Money Sense Tips

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.

Here are ten remortgaging tips to help you secure the best rate for your home.

1.  There are many types of remortgage deals available.  Speak to several lenders to find the most appropriate and low cost deal for you.

2.  Ask the lender what the interest rate will be for a remortgage.  If it is a fixed rate, be sure to determine the duration.

3.  Based on your current mortgage and the new remortgage rate, the lender should be able to give you the amount you will be paying each month.

4.  Ensure that you look into the current SVR or Standard Variable Rate since you may have to pay the lender’s SVR if you are opting for a fixed rate.

5.  Ask the lender exactly what your monthly payments will be, based on the standard variable rate.

6.  Ask the lender what the APR (Annual Percentage Rate) will be.

7.  Before you carry on the process of remortgaging, ask the lender what the early redemption charges will be.  While these may apply to mortgages that are changed, it is a good idea to ascertain if they apply to the new remortgage.

8.  Are there any remortgage fees that will be incurred?

9.  Determine how long the process will take.  Some homeowners have stated it can take anywhere from a few days to a week.

10.  How many times can you remortgage?  The answer is that you can remortgage anytime you like.  However, keep in mind that when you do, you will have to pay the early redemption charges each time.

In addition, MSN Money offers these valuable tips:

* “Don’t use a lender which offers its best deals only to new customers
* Don’t pay annual interest
* Don’t pay a mortgage indemnity guarantee (MIG)
* Avoid extended redemption
* Avoid mortgages with insurance tie-ins”

If you are thinking about remortgaging, research the many websites online to ascertain not only what questions to ask potential lenders, but compare and contrast lenders so that you are afforded the best possible terms.