Mortgage Quote

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For nearly half a century, stretching from the Great Depression of the 1930s into the 1970s, most home mortgage loans carried fixed terms, especially a fixed interest rate that the borrower could rely upon. However, the pressure of inflation and volatile interest rates gave rise to adjustable-rate home mortgage loans in the early 1970s, with several states allowing their state-chartered mortgage lending institutions to offer such loans. Then in 1981, both the Comptroller of the Currency and the Federal Home Loan Bank Board authorized adjustable-rate mortgages (ARMs) for all federally chartered depository institutions. So rapid was the growth of ARMs that in the 1980s the volume of new mortgage loans carrying adjustable rates became at least as numerous as new fixed-rate mortgages (FRMs) in financing home purchases. About one-quarter of all home mortgage loans outstanding had adjustable terms ten years ago.

Speaking about history I would like to publish an abstract from the book “Commercial Bank Management” by Peter R. Rose (1995):

“As noted by Thomas Buynak, the recent upsurge in the popularity of ARMs may be attributed to the aggressive marketing of the new loan by major lending institutions, especially savings and loans that sought to make the yields on their earning assets more flexible in order to counter serious earnings problems arising from interest rates on their deposits and other borrowings. Another key factor in the rapid growth of ARMs has been the fact that the initial posted rates attached to ARMs were set significantly below FRM rates (often at least 1 percentage point less). This step was part of an aggressive marketing effort to make ARMs more palatable to the public by offering teaser rates. Also, ARM interest rates are usually tied to a short-term money market index rate such as the bank prime lending rate or the market yield on U.S. Treasury bills. During the early and mid-1980s, money market rates were well below long-term capital market rates, making these flexible loans more attractive. Because ARMs often carry lower interest rates than traditional fixed-rate mortgages, more individuals and families could qualify for a home mortgage loan that carried a flexible interest rate.

Despite the marketing incentive programs developed by lenders, most home buyers seem to prefer fixed-rate mortgage loans because they do not produce uncertainty about what future mortgage payments will be.

In fact, the mid-1980s ushered in a resurgence of fixed-rate mortgage loans, pushing ARMs once again into a minority position. In an effort to make ARMs more attractive and stop their slide in popularity, many home mortgage lenders have begun to use cap rates on these loans. For example, the lender may agree not to raise the loan rate more than 2 percentage points in any given year or more than 5 percentage points over the life of the loan, no matter how high other interest rates in the economy go. Moreover, when rate adjustments are made, they are often carried out through monthly or quarterly adjustments in the maturity or term of the home loan rather than by changing the size of its required installment payments.”

Whether a customer takes out a fixed-rate (FRM) or adjustable-rate (ARM) mortgage, the loan officer must determine what the initial loan rate will be and, therefore, what the monthly payments will be. The loan officer, too, must determine at today’s interest rates and probable future interest rates whether or not the customer can afford a particular mortgage loan. Each monthly payment on a mortgage reduces a portion of the principal of the loan and a portion of the interest owed on the total amount borrowed. With the majority of mortgage loan contracts today, most of the monthly payments early in the life of the loan go to pay interest. However, as the loan gets closer to maturity, the monthly payments increasingly are devoted to reducing the loan’s outstanding principal.

<:3 )~~~~~~
Yours sincerely,
AlexSandra

Today I would like to speak about pros and cons of ARM. So, the most important basic features are:
 

1. Initial interest rate. This is the beginning interest rate on an ARM.
 

2. The adjustment period. This is the length of time that the interest rate or loan period on an ARM is scheduled to remain unchanged. The rate is reset at the end of this period, and the monthly loan payment is recalculated.
 

3. The index rate. Most lenders tie ARM interest rates changes to changes in an index rate. Lenders base ARM rates on a variety of indexes, the most common being rates on one-, three-, or five-year Treasury securities. Another common index is the national or regional average cost of funds to savings and loan associations.
 

4. The margin. This is the percentage points that lenders add to the index rate to determine the ARM’s interest rate.
 

5. Interest rate caps. These are the limits on how much the interest rate or the monthly payment can be changed at the end of each adjustment period or over the life of the loan.
 

6. Initial discounts. These are interest rate concessions, often used as promotional aids, offered the first year or more of a loan. They reduce the interest rate below the prevailing rate (the index plus the margin).
 

7. Negative amortization. This means the mortgage balance is increasing. This occurs whenever the monthly mortgage payments are not large enough to pay all the interest due on the mortgage. This may be caused by the payment cap contained in the ARM.
 

8. Conversion. The agreement with the lender may have a clause that allows the buyer to convert the ARM to a fixed-rate mortgage at designated times.
 

9. Prepayment. Some agreements may require the buyer to pay special fees or penalties if the ARM is paid off early. Prepayment terms are sometimes negotiable. It should be obvious that the choice of a home mortgage loan is complicated and time consuming.
 

I hope this information will be helpful for you.
 

<:3  )~~~~~~
Yours sincerely,
AlexSandra

Fixed-Rate Mortgages
 

For many years the most common mortgage instrument was the fixed-rate mortgage loan. This loan is easy to understand; the biggest difference between the two most popular forms, the 15-year and the 30-year fixed rate, is the length of maturity (for more information — my post HOW TO CALCULATE AMORTIZATION FOR YOUR MORTGAGE LOAN?). People who want to know exactly how much their monthly payments will be for the length of the loan, no matter what happens to interest rates, tend to choose this type of loan.
 

Speaking about fixed -rate mortgage loan and adjustable-rate mortgage I would like to mention balloon mortgages.
 

Balloon Mortgages
 

This loan has the same interest rate with the same monthly payment with one big exception. Computed on a 30-year payback, for example, the entire loan is due and payable in full at the end of the 15th year. The buyer’s payments are those of a 30-year loan, thus keeping payments down, but the buyer has only 15 years to pay. This type of loan can be computed on a fixed-rate loan for any number of years payback with a balloon payment placed at any given year. The loan mayor may not have a provision to refinance at the time of the balloon. Otherwise, it is the buyer’s responsibility to locate new refinancing.
 

Adjustable-Rate Mortgages (ARMs)
 

The adjustable-rate mortgage (ARM) has become prominent in home mortgage lending. Shopping for a mortgage used to be a fairly simple process. In the past, most home mortgages had interest rates that did not change over the life of the loan. Today, however, many loans have interest rates (and monthly payments) that can change from time to time. Thus to compare one ARM with another or with a fixed-rate mortgage, buyers need to know about indexes, margins, discounts, caps, negative amortization, and convertibility. Buyers need to know the maximum amount their monthly payment could increase and to compare the possible increase with their future ability to pay. Adjustable-rate mortgages thus transfer some of the risk of changes in market interest rates from lenders to borrowers.
 

<:3  )~~~~~~
Yours sincerely,
AlexSandra

Over the years mortgage lenders have frequently charged “points.” This practice, while generally misunderstood and often ignored, is vitally important to understanding mortgage lending operations. A point is 1 percent of the face value of the mortgage; thus, if a homeowner is charged four points on a $20,000 loan, the lender deducts $800 and the home buyer receives only $19,200. However, the home buyer has to repay the entire $20,000. This, of course, means that the true annual rate of interest is more than the stated rate.
 

The figures in table show the actual interest rate, depending on the number of points charged, that the buyer will pay on a 20-year, 10 percent mortgage, paid off in 10 or 20 years.
 

Actual Interest Rate on a 20-Year Mortgage if Paid Off In 10 or 20 Years
 

Points may also be charged to the seller. These points, however, do not affect the interest rate; they simply reduce the amount the seller receives. Points may be charged as prepaid interest in some loans, often in order to get a more attractive rate for the term of the loan. Some lenders also express their loan origination (or processing) fees as points. In this case, some points are included in the amount financed, whereas other points represent out-of-pocket costs that the buyer pays when the loan is closed. Home buyers should seek expert advice as to the terms of their mortgage and the points charged before making any final decision.
 

<:3  )~~~~~~
Yours sincerely,
AlexSandra

Lenders offer a wide array of home mortgage loans. The two most popular mortgage instruments today are the fixed-rate mortgage and the adjustable-rate mortgage (ARM). Under both of these instruments, the amortized form of mortgage lending is followed. I think that it’s not easy to find the best mortgage quote that is why I would like to explain some peculiarities…
 

Amortization
 

Amortization may be defined as the systematic and continuous payment of the principal balance on an obligation through installments until the debt has been paid in full. All government mortgage financing institutions, such as the FHA, insist on the amortized form of mortgage lending. This direct-reduction mortgage provides for a fixed monthly payment that not only covers interest — and perhaps taxes and insurance — but also reduces the principal of the mortgage debt.
 

It will be very convenient for you to choose appropriate mortgage quote you if you have an amortization schedule.
 

Using the material in table, it is easy — and amazing — to figure how much a buyer actually pays for the home over the years. In examples A and B, comparative figures are shown for an 11.5 percent mortgage over 15 years and over 30 years
 

Amortization Schedule
 

Monthly Payment to Amortize $1,000 Loan Including Interest at Rate of …