around it: Work with a fee-only broker (you can find one in your area at upfrontmortagebrokers.org
How to get the best deal: Obtain rate and fee info from banks and Web sites before you talk to a broker. After all, a good broker can more than make up for his cost if he finds you a better rate than you’d get on your own. But if he can’t, there are plenty of others who would love to have your business
DALE
Jan
7
Manu Geol asked:
No, we are not talking about you going on and on with your East Stroudsburg mortgage calculations (using mortgage payment calculators from all websites) and, as a result, not reaching any decision on your mortgage. Here we are talking about the mortgage calculations after you have got your East Stroudsburg mortgage and have moved into your new house (with a smile, of course).
Since mortgages are governed by home mortgage rates and mortgage rates are governed by some financial index (which keeps fluctuating all the time), the home mortgage rates keep changing all the time. It might so happen that the home mortgage interest rates, at the time you got your East Stroudsburg mortgage were much higher than what they are now (you will know this if you have been keeping a tab on the mortgage interest rates or even if you have been reading your newspaper regularly). In such a case you might again go back to the mortgage payment calculator (there are good mortgage payment calculators available on the Internet) and check if it a good time to get your East Stroudsburg mortgage refinanced. Sometimes the changes in tax policies might prompt you to do that. Similarly, if you are on an adjustable rate mortgage and the interest rates have gone pretty low, you might want to get your mortgage refinanced to a fixed rate mortgage.
That means you need to be vigilant, look for changes in the home mortgage interest rates, and evaluate if shifting to a new mortgage rate might be beneficial to you. Your East Stroudsburg mortgage calculations never stop
Caffeinated Content for WordPress
No, we are not talking about you going on and on with your East Stroudsburg mortgage calculations (using mortgage payment calculators from all websites) and, as a result, not reaching any decision on your mortgage. Here we are talking about the mortgage calculations after you have got your East Stroudsburg mortgage and have moved into your new house (with a smile, of course).
Since mortgages are governed by home mortgage rates and mortgage rates are governed by some financial index (which keeps fluctuating all the time), the home mortgage rates keep changing all the time. It might so happen that the home mortgage interest rates, at the time you got your East Stroudsburg mortgage were much higher than what they are now (you will know this if you have been keeping a tab on the mortgage interest rates or even if you have been reading your newspaper regularly). In such a case you might again go back to the mortgage payment calculator (there are good mortgage payment calculators available on the Internet) and check if it a good time to get your East Stroudsburg mortgage refinanced. Sometimes the changes in tax policies might prompt you to do that. Similarly, if you are on an adjustable rate mortgage and the interest rates have gone pretty low, you might want to get your mortgage refinanced to a fixed rate mortgage.
That means you need to be vigilant, look for changes in the home mortgage interest rates, and evaluate if shifting to a new mortgage rate might be beneficial to you. Your East Stroudsburg mortgage calculations never stop
Caffeinated Content for WordPress
Jan
4
Liam G asked:
An Early Redemption Charge is a fee you must pay for paying off a mortgage before the agreed end of a deal with a lender.
Why are such penalties applied?
In order to attract borrowers, lenders are often forced to compete by offering mouth-wateringly cheap deals in the first two or three years, sometimes for longer periods.
The hope is that borrowers will then stick with them not just through the course of the deal itself but for several years afterwards.
Clearly, if borrowers were to jump from one mortgage to a cheaper one whenever they wanted to, lenders could lose a lot of money. So they protect themselves by applying charges on those who do.
Either way, lot of borrowers don’t become aware of these charges right up until when they wish to remortgage or pay off their mortgage early.
However, with most early redemption fees being in the thousands, it is vital you know beforehand if you will be liable to pay up and how much the cost might be.
Redemption fees can be calculated in the following ways:
Percentage of the original mortgage loan value
Percentage of the balance still owing on the mortgage
Percentage of the amount repaid
Number of months’ interest
For short-term fixed or discounted mortgages of, say, two years, the interest penalty will generally be a set amount of months’ interest.
In the case of longer-term mortgage deals, the fee may be set on a sliding rate. For example, say you have taken out a five-year fixed mortgage.
The redemption fee might be:
Six months’ interest for the first year of the mortgage
Five months’ interest for the second year
Four months’ interest for the third year
Three months’ interest for the fourth year
Two months’ interest for the fifth year.
There are two main types of redemption fee. The most common is one that applies throughout the lifetime of the deal itself. So, a two-year fixed rate mortgage may have penalties that apply during the deal period, but not after it has ended and you are back on the lender’s variable rate.
The five year-deal, above, is one example of this.
In some cases, especially where a very cheap deal is on offer, the lender may apply an “overhang”, committing you to staying with the mortgage even after the deal is over. So, you might have to stay on that lender’s variable rate for several years after the deal ends.
In most cases, unless the deal on offer is exceptionally good, it makes sense NOT to opt for a home loan with a long overhang.
The simple way to avoid any such costs is to look for a mortgage that doesn’t impose early redemption fees.
But it may be hard to resist a good deal, especially when variable rates are high. In that case, it is better to opt for a shorter fixed rate deal.
Although you may pay a higher APR in the short term, it may be better to do as you then have the flexibility to shop around for a cheaper mortgage at a time of your choosing.
Website content
An Early Redemption Charge is a fee you must pay for paying off a mortgage before the agreed end of a deal with a lender.
Why are such penalties applied?
In order to attract borrowers, lenders are often forced to compete by offering mouth-wateringly cheap deals in the first two or three years, sometimes for longer periods.
The hope is that borrowers will then stick with them not just through the course of the deal itself but for several years afterwards.
Clearly, if borrowers were to jump from one mortgage to a cheaper one whenever they wanted to, lenders could lose a lot of money. So they protect themselves by applying charges on those who do.
Either way, lot of borrowers don’t become aware of these charges right up until when they wish to remortgage or pay off their mortgage early.
However, with most early redemption fees being in the thousands, it is vital you know beforehand if you will be liable to pay up and how much the cost might be.
Redemption fees can be calculated in the following ways:
Percentage of the original mortgage loan value
Percentage of the balance still owing on the mortgage
Percentage of the amount repaid
Number of months’ interest
For short-term fixed or discounted mortgages of, say, two years, the interest penalty will generally be a set amount of months’ interest.
In the case of longer-term mortgage deals, the fee may be set on a sliding rate. For example, say you have taken out a five-year fixed mortgage.
The redemption fee might be:
Six months’ interest for the first year of the mortgage
Five months’ interest for the second year
Four months’ interest for the third year
Three months’ interest for the fourth year
Two months’ interest for the fifth year.
There are two main types of redemption fee. The most common is one that applies throughout the lifetime of the deal itself. So, a two-year fixed rate mortgage may have penalties that apply during the deal period, but not after it has ended and you are back on the lender’s variable rate.
The five year-deal, above, is one example of this.
In some cases, especially where a very cheap deal is on offer, the lender may apply an “overhang”, committing you to staying with the mortgage even after the deal is over. So, you might have to stay on that lender’s variable rate for several years after the deal ends.
In most cases, unless the deal on offer is exceptionally good, it makes sense NOT to opt for a home loan with a long overhang.
The simple way to avoid any such costs is to look for a mortgage that doesn’t impose early redemption fees.
But it may be hard to resist a good deal, especially when variable rates are high. In that case, it is better to opt for a shorter fixed rate deal.
Although you may pay a higher APR in the short term, it may be better to do as you then have the flexibility to shop around for a cheaper mortgage at a time of your choosing.
Website content
Jan
1
My Ohio Mortgage Rates Seem to Rise
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Manu Geol asked:
If your Ohio mortgage rates are going up then you are probably on an adjustable rate mortgage which changes periodically. Not that your Ohio mortgage rates will always rise, they might fall too.
So if your Ohio mortgage rates have becomes higher today, they might either rise further or might go down from where they are now. In fact, this is something that you should have got educated on before you went for your Ohio mortgage. However, as they say, better late than never.
The home mortgage rates for an adjustable rate mortgage change throughout the term of the home mortgage loan. So there are going to be ups and downs in the amount you pay as your monthly mortgage instalment and you should be ready for it. The change in mortgage interest rates is based on the changes in a financial index (i.e. the financial index that is associated with your Ohio mortgage).
When the mortgage interest rates are expected to move down further from the prevailing home mortgage rates, it makes sense to enter into an adjustable rate mortgage. And once the mortgage rates have gone down sufficiently you can shift to a fixed mortgage rate loan (do evaluate the costs of shifting against the benefits you will get from shifting to another mortgage loan). You can use internet to find tips, advice and articles on mortgages.
So track the home loan interest rates and plan your Ohio mortgage accordingly.
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If your Ohio mortgage rates are going up then you are probably on an adjustable rate mortgage which changes periodically. Not that your Ohio mortgage rates will always rise, they might fall too.
So if your Ohio mortgage rates have becomes higher today, they might either rise further or might go down from where they are now. In fact, this is something that you should have got educated on before you went for your Ohio mortgage. However, as they say, better late than never.
The home mortgage rates for an adjustable rate mortgage change throughout the term of the home mortgage loan. So there are going to be ups and downs in the amount you pay as your monthly mortgage instalment and you should be ready for it. The change in mortgage interest rates is based on the changes in a financial index (i.e. the financial index that is associated with your Ohio mortgage).
When the mortgage interest rates are expected to move down further from the prevailing home mortgage rates, it makes sense to enter into an adjustable rate mortgage. And once the mortgage rates have gone down sufficiently you can shift to a fixed mortgage rate loan (do evaluate the costs of shifting against the benefits you will get from shifting to another mortgage loan). You can use internet to find tips, advice and articles on mortgages.
So track the home loan interest rates and plan your Ohio mortgage accordingly.
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Dec
16
Choosing The Right Mortgage
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John Power asked:
Remember you would not buy the first house that was offered to you, so why go with the only mortgage that is offered to you. Ask for more than one good faith quotes. See what options different lenders will give you. Be sure to ask the lender to not pull your credit report, but to give you a good faith quote based on the paper credit report you will have brought to him.
Understand what your credit report says. And don’t order your credit report online. Most people order their credit report on the internet, sometimes they even get their free report. What they don’t realize is that by doing this, they worsen their credit history because when your credit score is pulled more than once, your score will lower. And it will be pulled more than once if you pull it and then the mortgage company pulls it again. Instead what you should do is order your credit report through the credit bureaus by calling their 1-800 numbers. Be careful, because they will try to tell you to obtain in on the internet, be patient, stay on the line and ask for a written copy. This copy will be your true credit report. This is what will actually be pulled up by the mortgage company.
Consider using a mortgage broker. Sure you will have to pay an additional fee, but in many instances that fee will be worth it when you get the right type of mortgage loan. A mortgage broker will help find you several loan options to choose from. You can then choose the option that best suits your needs.
When you go to a mortgage broker or a bank make sure that the bank or mortgage broker does not sell you a higher interest rate than what you qualify for. Many banks will pay a broker to sell his customer a higher mortgage rate. This is called Yied Spread Premium or YSP. So if you qualify for a 6% interest loan but your broker or bank is selling you a loan with an interest rat of 6.5% then the bank is making more money. Look for a line on your documents one that’s says YSP. If it is positive that means that you are not getting the lowest interest rate you qualify for.
How do You Avoid This?
Be upfront with your broker or banker, and negotiate. If you negotiated the price of your home, you can definitely negotiate your mortgage. Every fee on the mortgage is negotiable. The only thing you cannot negotiate on are the taxes, the filing and the insurance fees. Before deciding, get a copy of your good faith estimate, take it home and start investigating all the fees the bank or broker is trying to collect. Explain to him, what you have found out. You will soon learn that he changes things pretty fast. When you use a broker tell him that you are willing to pay up to a half point in origination fees, but that you don’t expect to pay an back end fees. He will understand what you are talking about.
Finally read your closing documents very carefully. In fact you should ask an attorney to be present. It is always better to be safer than sorry later. It is better to spend a few hundred dollars to consult an attorney now, and not find out later that you are spending thousands of dollars paying what you should not have to. Many brokers and banks feel somewhat uncomfortable and too time consuming. Generally speaking and in most cases the attorney does not find anything wrong with the closing arrangements. But you know the principles of Murphy’s law. Something may go wrong if you don’t do things the right way.
In this type of arrangement it is not wise to penny pinch. In fact be sure to always have a home inspection done. If you don’t do things you will regret it. It is always best to have spent a few hundred dollars up front. But what you want to avoid is having something BIG go wrong halfway down the loan.
Kansieo.com
Remember you would not buy the first house that was offered to you, so why go with the only mortgage that is offered to you. Ask for more than one good faith quotes. See what options different lenders will give you. Be sure to ask the lender to not pull your credit report, but to give you a good faith quote based on the paper credit report you will have brought to him.
Understand what your credit report says. And don’t order your credit report online. Most people order their credit report on the internet, sometimes they even get their free report. What they don’t realize is that by doing this, they worsen their credit history because when your credit score is pulled more than once, your score will lower. And it will be pulled more than once if you pull it and then the mortgage company pulls it again. Instead what you should do is order your credit report through the credit bureaus by calling their 1-800 numbers. Be careful, because they will try to tell you to obtain in on the internet, be patient, stay on the line and ask for a written copy. This copy will be your true credit report. This is what will actually be pulled up by the mortgage company.
Consider using a mortgage broker. Sure you will have to pay an additional fee, but in many instances that fee will be worth it when you get the right type of mortgage loan. A mortgage broker will help find you several loan options to choose from. You can then choose the option that best suits your needs.
When you go to a mortgage broker or a bank make sure that the bank or mortgage broker does not sell you a higher interest rate than what you qualify for. Many banks will pay a broker to sell his customer a higher mortgage rate. This is called Yied Spread Premium or YSP. So if you qualify for a 6% interest loan but your broker or bank is selling you a loan with an interest rat of 6.5% then the bank is making more money. Look for a line on your documents one that’s says YSP. If it is positive that means that you are not getting the lowest interest rate you qualify for.
How do You Avoid This?
Be upfront with your broker or banker, and negotiate. If you negotiated the price of your home, you can definitely negotiate your mortgage. Every fee on the mortgage is negotiable. The only thing you cannot negotiate on are the taxes, the filing and the insurance fees. Before deciding, get a copy of your good faith estimate, take it home and start investigating all the fees the bank or broker is trying to collect. Explain to him, what you have found out. You will soon learn that he changes things pretty fast. When you use a broker tell him that you are willing to pay up to a half point in origination fees, but that you don’t expect to pay an back end fees. He will understand what you are talking about.
Finally read your closing documents very carefully. In fact you should ask an attorney to be present. It is always better to be safer than sorry later. It is better to spend a few hundred dollars to consult an attorney now, and not find out later that you are spending thousands of dollars paying what you should not have to. Many brokers and banks feel somewhat uncomfortable and too time consuming. Generally speaking and in most cases the attorney does not find anything wrong with the closing arrangements. But you know the principles of Murphy’s law. Something may go wrong if you don’t do things the right way.
In this type of arrangement it is not wise to penny pinch. In fact be sure to always have a home inspection done. If you don’t do things you will regret it. It is always best to have spent a few hundred dollars up front. But what you want to avoid is having something BIG go wrong halfway down the loan.
Kansieo.com
Dec
15
Liam G asked:
This is a fee levied by the lender if a considerable portion of the property’s value is borrowed. Lenders generally use this money to take out insurance to cover them if the borrower defaults on the mortgage.
The exact amount charged will depend on the value of the property and how much is being borrowed. Most lenders will apply a HLC on mortgages that exceed 90% of the property’s value.
However, they generally base the exact figure on the proportion that is being borrowed over 75%.
This is easier understood though an example. Consider the following – if someone wanted a 91% loan on a property worth £100,000 then the HLC would be a percentage of the £16,000 difference between £75,000 and £91,000.
The HLC percentage varies from lender to lender, with 8% being about average. At this rate, the HLC will be £1,280 for the privilege of borrowing £1,000 over the 90 per cent threshold.
It is common practice for lenders to offer to add the HLC to the mortgage repayments. Although this may seem like a good idea, it is important to remember that this would then mean the HLC incurs interest, based on the APR of the mortgage.
As is mentioned above, the threshold of the HLC varies from lender to lender. Typically it’s around 90%. However, Newcastle Building Society’s HLC threshold is 85% and Lambeth, Darlington and Cheshire building societies start charging at 80%.
It is not all doom and gloom though, as a great deal of lenders don’t charge a HLC at all! There are also a number of ways that HLC can be avoided all together. They include borrowing just below the threshold or saving longer and putting down a bigger deposit.
Website content
This is a fee levied by the lender if a considerable portion of the property’s value is borrowed. Lenders generally use this money to take out insurance to cover them if the borrower defaults on the mortgage.
The exact amount charged will depend on the value of the property and how much is being borrowed. Most lenders will apply a HLC on mortgages that exceed 90% of the property’s value.
However, they generally base the exact figure on the proportion that is being borrowed over 75%.
This is easier understood though an example. Consider the following – if someone wanted a 91% loan on a property worth £100,000 then the HLC would be a percentage of the £16,000 difference between £75,000 and £91,000.
The HLC percentage varies from lender to lender, with 8% being about average. At this rate, the HLC will be £1,280 for the privilege of borrowing £1,000 over the 90 per cent threshold.
It is common practice for lenders to offer to add the HLC to the mortgage repayments. Although this may seem like a good idea, it is important to remember that this would then mean the HLC incurs interest, based on the APR of the mortgage.
As is mentioned above, the threshold of the HLC varies from lender to lender. Typically it’s around 90%. However, Newcastle Building Society’s HLC threshold is 85% and Lambeth, Darlington and Cheshire building societies start charging at 80%.
It is not all doom and gloom though, as a great deal of lenders don’t charge a HLC at all! There are also a number of ways that HLC can be avoided all together. They include borrowing just below the threshold or saving longer and putting down a bigger deposit.
Website content
Dec
10
Manu Geol asked:
Well, you are not the only one to get shocked by the closing costs. There are a lot of people who go for a mortgage without understanding some basic fundamentals about mortgages. On top of that, they hire mortgage brokers who are good for nothing). Though mortgages (especially first mortgages) are an emotional thing (on account of the joy of being able to get into your own home), one must not forget that you are going to spend a lot of your hard earned money on fulfilling your mortgage obligations. These are not just in terms of the monthly mortgage payments but also in terms of the down payments and other costs.
So, if your Conshocken mortgage closing costs shocked you, it must be because you didn’t calculate these costs properly. Closing costs can sometimes cause a lot of discomfort. Some people forget to include the closing costs altogether (you can take comfort from the fact that you had at least considered the closing costs for your Conshocken mortgage). Such people are in for an even bigger shock than what you got for your Conshocken mortgage. Besides payments and other fees, the closing costs also include pre-interest charges that are calculated by the mortgage lender as the interest from the day your Conshocken mortgage was recorded till the end of the month. That means that closing your Conshocken mortgage towards the month end would have made much more sense (and averted that shock that you received through your Conshocken mortgage closing costs). You can get more tips and advice on mortgages from websites Online. Search on google.
So, evaluate your closing costs properly.
Caffeinated Content
Well, you are not the only one to get shocked by the closing costs. There are a lot of people who go for a mortgage without understanding some basic fundamentals about mortgages. On top of that, they hire mortgage brokers who are good for nothing). Though mortgages (especially first mortgages) are an emotional thing (on account of the joy of being able to get into your own home), one must not forget that you are going to spend a lot of your hard earned money on fulfilling your mortgage obligations. These are not just in terms of the monthly mortgage payments but also in terms of the down payments and other costs.
So, if your Conshocken mortgage closing costs shocked you, it must be because you didn’t calculate these costs properly. Closing costs can sometimes cause a lot of discomfort. Some people forget to include the closing costs altogether (you can take comfort from the fact that you had at least considered the closing costs for your Conshocken mortgage). Such people are in for an even bigger shock than what you got for your Conshocken mortgage. Besides payments and other fees, the closing costs also include pre-interest charges that are calculated by the mortgage lender as the interest from the day your Conshocken mortgage was recorded till the end of the month. That means that closing your Conshocken mortgage towards the month end would have made much more sense (and averted that shock that you received through your Conshocken mortgage closing costs). You can get more tips and advice on mortgages from websites Online. Search on google.
So, evaluate your closing costs properly.
Caffeinated Content