“Wow!” you say to your spouse as you hit the brakes on the car. “Did you see the mortgage rate those guys are advertising?” Your worries are over, you’re thinking. Just lock in a rate like that for the next ten years, and you’ve got it made.

Not so fast. That rate may not be the one for you. Typically, the lowest available rate – and the one that makes the rate sign look great from the street – will be for a variable or adjustable-rate mortgage. That rate has the potential to be like a roller coaster. The posted variable or adjustable rate is the rate you’re getting today. Unless you have an economic ouija board, you won’t be able to predict what kind of ups and downs are ahead of you.

Let’s take a closer look. A lender will offer different rates for different types of mortgages. The rates are determined based on financial risk -to the institution and to you. When a customer is willing to take on the risk, he/she is rewarded with a lower rate. If the lender is taking on the risk (that is, the customer is promised a particular rate… regardless of what happens in the future), the rate is higher. The longer the term, the higher the risk for the financial institution.

So how do you decide? Fixed-rate mortgages, because they require a low risk tolerance, are usually better suited to first-time buyers or those who haven’t owned a home for a very long period. Ask yourself these questions: Do you like or need to know exactly what your payment is going to be over a longer period of time? Do you want to avoid the need to consistently watch rates? Do you have less than 25% down? If you answered “yes” to all, or most of these questions, a more conservative fixed-rate ontario mortgage could be the better choice for you.

A variable or adjustable-rate mortgage is best suited to people who have a flexible budget and can tolerate higher risk. Ask yourself these questions: Do you watch market conditions? Can you handle any sudden rate increases that could increase your payment? Do you have 25% or more equity in your home? If you answered “yes” to all, or most of these questions, a variable or adjustable-rate mortgage might best suit your needs.

Some lenders offer a special promotional rate for the first few months of a variable-rate mortgage, which you should discuss with your mortgage broker. Also discuss what your rate will be based on – prime minus 0.5% or 0.6% or on Bankers’ Acceptances (BAs) plus 1%. The latter being a new kind of adjustable-rate mortgage that has recently been introduced to the marketplace. Most variables or adjustables allow you to exercise an option to “lock in” a fixed rate at any time for the remaining portion of your mortgage term or for a longer term.

If the uncertainty of a floating rate is going to give you sleepless nights, you’re in good company. Many Canadians prefer the certainty of a fixed-rate mortgage. They know exactly how much they will pay over the term of their mortgage, and they can plan accordingly… with no financial surprises. But if rates do drop… and drop… and drop… you are committed to the “promise” that you have made. Your best option – have a mortgage broker help you decide which option best meets your needs.

A lot of people who plan to buy a house often wonder what kind of mortgage is right for them: an adjustable rate mortgage or a fixed rate mortgage. To be able to determine the suitability of a mortgage type, potential buyers should familiarize themselves with the advantages and disadvantages. This way, they enable themselves to come up with informed decisions.

Depending on the term of the mortgage and a borrower’s financial needs, both the adjustable rate mortgage and the fixed rate mortgage are appealing to various types of homebuyers. But it is essential that homebuyers become aware of the difference between the two kinds of mortgages.

An adjustable rate mortgage, or an ARM for short, is commonly known as a variable rate mortgage. This mortgage features an interest rate linked to an economic index. Interest rates and mortgage payments are occasionally adjusted in keeping with the changes in the said index. The primary interest rate for an adjustable rate mortgage is lower compared to the rate of a fixed rate mortgage, which features an interest rate that remains unchanged for the entire life of the loan. In contrast to the fixed rate mortgage, the adjustable rate mortgage offer borrowers the choice to make an early repayment of the initial principal borrowed without a penalty charge.

A principal reason why you should consider an adjustable rate mortgage is that you may end up with a lower monthly mortgage payment. Because you’re taking a risk with unpredictable interest rates, you are rewarded with an initial rate that’s lower compared to an adjustable rate mortgage. You can consider an adjustable rate mortgage a good option if: you plan to stay in your home for only a few years; you anticipate an increase in your future income; or, the existing interest rate for a fixed rate mortgage is too high.

One disadvantage of the adjustable rate mortgage is that there is a risk that the rates will rise on you, which means that your monthly mortgage payment will increase significantly. It is possible that the payment can get too high that you may have to default on your loan.

On the other hand, a fixed rate mortgage features an interest rate that is fixed for the entire life of the loan, even if the mortgage lender’s interest rate rises and falls in the future. Because the payments are predetermined, homeowners can budget the amount they need to set aside for their monthly mortgage payment. They can also afford to plan their finances for the long-term.

The drawback is that this type of mortgage comes with higher interest rates. Also, with a fixed rate mortgage, lenders often set up a prepayment penalty that dissuades borrowers from paying off their mortgage early or refinancing their mortgage loan with a lower interest rate. This type of mortgage also puts borrowers at a disadvantage when interest rates fall. However, borrowers can shift to a mortgage program that enables them to benefit from lower interest rates. One way to do this is to qualify and pay for mortgage refinancing.

Compared to an adjustable rate mortgage, the fixed rate mortgage is a more attractive choice for borrowers who opt for a long-term plan. The fixed rate mortgage also offers more security for buyers and is best suited for homeowners who wish to keep their houses for a longer period of time.

Author: Matt Peters
Article Source: EzineArticles.com
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Debt consolidation mortgage loan is an advance that a debtor takes out on his home. This is similar to taking a second mortgage on your home. However, unlike the second mortgage that you take for usual purposes, this refinance is for paying off a consolidated debt.

Debt Consolidation

A debt cycle is vicious and ensures that the debtor never be able to move out of the debt situation. This happens because debts accumulate interest quickly, while the debtors income remains steady. The moment a debtor has enough to pay the loan; he discovers that the accumulated interest has snowballed into an amount that he cannot hope to pay. And the cycle continues, dragging him deeper into debt.

If you are a debtor and wish to avoid filing for bankruptcy, you need to think of options such as consolidating your debts. In all probability, a debtor has many loans that he took from various sources, and he is now finding it hard to repay the loans. This is partly because there are too many loans for him to repay.

By merging all debts into a single amount, he can manage the refinancing better. This means that he has less to worry about: lesser monthly payments, lesser interest, fewer threats of creditors showing up on his doorstep. Once the debts are merged into a single debt, and your credit advisor has talked on your behalf with your creditors and reached an agreement, you need to think about how to repay this debt.

Second Mortgage

A debt consolidation loan is used for two purposes:

1. To pay off the first mortgage

2. To pay off the consolidated debt

This is essentially a second loan that you take on your home. Once the first mortgage is repaid, you need to get to work on paying off your debts. There are many ways of doing this:

1. Use the mortgage loan to clear off all of your arrears.

2. Use the consolidation program to relieve part of your arrears, and make changes in your lifestyle to save for the rest of the amount that is due.

3. Find another source of income, or get a new job, to clear part of the loan.

How you repay the debts is entirely up to you. A debt consolidation mortgage loan is meant to help you out of the debt cycle. It must not become a habit, because each new debt will make your financial situation precarious.

The terms of mortgage loans have to be decided carefully. Sometime people do not realize that by saving a couple of dollars a day and destining them to mortgage repayment they can save thousands of dollars over the whole life of the loan. With slightly higher monthly payments you can pay off your mortgage sooner and save thousands on interests.

Shorter Repayment Programs

By requesting a shorter repayment program, you will definitely get a slightly higher monthly payment, but that increment can be as little as $30 to $60 which implies $1 or $2 a day. It is not such a big sacrifice and you will be paying off your debt sooner. Besides, a year less of mortgage payment is a year less of interests because interest rate is calculated annually.

Moreover, a shorter repayment program has an additional implication: Since the money owed will be repaid sooner, the lender is taking a lower risk by lending the money and thus, the interest rate charged will also be lower. So, you will not only be saving money due to shortening the repayment program and thus the interests, but the interest rate will also be lower making you save thousands of dollars with each quarter of a point of interest.

Lower Interest Rates

Depending on the loan length, the loan will carry a higher rate or not (The longer the repayment program, the higher the risk and thus the higher the interest). However, the rate will also depend on whether you choose a fixed or variable rate and whether you have a good credit score or not.

Nevertheless, you should always know that you can save money by shortening the repayment program or by prepaying the mortgage loan provided there are not penalty clauses in the loan contract that increase the cost of the loan if you decide to prepay. If so, you should check to see if you are really saving money by prepaying.

Refinancing Your Home Loan

All the above is important if you are planning to take a home loan. If that’s the case, you need to make sure that you are not overpaying a huge amount just to get a lower monthly payment that will save you only $30 or $60 a month. A little sacrifice every month can save you a lot of money on the long run (money you can invest to generate additional income).

However, if you already have a mortgage loan and you are ruing because you closed on a deal that is definitely not to your advantage, you do not need to worry as you can always refinance your home loan so as to get better loan conditions and seize the benefits that are explained above.

Refinancing is a simple process: you take a loan that is secured on the same property as your previous mortgage on condition to repay the previous loan so the new one remains the only loan for which the property acts as collateral. You just need to make sure that by doing so, you are actually saving money because the costs of refinancing may be higher than what you save by getting better terms.

I’m not saying a mini skirt has a direct affect on your mortgage loan approval. But keep in mind, the availability of money goes hand in hand with fashion.

Consider a declining economy. In general, people become more conservative with their money and consequently, longer skirts become popular.

On the other hand, economic prosperity ushers in risk taking and skirt hems rise. Case in point, consider the Flappers of the Roaring 20′s.

Much the same, no one could deny the economic outlook during the Clinton administration was promising. The drive to increase homeownership was noble. In fact, loan approvals were reaching all time highs.

Real estate was the financial rock of the economy. Financial skirt hems were on the rise.

Now if you were a mortgage broker, you were hearing something like this from The Big Three, Fannie Mae, Freddie Mac and FHA…

“100% conventional loans with PMI? No problem. Your borrower has a pulse? Good to go!”

Mortgage representatives witnessed automated underwriting systems spitting out unprecedented loan approvals all day long.

And then along came Subprime Lending. Mortgage brokers, visited by lender representatives, were being offered innovative programs never before seen.

Take a peek at what was being offered to Joe The Home Buyer to enable mortgage qualification…

Non verifiable income ok!

No income disclosed ok!

No assets stated ok!

No appraisal options ok!

Below 600 credit scores ok!

100% financing ok!

1st/2nd mortgage combos ok!

Non verified gifts ok!

No savings pattern ok!

Debt ratios out the wing-wang ok!

That was only the beginning. And deadly if ever combined with decreasing real estate values and job losses but I am getting ahead of myself.

It was official. FNMA, FHLMC and FHA were raising their skirts to qualify more home buyers.

America looked on as the Millennium ushered in more and more liberal guidelines. Caution was thrown to the wind. Excessive confidence was placed in credit scoring and automated underwriting. Fannie Mae, Freddie Mac and FHA were exuberant.

The door had been opened, the stage was set and in walked Subprime Lending. However the most recent darling of Wall Street needed to replace its tarnished loan shark image. So to make it more palatable for borrowers and mortgage companies, hard money underwent a name change.

Meet the new and improved Alternative Lending.

The volume got louder as Fannie, Freddie, and FHA played musical chairs. Round and round the guidelines they frantically darted seeing who could churn out the most buyers before the music ended.

Fannie, Freddie and FHA, the millennial Flappers, had raised their skirt even higher.

Now understand this. When one of the Big Three loosened underwriting guidelines, you can be sure the other two competed. But Alternative Lending financed by Wall Street made qualifying for mortgages the easiest of all.

It was at this juncture that home buyers stormed in by the thousands across America. And why not! Standards for mortgage loan approvals had never before made home buying this easy.

Lest you think I am criticizing the first time home buyer, please hear me out. Joe The Renter was watching his rent payment gradually increase. Saving for a down payment was slow. The threat of paying rent for years to come loomed over Joe.

Then Joe The Renter caught wind of new mortgage programs that did not require a downpayment. Mortgage loan approval was granted overnight and a month later Joe got the keys to his first house.

In light of the ease with which Joe could buy a house, there is a lingering attitude I find very disturbing. It goes something like this…

“Home buyers by the droves had the audacity to get a mortgage with no downpayment and everybody knows how THAT turned out for America.”

So I am going to say it once and for all. I am sick and tired of Joe The Homeowner being blamed for the mortgage debacle.

In the 1990′s the Big Three, Fannie Mae, Freddie Mac and FHA recognized that underwriting guidelines had become outdated. To modernize loan approval standards to match a healthy economy was necessary.

But herein lies the rub. Had mortgage investors not succumbed to greed, and of most importance, had Wall Street not excessively leveraged…

Well, I contend Joe The Homeowner knows how THAT turned out for him.