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mortgages and points

Wednesday, July 29th, 2009

mortgages and points

Some people feel financially secure a mortgage given for a shorter duration than the traditional 25-30 years. This can significantly reduce their payments on everything, but can also mean that if your situation changes, you will be locked in the rate of high mortgage payments. Is it worth taking time mortgage and additional payments?

One advantage of the short-rate mortgage term interest, which may be several points lower than a mortgage of 25-40 years. If you sure that the rates decrease or remain level in the short term of the mortgage which again can be a smart choice. However, it is difficult even for the most analysts financial reports perfectly predict interest rates, so they must be prepared if rates jump.

If you know you will move in the coming years, or you may think, lower mortgage will cost you less in the long term. The disadvantage of this is that if you choose to stay at home longer than expected or can not sell when the short time period runs out. For people in a sanitary hot trying to "flip" a house – sell fairly quickly after of renewal, a lower mortgage makes sense, as you know it will not keep the house around for long.

Life changes and affects all makes sense be prepared. A death or birth in the family, relatives or friends in need and life events preceding can plan a house soon as possible. Although no one wants to emphasize the loss or deterioration of the condition of a loved one, it belongs to you to consider how it will affect your mortgage plans. The loss of their work, how to pay the mortgage if you have a drastic reduction of income for several weeks or months? An increase in May is a happy occasion, but also is expensive and are rethinking May Movement. These elements must be taken into consideration

It seems clear that a shorter long-term mortgages are better for people who keep track of interest rates and the news and know what they want to do with your home. It is also wise to have liquid assets that can be used to cover their living expenses in case of loss of income, unexpected events and the possibility that interest rates will increase when you need to refinance.

Andy Asbury Photo
For information about Minneapolis MN condos, go to MinnesotaLoftsAndCondos.com. There you can search all East Minneapolis condos for sale, in addition to getting the latest market information for the Twin Cities area.

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mortgages points

Sunday, July 12th, 2009

mortgages points

Forget everything you thought you knew about the benefits of taking a variable-rate mortgage instead of locking in for the long term.

A new study suggests the security of a five-year mortgage costs little or nothing beyond a riskier variable-rate mortgage, providing you get a jumbo-sized rate discount.

“Interest costs on discounted closed five-year mortgages have been close to, and often lower than, those of variable-rate mortgages since late 1996,” senior Canada Mortgage and Housing Corp. economist Ali Manouchehri writes in the study.

Homeowners have made variable-rate mortgages hugely popular in the past few years in the belief that you can save on interest costs by pegging your mortgage rate to your lender’s prime lending rate. As the prime rises, or as has generally happened in the past few years, fallen, so goes your mortgage rate.

The prime rate at the major banks is now 4.5 per cent, while the posted five-year rate at the big banks is 6.15 per cent. In just one year, the variable-rate choice would save you about $1,700 on monthly payments toward a $150,000 mortgage amortized over 25 years (assuming a level prime rate).

Historically, you would also have saved a lot. The CMHC study shows that five-year mortgages taken out from 1993 through 1998 would have cost anywhere from $50,000 to $5,000 in additional interest paid over the term of the loan (the example is based on a $100,000 mortgage amortized over 25 years).

The flaw with this analysis is that it doesn’t reflect real-world mortgage pricing. These days, very few people take out a mortgage without a sizable discount off the posted rates at major banks.

For that reason, the CMHC’s Mr. Manouchehri decided to compare discounted five-year mortgages with discounted variable-rate mortgages. Incidentally, five years is the most popular term by far for fixed-rate mortgages at about 59 per cent of the total.

The size of the discounts Mr. Manouchehri applied was based on the difference between posted major bank rates and the best deals available from other lenders. For five-year mortgages, he used a discount of 1.25 of a percentage point; for variable-rate mortgages, it was 0.4 of a point off prime.

For five-year mortgages taken out between 1993 and mid-1996, the five-year mortgage was costlier in terms of interest costs. Since then, however, variable-rate mortgages have generally been a little bit more expensive.

Obviously, there’s nothing in this study that decides the fixed-rate versus variable-rate debate once and for all.

In fact, the CMHC study may just confuse anyone who recalls some research done for Manulife Financial back in 2000 by York University finance professor Moshe Milevsky. His research found that the extra interest charged on a five-year mortgage would have cost $20,000 on average between 1950 and 2000 for a $100,000 mortgage amortized over 15 years.

To make some sense of the variable-rate versus five-year question, let’s go back to the CMHC study.

It shows that five-year mortgages, discounted or otherwise, were especially bad choices for a three-year period starting in mid-1993. Rates were high for a while back then, but they subsequently fell.

You were a spectator to these rate declines if you were stuck in a five-year mortgage, while people in variable-rate mortgages would have benefited almost immediately.

It’s a different world now, though. Five-year mortgage rates are close to a 50-year low, which suggests they’re far more likely to rise over their term than fall.

So what’s the best choice here, variable-rate or five-year fixed rate? People who want to pay rock-bottom mortgage rates for as long as possible will probably still want a variable-rate mortgage. Remember, you can lock this sort of mortgage into a fixed term without penalty in most cases.

The case for the five-year term looks almost as strong, though. First, the CMHC study tells us there may not be a significant cost to locking your mortgage in for five years, and you might even save a little over a variable-rate mortgage.

Second, the likelihood of higher rates in the years to come would suggest that this is a good time to lock in.

If you had a variable-rate mortgage discounted to 4 per cent, the prime would have to go up by 0.85 of a percentage point to equal the current five-year rate. That’s not a lot of ground to cover in the span of 12 to 18 months when the economy is doing well.

Arguably, the variable-rate versus fixed-rate debate is all about risks and rewards. Right now, the five-year option offers much less risk, and almost as much reward.

About the Author:

The House Team is commited to providing quality information to help people make informed decisions about their mortgage financing needs.

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Article Source: ArticlesBase.comMortgage Security not That Costly

Pros and Cons of Paying Points


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Featured in the “O List” in the August 2008 issue of O, The Oprah Magazine! The Pocket Magnifier is wildly popular and we can barely keep up with demand! Slide open to activate the powerful LED light. The square lens provides strong 3X magnification perfect for menus, instruction manuals, maps and more! This deluxe lighted magnifier is a favorite gift for all readers. Includes 2 CR1130 batteries: …

Great Point Light GP010523 Pocket Magnifier, Cherry


Great Point Light GP010523 Pocket Magnifier, Cherry


$11.21


Featured in the “O List” in the August 2008 issue of O, The Oprah Magazine! The Pocket Magnifier is wildly popular and we can barely keep up with demand! Slide open to activate the powerful LED light. The square lens provides strong 3X magnification perfect for menus, instruction manuals, maps and more! This deluxe lighted magnifier is a favorite gift for all readers. Includes 2 CR1130 batteries: …

Credit Score Magic! - How I Raised My Credit Score 165 Points in 3 Months!


Credit Score Magic! – How I Raised My Credit Score 165 Points in 3 Months!


$0.99


The Shocking True Story of Raising Credit Score 165 Points in 3 Months and Saving $1,000 In Interest! Did you know at least 95% of those Fix-Your-Credit-Score companies actually use computerized systems to contest items on your credit score? Now learn about an amazing company where an actual person reviews your credit report and personally sends out letters contesting the errors on your report. Th…

Everything Mortgages Book


Everything Mortgages Book


$14.8


A financial manual that shines light on the confusing world of points, interest rates, and credit scores defines how lenders work, how different kinds of loans are structured, and which loans are best suited to readers` needs.

Road to Wealth Revised (Paperback)


Road to Wealth Revised (Paperback)


$12.79


A new edition of an authoritative guide to managing every stage of one`s financial life provides accessible recommendations for a wide variety of topics, from credit cards and mortgages to 401(k)s and insurance, in a reference that also includes covera…

Borrowing to Live (Paperback)


Borrowing to Live (Paperback)


$27.88


“Dissects the current state of consumer and mortgage credit in the United States and helps point the way out of the current impasse”–Provided by publisher.

All About Mortgages


All About Mortgages


$15.4


Due to new hybrid loans abounding and interest rates increasing from bargain basement levels, millions of consumers who are either seeking a new mortgage or are interested in refinancing their existing mortgages are clamoring for an updated easy-to-fol…