Choosing a Home Mortgage Loan – One Size Does not Fit All

Posted by admin in MortgageSep 4th, 2010 | No Comments

When you decide you are ready to purchase a home, you are understandably excited. Home ownership is a valuable investment not only in real estate, but also in lifestyle. Along with the benefits that owning a home provides, there are there are also financial responsibilities. There are property taxes to pay, and homeowners insurance to purchase. And since most people, especially new homeowners, do not have the means to purchase a home outright, a mortgage is probably a necessity.

You have a variety of choices when shopping for a home mortgage; there are fixed and adjustable rate mortgages, and different lengths of mortgage loans. If you have poor credit, there are a number of mortgages options that will help you to purchase a home.

Length Of Mortgage – The most common mortgage length is thirty years, but ten and fifteen year loans are also available. The longer the duration of the mortgage, the lower your monthly payments will be, though you will pay out much more money over the length of the mortgage. With a ten or fifteen year mortgage you will be apply more money toward the principal early in the loan, and while your monthly payments will be higher, you will begin to amass equity in your home much more quickly.

Fixed Rate Mortgages – A fixed rate mortgage has the advantage of locking in a certain interest rate for the duration of the loan. This is especially helpful if you purchase a home when mortgage interest rates are low. Your rate will be locked in, and you will be protected against rising interest rates. On the flip side, if interest rates fall further, you will be stuck with that rate unless you refinance your mortgage.

Adjustable Rate Mortgages – Adjustable rate mortgages, commonly called ARM’s, usually offer lower initial interest rates than their fixed rate cousins. The danger of an adjustable rate mortgage is that if interest rates rise, your rate, and therefore your mortgage payment will increase. Fortunately, the rates on ARM’s are capped, having both a periodic rate cap limiting the amount your interest rate can increase at once, and a lifetime cap which limits the amount your rate can rise over the duration of the mortgage.

Many people obtained adjustable rate mortgages during the recent housing boom, betting that mortgage interest rates would fall further or at least hold steady. Many of them had sub prime credit and had no choice but to get an adjustable rate mortgage, and as the housing market slowed, interest rates rose, and mortgage payments grew. As a result, many already cash-strapped homeowners were driven to foreclosure.

Fixed-Period Adjustable Rate Mortgages – A safer alternative is an adjustable rate mortgage which has an initial period where the interest rate is fixed, anywhere from one to ten years. These mortgages are sometimes called hybrid ARM’s. This fixed rate period provides you a buffer against rising mortgage interest rates, and gives you time to build home equity and improve your credit. Hopefully you take advantage of this time and begin to shop for a low fixed rate mortgage.

Sub Prime Mortgages – Sub prime mortgages are designed to meet the needs of potential home buyers who have damaged credit. If you have a record of slow payments on credit accounts, or have a FICO score below 600, you may have to obtain a mortgage from a sub prime lender. Because of your less than perfect credit, you can expect to pay a higher interest rate than someone with immaculate credit. but by shopping around you should be able to find a competitive interest rate, as every lender has its own criteria to determine how much of a credit risk you would be.

Finally, be sure that regardless of the type of mortgage you choose, you will be able to afford the monthly payments. If you get an adjustable rate mortgage, plan ahead and decide what you will do if interest rates rise. Work at improving your credit score, and if you decide later to refinance your mortgage, you will have more and better options.

Mortgage Lead Buying Guide

Posted by admin in MortgageSep 4th, 2010 | No Comments

A Complete Guide to Internet Mortgage Leads:

The Internet has revolutionized the way consumer’s evaluate, compare and choose mortgage products and services. Every day more and more mortgage shoppers utilize the Internet to study and purchase home mortgages. As a mortgage broker you must recognize this industry shift and learn to utilize this tool. Each day thousands of mortgage seekers fill out forms on thousands of mortgage leads generation websites requesting more information on mortgage loans or quotes from mortgage lenders. These mortgage leads are made available to you by an array of internet mortgage leads generation brokers. The BIG question is, are these internet mortgage leads worth your effort and money? Will the return on investment be there? In this article we will discuss the in and outs, do and don’ts and questions you should ask when purchasing internet mortgage leads. Careful consideration must be given to purchasing internet mortgage leads. In this mortgage lead guide we will discuss:

What makes a quality Internet Mortgage Lead?

What you should expect from an Internet Mortgage Lead?

Closing the sale to your Internet Mortgage Lead

Questions to ask before purchasing Internet Mortgage Leads

Quality Internet Mortgage Leads:

What makes a quality internet mortgage lead? A lead that CLOSES. Not necessarily. We all know that not all leads will close. In fact if I was able to close between 8% and 14% of the mortgage leads I purchase on the internet, I would be happy. I consider a mortgage lead to be a high quality lead if it meets the following criteria:

-The Lead is Fresh -

It is critical to find out how quickly mortgage lead brokers turns the lead around and delivers it to you. Best case scenario, the lead is delivered instantly (a real-time mortgage lead) and it is an exclusive mortgage lead (only delivered to you). At a minimum you want to make sure the lead is delivered in less than 48 hours. Otherwise, the lead is less valuable and should not be sold at the same premium as a real-time mortgage lead. The more time that passes from the time the user requested information, the less your chances of closing the sale to this lead. I’ve seen many cases where users deny even requesting information. The quicker you contact them, the less likely this is to happen. Hit while the iron is hot.

-The Lead is Accurate

One of the biggest challenges mortgage lead generation companies face is obtaining accurate data from users. No matter what type of technology a mortgage lead company claims to have, no company can completely stop users from entering inaccurate data. A recent example of technology to improve data accuracy is telephone number/location verification. Companies use software to make sure the area code in the phone number matches the state. This is a nice feature because chances are if a user is going to enter a bogus phone number they will not enter the correct area code. What you must do is evaluate mortgage lead generation companies and decide who has the best solution to fit your needs.

-The Lead is a True Lead

What do I mean by a true lead? I consider a true lead to be a lead that was actually generated by someone that is truly interested in obtaining a mortgage. You have to be careful that the lead is not an ‘Incentivized Lead’. For those of you that aren’t familiar with this new term I will explain. Many websites today offer users incentives to fill out forms. In exchange for filling out these forms users are given points towards the purchase of merchandise or even money. Make sure you stay away from companies that have anything to do with incentivized leads. These leads are worthless !!!

What you should expect from an Internet Mortgage Lead?

This is simple. Don’t set your expectations to high. Like I said earlier it would be great to close at a rate 8% – 14%. Remember that you are buying leads, not sales. Expect accurate data 80% of the time and try to close at least 8% of these leads and you should be doing very well for yourself.

Closing the sell to your Internet Mortgage Leads

Again, this is a simple concept. The quicker you contact the lead, the better the chance of closing the sale. The first thing you should do is make contact. Once you have made contact with the lead ask questions and find out what they are looking for. After this initial contact you can follow up with a quote and answers to their questions. Quick response, quick response, quick response !!!!

Questions to ask your Mortgage Lead Generation Company

These are the not so obvious but very important questions to ask.

What is your lead return policy?

It is vital that you find this out before purchasing Internet Mortgage Leads. Bad leads are worthless to you and at approximately $50 each, this can get expensive quick. No batch of leads will be completely accurate, but you want to make sure that the percentage that is bad is not greater than 10% – 15%. Tip:

Ask the company what makes a lead returnable. What makes the lead invalid? Different companies will have different policies on what constitutes a bad lead.

How many times are your leads sold?

When purchasing leads you must make sure those companies aren’t overselling the leads they generate. The best lead is an exclusive mortgage lead, meaning you are the only person the lead was sold to. Exclusive mortgage leads are more expensive but you are ensured that you should be the only person receiving the lead. If the lead isn’t exclusive find out how many other times the lead has been sold. The more mortgage brokers that receive the same lead the less chance you have of closing the sale.

What filters are available for your leads?

Filters allow you to set criteria for the mortgage leads you receive. Example: You could specify that you only want leads for mortgage seekers that have a ‘Good’ credit rating or better or you could specify that you only want leads from ‘Colorado’.

How are the leads delivered?

Find out what format the leads are delivered. Leads may be delivered in text format, Microsoft Excel, email, etc. Make sure it is a format you are able to work with.

How do you generate your leads?

Find out what method the company uses to generate Internet Mortgage Leads. Make absolutely sure there is NO INCENTIVIZING.

-Mortgage Lead Guide-

For more information about how to develop a successful mortgage lead campaign please call Smart Leadz at: 585-478-3335 and speak with one of our lead specialists. We can custom tailor a campaign to meet your exact needs and budget.

Predictions on the Mortgage Market (konut Kredisi Pazar?) in Turkey

Posted by admin in MortgageSep 4th, 2010 | No Comments

Size of the Turkish Mortgage Market

The Turkish mortgage market has shown promising growth in the last few years. While the existing mortgage loans had a share of only 0.6 percent of the GDP in 2004, the share jumped to 2.6 percent in 2005, and then to 4 percent in 2006. Currently the existing mortgage loans are about 31 billion YTL, which is about 5 percent of GDP.

These statistics clearly show that mortgage market has been growing faster than the rest of the economy. As described below we expect that it will likely to continue this trend in the near future too. The rapid growth has been fueled by primarily by economic factors such as falling interest rates and improving economic stability but also by characteristic factors for Turkey such as solid population growth and strong ownership culture.

For 2008 we anticipate that the fast growth in the mortgage market will continue amid the continued decrease in the interest rates. Assuming that inflation will move towards targeted 4 percent and Turkey’s macroeconomic indicators will not get weaker in 2008, we expect that the interest rates will continue to fall in 2008. In addition, when the secondary mortgage market starts, capital markets will start to share the risk of mortgages and the cost of getting a mortgage loan will likely decrease further.

Based on these conjectures, we anticipate that the annualized growth in the mortgage market in the beginning of 2008 will average about 40 percent and then will accelerate to about 50 percent as long run interest rates decrease to 1 percent in the second half of 2008. Based on these predictions, we find that by the end of 2008, the mortgage loans will be about 47 billion YTL, making about 6.5 percent of the GDP then.

Looking even further, based on the assumption of continued decrease in the interest rates, and recently announced plan of inflation falling to 4 percent as planned in 2008, 2009, and 2010, our models predict that by end of 2012 the mortgage loans can be as large as 15 to 18 percent of the GDP.

Let’s also note that we believe that there two major risks to our forecasts for 2008: The first is a turmoil in the global economy and especially world’s financial markets driven by a recession in the USA. The second one is a domestic financial crisis probably caused by a current account imbalance. In either case, it would be very hard to predict the growth of the mortgage market for 2008.

Predictions on the Structure of the Mortgage Market

We believe that in 2008, the Turkish mortgage market structure will start to see several important changes:

1) Increase in refinance activity: Currently the majority of the new mortgage agreements are issuances of new mortgages and refinancing of mortgages does not take a large share in the market, however, we believe that starting in 2008, the refinancing will start to take a significant share in the market amid the decreasing interest rates. If the interest rates continue to decrease, the share of refinance activity can be even more than half of the total mortgage applications in a very short time.

2) Variable rate mortgages: Currently 99.9 percent of all mortgages are fixed rate mortgages. This is not surprising as variable rate instruments are very new in Turkey and the risk and benefits of these new instruments are not very understood yet. In addition, the very large movements in the interest rates and exchange rates in early 2000s and accompanying bankruptcies are still fresh in the memories of Turkish people and created a crisis-awaiting culture. However, we believe that the advantages of the variable rate mortgages will start to draw more people and its share will start to increase slowly in 2008. But for this, banks should reduce the interest rates of the variable rate mortgages, which did not happen so far because of the lack of competition in this type of products. We anticipate that as the competition among mortgage lenders increase, we will start to see more favorable variable rate mortgage instruments soon.

3) Lending institutions: Currently all mortgages are offered by banks; however, in 2008 consumer funding companies that are allowed to invest in capital markets to create funds for the home loans will start to offer mortgages. These new lenders will start to change the market structure as they may be less structured and flexible than the banks.

4) Secondary mortgage market: Secondary mortgage market is expected to start in 2008. We expect that at the beginning, the secondary market will be experimental without causing a significant immediate change in the interest rates, however, as the market matures, it will be one of the most important pillars of the mortgage market. It is hard to predict the role of the secondary market right now, but it is worth noting that secondary mortgage markets tend to play an important role in a few years after it started. For example, in the USA, mortgages trades in the secondary market started in 1970, and in 1972 it represented 4 percent of the total mortgage debt, the share increased to 9 percent in 1979, and then to 16 percent in 1982. In order to see comparable growth in the Turkish secondary mortgage market, corporations such as Freddie Mac should be founded, otherwise, the growth will be much slower.

The benefits of the securitization are reduced interest rates for the borrower, increase in the credit availability, liquidity increase for the lenders, and increased efficiency in the mortgage markets.

When mortgage markets merge with the capital markets through securitized mortgage loans, the market interest rates will quickly impact the mortgage interest rates.

Briefly, we expect that in 2008, growth of the mortgage market will continue its pace and in addition it will continue going through important structural changes that will cause even more growth in the coming years.

Offset Mortgage Providers are on the Increase

Posted by admin in MortgageSep 3rd, 2010 | No Comments

Offset mortgage providers are increasing in number, and it is predicted that offset mortgages will account for 30% of all UK secured lending by 2009.

What are offset mortgages?

Offset mortgages allow homeowners to link the balance on a savings and current account with their mortgage, while still allowing instant access to their money. The amount in the savings and current account is calculated on a monthly or daily basis and used to reduce or ‘offset’ the interest payments due on the mortgage. For example: your mortgage might be £200,000, but you have £20,000 in your savings account and £3,000 in your current account. This means you will only pay interest on £177,000.

Choosing the best offset mortgage

There are over 30 offset mortgage providers in the UK market and about 250 offset products in the market – but with so many to choose from, how do you choose the best offset mortgage deal for you?

You could traipse up and down the high street visiting all the banks and building societies, and obtain the latest information on their offset mortgages. Or you could save your shoe leather and consult an independent mortgage broker. They will calculate whether an offset mortgage is suitable for you. They have the latest deals from offset mortgage providers at their fingertips, and they will help clarify which is the best offset mortgage deal for you, as each lender is different. For example: two offset mortgage providers offer different deals on a mortgage of £150,000. One offers a two- year fixed rate at 5.29% and the other one offers a two-year fixed rate at 6.33%. On face value the offset mortgage provider offering 5.29% looks the better deal, however the fee for the mortgage is 2.5% of the loan value which totals £4,249. The fee on the 6.33% deal is £99. A borrower opting for the 5.29% offset mortgage deal would pay £1,430 more than the 6.33% borrower.

Who could benefit from an offset mortgage?

Self-employed people: the self-employed are often paid without any tax deduction. They save their money over the year in preparation of their tax bill and an offset mortgage offers them a handy way to obtain maximum benefit from their money, but still have it available when the tax bill is due. A Regulated Mortgage Survey (RMS) revealed 21% of offset borrowers in 2006 were self-employed, compared to 16% of non-offset borrowers. For the self-employed some offset mortgage providers combine their self cert products with offset features.

Savers: A general guide is about 10% of the value of the mortgage in savings. However in some cases, savers only need about 5% of the mortgage debt in savings to make the offset deal worthwhile.

Higher-rate taxpayers: Higher-rate tax payers lose 40% of any interest earnt on savings accounts to the taxman. With an offset mortgage no interest is paid on accounts linked to an offset, so there isn’t any tax to pay. Some offset mortgage providers allow ISAs to be linked to an offset mortgage. Although savers do not receive any interest, they avoid forfeiting their right to save up to £3,000 in an ISA per year. Once the mortgage has been paid for, then they start receiving interest on the ISA. Some borrowers have managed a 0% mortgage because they have enough in their ISAs, savings and current account, to offset their whole mortgage.

Conclusion

Offset mortgages are increasing in popularity as more borrowers recognize the benefits an offset mortgage offers them. More offset mortgage providers are entering the market, which is good for the borrower as it offers more choice, however, without the advice from an independent mortgage broker, it can be difficult to choose the best offset mortgage deal.

No Cost Mortgage – a Real Deal or Not?

Posted by admin in MortgageSep 3rd, 2010 | No Comments

With the onset of 2008 we have seen mortgage interest rates begin to fall. When mortgage rates fall, misleading mortgage advertising schemes seem to show up in the media all around us. For example, I recently watched an advertisement on Television for “The Real No Cost Mortgage”. I shudder each time I see or hear advertising about this type of mortgage because it is misleading and deceptive. The sadness in this for me as a 12 year mortgage broker veteran is that this type of advertising is indicative the bad apples that contributed to a great degree to the mortgage industry meltdown in 2007. I am going to say it right off the bat: There Are No “No Cost Mortgages” on the Planet!” Is this clear? All mortgages have costs associated with them. This is the end of the story.

Most “no cost mortgage” loan programs are designed the same way: the interest rate of your loan is increased to cover the costs associated with your mortgage. There are a select few mortgages that have very little costs associated with them: these are home equity lines of credit – or HELOCS. Often you can get these little or no cost loans at your local credit union or small community bank. Additionally, these loans typically only allow you borrow up to about 90% of your home’s value. Credit Unions are small enough that they perhaps can offer to pay some of your costs as a courtesy to earn your business. The larger banks simply cannot pay or give you these costs for free or it would set them back a few dollars.

With these small second mortgages and HELOCS aside, the rest of the mortgage market is primarily made up of larger first mortgages. As I previously stated, these mortgages have costs associated with them such as: paying a processor to process your loan, the cost for an appraisal, the underwriter, the title insurance policy, your credit report, tax and insurance escrows, and of course the money that your loan officer makes in commission. All of these fees in one form or another get paid, and guess who pays them? That’s right, you do. You will pay these fees one way or another.

So what is the catch to this type of advertising? As I previous pointed out, the mortgage company charges you a higher interest rate. If you are paying a higher interest rate, then your monthly payment is higher. So your higher payment month after month pays your closing costs over time. Now, this is not necessarily a bad thing if you know what you are getting into. Where I have a beef with this type of advertising is that it is not telling you the whole truth. You do have closing costs and the mortgage company is charging you a higher interest rate to compensate for those fees – and they do not tell you this in the advertising. They lead you down some fantasy of a no cost mortgage, or a free mortgage, and ultimately charge you a higher interest rate than you would normally get if you paid your costs either with your loan proceeds in a refinance or out of your pocket in a purchase mortgage. The misleading advertising got you to call them.

Initially, this loan can be good if you are low on cash. Hey, it is not a bad loan in the short term. Let’s just say that the interest rate that they charge you increases your monthly payment $150 a month for a no cost mortgage. After 30 months, or 2.5 years you have paid $4,500 extra. What if that was the amount of your closing costs when you first got the deal? Well, for the first 30 months you saved money and were better off. However, once you hit month 31, you are now paying more for your mortgage’s closing costs than you would have if you had paid them up front when you got the mortgage.

Another thing to be careful about with this type of mortgage is that it is very easy for a mortgage company to charge you more than might have been able to charge you because their profit is made in the interest rate and in the slightly higher interest rates. With this said, it is hard to tell how much a mortgage company makes on your loan given your payment increases slightly over what you could have been paying if you had paid your own closing costs.

So, the next time you hear of this kind of mortgage program, make sure you ask about the difference in your monthly payment between paying your own closing costs, or for paying a higher interest rate. If you know you are only going to be in the home for a few years and then you are going to sell the home, then a no closing cost mortgage might good for you. If you are planning on staying longer and you know you are going to refinance in the near future, then this loan might be good for you too. But, if you do not want to refinance in the future, or be forced to have to refinance to get out of a no cost mortgage when it starts costing you money then the no cost mortgage probably is not right for you. Make sure you take a look at all your options. Do not let a slick mortgage person tell you that this loan saves you money – as this is not necessarily the case.

For mortgage home loan, real estate financing, and credit information

The Pros and Cons of Adjustable Rate Mortgage

Posted by admin in MortgageSep 3rd, 2010 | No Comments

An adjustable rate mortgage, commonly referred to as an ARM, is a mortgage where the interest rate on the mortgage changes periodically, on a schedule, according to an index. The most common indexes used to determine the interest rates are:

One-year constant maturity treasury securities (CMT)
Cost of Funds Index (COFI)
London Interbank Offered Rate (LIBOR)
A lending institution’s own costs of funds.

The mortgage payment that you pay will thusly change, either up or down, to ensure a steady margin for the lending institution.

For many people who are looking at mortgages, the adjustable rate mortgage can seem like a great idea, however there are many pros and cons to an adjustable rate mortgage – items that need to be weighed over the short and long term to decide whether an adjustable rate mortgage is right for you or not.

The Pros of an Adjustable Rate Mortgage

The initial interest rate on an adjustable rate mortgage looks great on paper. Most often, the adjustable rate mortgage inserts rate is much lower than a fixed rate mortgage, which also means that the payment is lower. As a borrower, this lower interest rate can also mean that they can qualify for a higher loan amount if the lender is willing to base their ability to pay on the initial monthly payment amount. It’s important to do some research on the interest rates and see where they are sitting at in comparison to the six months to a year prior.

An adjustable rate mortgage is a good idea for people who only plan on staying in a house for a few years – from three to five years. Taking advantage of the lower interest rate that accompanies an adjustable rate mortgage is a good idea in this case. It means that you will ‘pay less’ for the home that you will be living in over the period of the three to five years, and gain more in equity in your home.

The Cons of an Adjustable Rate Mortgage

The biggest issue with an adjustable rate mortgage is that the interest rate will rise and thusly, so will your monthly mortgage payments. You have to decide whether the gamble is worth it or not. If you are looking at getting a raise in the next year from your job, then you may be able to handle an increase in your mortgage payments.

Some of the adjustable rate mortgages that are offered by lending institutions have a prepayment penalty, which you incur if you pay the mortgage off early. By having this prepayment penalty, you could be opening yourself up to a lot of strife – having a prepayment penalty on your mortgage contract is never a good idea because you simply just do not know what the future will bring.

You must also consider the payment cap. A payment cap sounds great – your mortgage payment can not go above “x” amount of dollars, however, that doesn’t mean that the interest charge is capped. If the interest rate raises high enough that you go over your payment cap, the lender adds the interest to your mortgage debt, which then finds you in the position of paying interest on the interest. This can translate to you paying much more for your home than you did when you bought it – this is called negative amortization. Many lenders have a cap on negative amortization that you can have, and if you reach that point, your payment cap goes out the window and your mortgage’s monthly payments are adjusted to begin repaying the negative amortization debt.

Factors that can go either way

There are a few factors of adjustable rate mortgages that can fall on either side of the pro/con debate. Due to the fact that there are many different types of adjustable rate mortgages available from different lenders, it’s important that you research the adjustable rate mortgage and find out whether it is right for you. Some of the ‘ambiguous’ factors that you have to consider can make or break the decision to go with an adjustable rate mortgage.

One of the first things you need to consider is the lifetime interest rate cap on the mortgage. This is the maximum amount that the interest rate can raise through the period of the mortgage. There are also the periodic adjustment caps that limit the amount that your mortgage interest rate can raise from one adjustment period to the next. The law states that adjustable rate mortgages have some type of lifetime cap.

Most lenders use one of the index rates to base their interest rates on. The index rates change and fluctuate with the movement of the economy. To determine the interest rate that you will be charged, the lender adds a margin (profit percentage) to the index rate. The margin that the lender will add is also important – it determines your future interest rates with an adjustable rate mortgage. The margin is different from lender to lender, so it’s important to find out what the margin is.

An Introduction to Mortgage Backed Securities

Posted by admin in MortgageSep 2nd, 2010 | No Comments

What Are Mortgage Backed Securities?

Mortgage backed securities are securities that are backed by the principle and interest payments on a group of mortgage loans. Lenders group together mortgages and the money that is repaid by the borrowers’ pays investors in the mortgage backed securities.

Why Do Mortgage Lenders Issue Mortgage Backed Securities?

There are a variety of reasons that lending institutions issue mortgage backed securities rather than holding the mortgage themselves. Most lenders have a limited amount of liquid assets. By selling mortgages they are able to free up money in the short term to make additional loans.

Another reason that mortgage lenders sell off their loans as mortgage backed securities is to minimize their risk. Although every effort is made to establish the creditworthiness of an individual before a loan is made, circumstances can change. If a borrower defaults on his mortgage, the lender will have unplanned for expenses just in dealing with repossession and selling of the property. Adding in the lost principal and interest, and a small, local lender could find themselves in a financial mess very quickly.

When a lender sells a mortgage as a mortgage backed security, they receive their money up front, both the loaned amount and a percentage of the loan as their fee. The investors in a mortgage backed security then receive income each month, as the borrower pays back the principal plus interest on his loan.

Types of Mortgage Backed Securities

There are a variety of mortgage backed securities. The majority of mortgage backed securities are issued by the Government National Mortgage Association, otherwise known as Ginnie Mae, the Federal National Mortgage Association, or Fannie Mae, and the Federal Loan Mortgage Company, or Freddie Mac. These are all groups sponsored by the federal government. While Ginnie Mae is backed by the full faith and credit of the government, and guarantees its investors that they will receive their payments, both Fannie Mae and Freddie Mac have the authority to borrow from the Treasury, which makes them relatively safe investments as well.

In addition to the government agencies, brokerage firms and banks often offer mortgage backed securities. These are known as private-label securities.

Are Mortgage Backed Securities Risky?

Mortgage backed securities are not generally considered a risky investment. To obtain a mortgage, the borrower must go through a qualification process that assures the bank or lending institution that the loan will be paid back. The group who sets up the mortgage backed security will then group mortgages together in order to sell. By pooling the mortgages together, the risk to the investor is minimized. One borrower, who defaults on a loan, or, conversely, pays the loan off early, depriving the group of years of interest payments, will have less of an effect when he is a member of a large group. The same borrow, particularly one who defaults on a mortgage, can cause a real financial shock to a small lending institution.

Do Mortgage Backed Securities Make a Good Investment?

All investment decisions are extremely personal, and will depend on your personal needs. Decisions on investments are best made with help from a financial advisor. For someone who would like a monthly income, a mortgage backed security can make a good choice. A mortgage backed security, particularly one sold by Freddie Mac, Fannie Mae, or Ginnie Mae, can be excellent investment vehicles. In general, the greater the amount of loans held in a mortgage backed security, the safer the investment, because the risk is spread over more people.

Before investing in a mortgage backed security, you should find out your expected rate of return. While this can vary, it is nice to know what investors have been receiving. Remember, it is not only loan defaults that can affect your income from a mortgage backed security, but also prepayments and principal only payments. The income from the security is figured on full payment of both principal and interest over the life of the mortgage, typically 15 or 30 years. Any action taken by anyone holding a mortgage in the security can affect your income. It is important to be clear about this with the person you purchase the security from.

Mortgage backed securities are an excellent development for borrowers, lenders, and investors. No matter what group you are in, it is important to understand exactly how they work and what you can expect. By doing that, you are better able to make a wise financial decision.

The Various Kinds of Mortgages

Posted by admin in MortgageSep 2nd, 2010 | No Comments

If you are looking to buy your own home you need to get a mortgage to finance the deal. A mortgage is a type of loan that is usually spread over 25 years, although shorter and longer term mortgages are available. This loan then is repaid in monthly instalments which are arranged by whoever a person takes their mortgage out with. The house is yours as soon as you have your mortgage in place, however once your final instalment has been paid you will then get the deeds to your house. This means that you legally own the house outright.

Why are there so many types of mortgages?

There are various types of mortgages such as repayment, interest only, endowments and bad credit mortgages. Depending on your circumstances you will get a mortgage to suit yourself. There is no right or wrong mortgage and what is good for one person is bad for another, it is down to the individual to decide what is the best for them.

Different types of mortgages

There are many different kinds of mortgages and here are some of them on the market..

• 100% mortgage – these are mortgages where the lender gives the borrower the entire amount of the house, this is good if you have no money to put down. As well as 100% mortgages there are also 75%, 80% and 90% ones. The plus points of a 100% mortgage is that you don’t need to provide a deposit, however as you are borrowing 100% of the cost of the house you may find that the repayment term is longer and the payments are higher.

• Capped – this is where the monthly mortgage amount is capped at a certain price. If the interest goes above this price you will still only pay the capped amount, and if it falls you pay less. A capped mortgage is a very good if you want to know exactly how much you will be paying for your mortgage each month. However, there are not many lenders who will offer this type of mortgage.

• Endowment mortgages – this type of mortgage pays off the interest on the loan and is supposed to pay out a lump sum at the end of the loan period which should be enough to pay off the outstanding balance. Unfortunately this rarely happens and as a result these are not very popular today.

• Repayment mortgages – these are one of the most popular kinds of mortgage. With a repayment mortgage the interest and capital is paid off with a person’s monthly mortgage payments. This means that at the end of the loan the house being mortgaged will belong to the person who has taken out the mortgage. Repayment mortgages are ideal if you want to pay off your mortgage in full within a given timescale. Payments on these however can be higher than other mortgages.

• Bad credit, or sub prime mortgages – if a person has a bad credit score such mortgages may be their only option. Sub prime mortgages are becoming more commonplace today as the number of people with a bad credit score is increasing. Plus points for bad credit or sub prime mortgages are that they enable people who may have had a difficult time financially get on the property ladder. As a result though the payments will be high and so will the interest rate as borrowers are classed as being a risk. If the payments are made on time it is possible after a while to switch to a better mortgage.

With so many types of mortgages available it really is wise to do as much research into them as possible before opting for any particular one.

A Quick Guide to Flexible, Offset and Other Specialist Mortgages

Posted by admin in MortgageSep 2nd, 2010 | No Comments

The choice and diversity of mortgage packages being offered to borrowers has increased dramatically in recent years to cater for the modern mortgage market. Most high street lenders offer some find of flexible or offset mortgage in their product range. Below is a quick guide to some of the main types:

Flexible Mortgages

Essentially a flexible mortgage is a secured loan that can be repaid in varying amounts. The interest is calculated on the fluctuations of the outstanding balance and while a flexible mortgage has a higher interest rate, the ability to make overpayments and lump sum payments means the mortgage can be paid off earlier.

Offset Mortgages

Offset mortgages basically use the interest from your savings account against the interest charged on your mortgage. Usually your mortgage provider will combine your mortgage and savings account into a single account. Each month, the amount you owe on your mortgage is reduced by the amount you have in your account, before working out the interest due on the mortgage.

Current Account Mortgages

Current account mortgages have been around for well over 10 years in the UK and are a type of flexible mortgage. Current account mortgages work by combining your mortgage and current account into a single account, usually with the same financial institution. The balance is calculated daily and the home owner only pays interest on the balance. Any saved income you have in your current account at the end of the month is automatically deducted from the mortgage debt you owe.

Flexible Loans

A loan for building a home is known as a ‘self build mortgage,’ and there are several different types of self build mortgages currently available in the market place. Recently, home buyers who want to build a property for themselves or for investment purposes opted for flexible loans. A self build mortgage is different from a traditional mortgage. The money is released in stages and to acquire a self build mortgage, the providers will want to see plans, timescales and the end-value of the property as well as enthusiasm for the project.

Self Cert Offset Mortgage

A self cert offset mortgage combines the benefit of declaring your own income with the freedom of an offset mortgage that allows over payments, lump sum payments, under payments, and payment holidays.

Offset Tracker Mortgages

Offset tracker mortgages are relatively new in the market place. They combine the benefits of an interest rate that tracks the Bank of England’s base lending rate, with the ability to ‘offset’ the interest earned on savings and current account against the interest charged on the mortgage.

Flexible Tracker Mortgages

Flexible tracker mortgages offer the benefits of two types of mortgages rolled into one. The mortgage not only offers financial control due to different repayment options, the mortgage interest rates tracks the Bank of England Base Rate.

Cheque Book Mortgage

A cheque book mortgage main feature is that it is designed to be user friendly. All your savings, debts and mortgage are rolled into one account, with the same financial institution, for easy management of your finances, and the mortgage is flexible, which is an attractive feature for many borrowers.

Discount Offset Mortgage

A discount offset mortgage is an offset mortgage with a discount on the standard variable rate of interest for a set amount of time.

Conclusion

With such a wide array of mortgage products available it’s important you shop around and seek the advice of an independent mortgage broker. Understand the features, benefits and negative aspects of each option so that you are equipped with the knowledge to select the package that best suits your specific personal circumstances.

6 Credit Repair Steps to Close More Mortgage and Mortgage Refinancing Deals for Your Clients

Posted by admin in MortgageSep 1st, 2010 | No Comments

Even people that know virtually nothing about finance and Wall Street are talking about the serious impact the subprime mortgage catastrophe has had on our economy. While the incredible number of failed subprime mortgages may have started the economic tumble, the continued financial problems and people’s inability to obtain a mortgage or mortgage refinancing of their home is exacerbated by poor credit scores.

To make matters worse, with the horrifying increase in foreclosures across the country, the mortgage, and mortgage refinancing problem for mortgage brokers is just going to grow.

When an individual’s credit score goes down, so does their choices for mortgages and mortgage refinancing options. Also, tell your clients to beware of untrustworthy credit repair companies and other scams in the marketplace today promising to “repair bad credit”.

Good credit is an absolute must for a loan originator to be able to put through most reasonable mortgage and mortgage refinancing deals, and with the problem not going away anytime soon, it behooves the loan originator the help their clients with ideas for the credit repair process of improving their credit scores.

This type of credit repair advice is the way that a mortgage broker can turn a potential client into the “real deal” and close their mortgage or mortgage refinancing deal. Also, if done properly, more often than not, the process can take place in a relatively short time span.

Step 1

Realize that rebuilding an individual’s credit score is an ongoing process and requires thoughtful preparation to successfully rebuild his or her credit to an acceptable level to obtain a well structured mortgage or mortgage refinancing product.

Encourage your client to be conservative on any new monthly credit score building budget that they will be able to make the payments and never be late on anything. Caution your client not to structure a program with monthly payments that they cannot comfortably make, because being late on any payments will further reduce their credit score and may make a new mortgage or mortgage refinancing of their home impossible.

If there are extenuating circumstances such as divorce, insist that they review their credit program with their attorney before agreeing to anything.

Step 2

If your client’s credit card companies have not reported or have understated their credit limits on their credit cards, it can hurt their credit score. For this reason, have your client determine if their credit card companies are understating their credit limits on their cards. Often credit limits are reported as lower than they actually are and frequently may not be reported whatsoever.

While we are on the subject of credit cards, make sure that your client has a minimum of three credit cards or other sort of revolving credit. Many people mistakenly believe that if they have credit cards it actually hurts their credit score and because of this, they cancel some or all of their cards. Their credit score can be more harmed and the possibilities of not obtaining new mortgage refinancing on their home or a new mortgage is greater by simply canceling existing credit cards.

Furthermore, if they do not have any credit cards, have them obtain at least three. If they have trouble with getting typical cards like Visa, Master Card, Amex etc, tell them to try a local department store, or a Home Depot or Lowes. Quite often these types of stores are more lenient in granting revolving charge accounts.

Step 3

Make sure that your client reduces any outstanding credit card balances to under 30% of their credit limit on each of the individual cards. Some people mistakenly think that the 30% figure is based on their overall revolving credit card balance, but this is false. A single card over the 30% balance can nullify the benefit of the effort of having the revolving credit cards in the first place.

If your client has one card over the limit and several others under the limit, if they are limited on cash and cannot pay down the high card, have them see it they can transfer some of the higher card’s balance to the lower cards. Have them check first before doing this to see if this type of transfer creates a higher interest rate or any other adverse effects on their credit.

Thus, if an individual has 3 credit cards with a total of $12,000 credit, but two of them have a $2,000 limit and the other has an $8,000 limit, make sure that they keep the $2,000 limit cards under $600 each and the $8,000 card to under $2,400.

Implementing this simple process will cause credit scores to rise, along with the possibility of obtaining that desired mortgage or mortgage refinancing program.

Step 4

When helping your client to raise their credit scores, make it a point to frequently pull their credit reports for them to determine their status as well as any errors on their reports.

Errors are so common on credit reports that over 75% of all credit reports have a minimum of one or more mistakes on them. Just by their being diligent and carefully insuring that any incorrect reporting information is removed, their credit score will quite often go up incredibly. This is certainly one of the easiest and most effective things that your client can do immediately to improve their score dramatically along with the possibility of them obtaining a new mortgage or mortgage refinancing of their existing mortgage.

Step 5

If your client’s credit has been damaged to the point of having been sent to a collection agency, they probably will not want to immediately pay off the credit card debt. As incredible as it may seem, this situation can actually be more harmful than having credit card debt sent to a collection agency on their credit record.

When one of your clients have been sent to a credit collection agency, the effect on their credit is low after about two years and is virtually wiped out after four years.

Insure that your client receives a written promise from the collection agency for a “letter of deletion” before they do anything toward satisfying the old credit card debt, because without a letter of deletion, they may hurt their credit problem more than help it. Stress to your client that they should not pay anything on the bill until they receive in writing the agreement for the letter of deletion from the collection agency.

Most people trying to improve their credit to obtain a mortgage or mortgage refinancing on their home think that they need to pay off everything as quickly as possible, but this is one case that paying before you obtain the proper documents protecting your situation can actually seriously hurt your credit. People have in reality completely paid off a debt or negotiated a settlement to learn to their dismay that they now have no leverage to get the collection agency to send the letter of deletion.

Step 6

Finally, if your client does not make paid installments on a car or a boat, have them take out some sort of installment loan with someone like Best Buy or Sears on some needed appliance or with Staples or Office Depot for some business equipment. Credit bureaus look carefully not only at the fact that you have credit, but also the blend of the types of credit that you have. Having just credit cards only is not as advantageous as having credit cards and some sort of installment payment loan.

Be sure that your client watches out for the rates on their new installment loan. Some of these rates can be “out of the roof” and create undo stress on the monthly budget.

Also, unlike the credit cards which you should keep in perpetuity, obviously, revolving credit comes to some point at which the loan is satisfied and the monthly payment ceases. Your client should not buy just for the sake of buying, but if they are trying to improve their credit scores, planning a purchase that they might have paid in full with cash, would be better if they put a substantial amount down in cash and then financed the balance on an installment loan. Financing a smaller amount can actually lower loan interest payments thus lowering the monthly payment; all of which makes your client more likely to improve their credit score and get a new mortgage or mortgage refinancing of their home.