The difference between a fixed and variable rate mortgage is something you are going to have to know if you plan to buy a house. The mortgage loans that you come into contact with may be complicated and may contain jargon with which you are unfamiliar so you will need to start learning what it all means. Two important options when it comes to mortgage loans are fixed rate mortgages and variable rate mortgages. You will need to be able to tell the difference between the two in order to select the right one for you.

A Fixed Rate Mortgage
A fixed rate mortgage means that your rate will be fixed or constant throughout the duration of the loan. Your mortgage payments will be the same from the beginning of paying off your loan until the day you make that final payment. The interest rate is set ahead of time and the total that you owe will be divided up evenly over the duration of the loan term so that you can go about your day knowing exactly how much you will owe each month.

This is the ideal choice for those who enjoy security and consistency. You will always know how much you will owe for the month so you will be able to plan ahead for it. This option is also more amenable to long term loans. The longer term allows for more possible fluctuations in the rate so the fixed rate keeps that from becoming a concern.

A Variable Rate Mortgage
A variable rate mortgage is one where the rates on your loan could vary. This means that you might not always be paying the same amount on your loan from one month to the next. On the down side, you could end up paying more for your monthly loan payment. On the up side, you could also end up paying less.

This introduces an element of risk. You do not really know what will happen to your variable rate mortgage payments. Because of this risky aspect you can sometimes find better initial deals but, as stated previously, future payments are uncertain. This is not the perfect mortgage for those who like to know exactly what amount they will be paying monthly.

This option can work well for short term loans because you can often get a better beginning deal and you may be able to predict the direction of interest rates better in the short term. It is still a risk (usually less of a risk in short-term loan arrangements) as the interest rates can be unpredictable so you should always be cautious of going into a variable rate mortgage.

What is the difference between a fixed and variable rate mortgage? The answer is right there in the names. The implications of their differences, however, go far beyond that. The different types of mortgages are almost fitted more to personality types than loans. The fixed rate mortgage is for those who prefer safety and security and the variable rate mortgage is for those who do not mind a little risk with the possibility of greater rewards.

By: John Carnibella

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By: Christine Harrell

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Laws & Justice

Every day I get calls from prospective clients about how difficult it is to get a mortgage, and if they should even try.  My answer is “where did you hear that”?  The only mortgages that are hard to get are the old sub-prime loans.  They have been gone now for almost a year, and the lenders that remain are looking for better credit risks.  So my answer is followed up by; “if you’ve had credit issues, we will work with you to get those cleared up.  Your credit does not have to be perfect.  But it does need to be better than bad.” 

What is important today is to make sure that the loan application is structured right and the issues are addressed and not a factor in an underwriters mind.  Underwriting loans is not an exact science.  Compensating factors and explanations go a long way in getting a loan to fund.  Underwriters will fund a loan if there is more good than bad and it is minimizing the bad that helps.  Most people can’t go through life without some kind of problems.  It’s just the way it works.  It’s fixing those problems and positioning yourself to be able to get the loan you want.  Sometimes it is easy and can only take a few weeks. 

Sometimes the issues are more complex and require more time to overcome.  But if your intention is to be able to buy a house for the best rates and terms, then, perhaps spending a little bit of time on getting your credit score increased is worth the effort. 

After all this is the most expensive purchase most of us ever make in our lives and it should require the attention that it deserves.

So, is getting a mortgage today difficult? No, it just requires a little more work in some cases.  In most cases it doesn’t.

Don Davis

By: M Donald Davis

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By: Stuart Laing

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Investments

Try getting a mortgage deal with nice and low repayment rates and chances are you’ll come up dry as recently lenders have become increasingly choosy over who gets their money and many people have found themselves priced out of the mortgage and house buying game having to resort to renting or delaying their move out of the box room at their parent’s house.

It is almost impossible to get a decent rate on fixed term mortgages now, lenders are more suspicious with borrowers and the general consensus is to charge higher rates in order to guarantee getting as much of their investment back. There is plenty of noise over the subject of fixed mortgages because lenders do not seem to be reacting to the Bank of England’s swap rate for banks reaching a threshold recently. Despite this many lenders like Halifax and Nat West have continued to increase rates for fixed term mortgages of 2, 3 and 5 years.

So what’s the alternative? Well tracker mortgages are becoming more popular as they follow the Bank of England’s base rate which recently dropped to an all time low of 5%. Normally tracker mortgages work out as being cheaper than fixed mortgages for the first two or three years but then rise to a more expensive rate once the period is over.

The life line in this story seems to be lifetime trackers. Lifetime tracker mortgages will follow the base rate to an extent for the entire length of the mortgage. Analysts say that by doing this you stand to save thousands of pounds by not only undercutting the fixed rate mortgages but also by not having to pay the fees and charges associated with a Remortgage ever again!

Some lenders are even trying to entice some struggling home buyers with low rates (some at 5.89% currently in July) but even better: No upfront fees or early repayment charges. The benefits of this lack of fees are further boosted by the safe knowledge that your tracker mortgage is not going to fall victim to arbitrary price hikes should something major occur in the industry.

For now mortgages remain elusive and awkward to get with attractive rates, but as this news proves, some lenders are recognizing the desperation in the housing market and aim to provide some form of savings to the house buyers.

By: Andy Adams

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Being as it is, increasingly difficult to pay off mortgage installments, more and more people are resorting to long term mortgages in an intent to reduce the amount of the monthly payments. If there is no other option for purchasing your own property there is no much to discuss. However, if it is possible to afford a shorter term mortgage it is wise to analyze the advantages and disadvantages of closing on a long term mortgage deal with your home loan lender.

Amazingly and due to the crisis that the mortgage industry is going through, long term mortgages are becoming increasingly popular and astonishing long mortgage terms are being offered by home loan lenders. Lately 40 and even 50 years mortgages have been offered by mortgage lenders at certain local branches and though these products along with 25 and 30 years mortgages are especially useful for those with limited income, the advantages and drawbacks need to be pondered.

Escaping From Negative Amortization

One of the advantages of longer term mortgages is that negative amortization becomes less likely. Negative amortization happens when the minimum payments are so high that they do not cover the interest rates on the loan which accumulate with the loan principal. Debt increases and the property’s value is no longer high enough to secure the whole debt which turns repayment economically unadvisable.

A longer repayment schedule reduces the amounts of the monthly payments and though the interests are higher in the long run, negative amortization is less likely because the minimum payments are always low enough for you to afford both the interests and a portion of the principal. Therefore, longer mortgage terms guarantee that you will avoid negative amortization and that you will be able to afford the loan payments.

Avoiding Foreclosure

Another interesting benefit that these longer home loans provide is that the risk of foreclosure is reduced. Because the loan payments are more affordable, the loan repayment becomes simpler and defaulting on the loan is also less likely. Therefore, one of the biggest worries that borrowers have is eliminated thanks to the extension of the repayment schedule to 40 or 50 years.

Yet all these benefits do not come at no cost. When you decide to accept a 40 or 50 years term you are also agreeing to certain disadvantages that may affect your finances. Therefore it is important for you to know exactly what you are agreeing to so you can make a conscious decision and determine whether you should apply for a longer home loan or not.

Higher Interest Rates and Overall Costs

The main drawback of these loans is that you will have to pay higher overall interests due to the longer repayment schedule and also due to the higher interest rate that you will be charged. Almost 10 years of the whole repayment program are destined to paying off the interests on the money lent which turns these loans into a very onerous financial solution for the purchase of a home. Thus, they are only advisable when due to a limited income, you cannot cope with shorter programs.

By: Jess Peterson

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By: Cameron Daniel

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