Money Sense Tips

In this current economic situation, one teething problem that is still ongoing is the housing foreclosure crisis. Foreclosures are raising every month, and experts expect that more and more homeowners will face this eventuality sooner rather than later.

If you currently hold a mortgage and are trying to find ways to reduce the monthly payments, here are some suggestions you may wish to utilize.

One way in which you can save on interest rates is by seller financing. This means that the payments are made directly to the seller and not the lender. The advantage cited is that “you can sometimes arrange a lower interest rate,” especially at this time when the value of homes have decreased and the seller has no other options. In addition, no private mortgage insurance is required.

However, it is very possible that the seller will ask for a shorter payment plan than the more traditional 30-year mortgage.

If you are a homeowner, you have undoubtedly heard of points. In some instances, you can offer to pay more points in order to garner a lower interest rate. Or, you can opt for a 15-year mortgage instead of a 30-year mortgage.

Another way you can save money is to pay off your mortgage sooner. Again, just like any debt, the more you pay the less interest you will owe.

Researching different mortgage lenders is the clearest route to finding the best mortgage for you. Depending upon your credit report and FICO score, you may be suitable for a low-interest fixed rate mortgage.

You will have to begin comparing and contrasting the various lenders, however. While some banks are still withholding money and not resuming their lending practices, there are others who may be willing to offer you a good interest rate based on your credit history.

Remember, too, that the reason banks are not lending is because of the sub-prime mortgage crisis. The money they received from the Treasury is being held in abeyance because the banks know that future foreclosures are on the horizon and they need whatever capital they have to prepare for that eventuality.

It is also important to stay away from any predatory lenders who offer you a mortgage rate that, for all intense and purposes, seems too good to be true. Recent news reports claim that these unscrupulous individuals are back in business and will try to trick you into using their services to obtain a low-cost mortgage.

Whether you purchase a new home or try to scale down your existing mortgage, it is vital that you speak with qualified, certified professionals who can offer you the best advice possible.

There are different types of mortgages available in the industry. Do you know what are they and which one is suitable for you? Here are the explanation of the different kinds of mortgages:

1. Fixed rate mortgage – This is a mortgage where monthly payments remain the same throughout the entire term of the loan.

Note that there are two types of fixed rate mortgages: 15-year and 30-year. The benefits of both are described by Bankrate in this way:

“With 30-year loans, borrowers generally get lower monthly payments even though their rates are higher. That’s because the longer amortization schedule spreads the additional cost of the rate differential – which was roughly 30 basis points in mid-September – over twice as much time. People can buy larger houses or keep their payments on smaller homes affordable as a result.

Fifteen-year mortgages, on the other hand, help buyers own their homes sooner. Even though their payments are larger, they build equity faster because more of each payment goes toward principal rather than interest. The lower interest rate and shortened term make the loans cheaper by lowering the overall interest bill.”

2. Adjustable rate mortgage (ARM) – Unlike the fixed rate mortgage, the ARM rate changes based on the market.

3. Balloon mortgage – According to Bankrate, a balloon mortgage has a “payment schedule similar to that of a thirty year fixed rate loan, although the term of the balloon loan is shorter, most often spanning five to seven years. At the end of the loan term, the outstanding balance must be paid in one lump sum, either out of pocket or by refinancing the home.”

4. Interest only mortgage – In this case, the homeowner is allowed to pay only the interest for a specific period of time on the loan before the principal is paid. After the time has expired, the payments increase to include the principal. Note that this may not be a prudent way of paying a mortgage since higher payments overall will arise.

Given the fact that banks are still not lending, acquiring a mortgage that is right for you may be a daunting task.

Great tip: Try to stay away from predatory lenders who offer you a mortgage that seems too good to be true. Research many qualified and certified lenders to compare and contrast the different mortgage types before you sign on the dotted line.