confused about mortgage

[lovegem]

I am a little confused about the different type of mortgages. 5, 10 years, 30 years..fix, arm..etc. We just need something simple. Could the PS'ers give me a pointer before we apply online for pre-approval? From reading with some online Q and A, I know many RE agents would prefer to talk to people who are pre-approved instead of someone who has no idea what kind of mortgage to get.

We will have a down payment of 20%. So here is what I want to ask: Is there any plans out there that allows me pay off my house anytime during the mortgage term? For example, if I sign up for a 10 years mortgage, when we save enough money in our 3rd year, we pay off the rest of the principals, and they don't charge the 7 years interest. What kind of mortgage would allow us to do that? Should we be getting the fixed or the ARM? Thanks for your help.

 

[brooklyngirl]

Nowadays you can pay off most mortgages in full without penalty, at any time, whereas when the housing market was booming, there were penalties for early repayment. It really depends on your particular loan, and the lender''s terms for the loan. Whatever is the case, if you pay off your principal early, the bank cannot charge you interest on money you don''t owe.

As for ARMs, they make a lot of sense if you plan to sell your house before the rate changes. So if you plan to live in your house less than, say, 7 years, it makes sense to get a 7 year ARM if the introductory rate is less than a conventional mortgage.

 

[Beacon]

Right now fixed rates are pretty low and fixed mortgage is usually less risky than ARM, so I recommend a fixed rate loan.

The term of the loan, 10,15,30 years somewhat influences your interest rate. A 15 year loan carries lower rate than a 30. However, you will see a much higher payment with a 15 year loan than a 30, so if you are pushing the top of what you can afford, the 30 will have lower payments for you.

Most banks allow you to prepay your loan without penalty. But be sure this is what you are getting. Some banks, like Wells Fargo, have programs where you can make different payment plans to pay your loan off quicker if you want. (Like pay every 2 weeks, etc). If you want to do this make sure you sign up for a plan and don''t just start splitting up your mortgage payment without having the bank understand what you are doing. I have seen people do this and totally mess up their credit!

Yes, do a pre approval before you buy a house. It will save you a lot of time and you will be in a better position to negotiate since you will be a stronger buyer.

 

[Dancing Fire]

Date: 6/24/2009 1:44:45 AM
Author: Beacon
Right now fixed rates are pretty low and fixed mortgage is usually less risky than ARM, so I recommend a fixed rate loan.

The term of the loan, 10,15,30 years somewhat influences your interest rate. A 15 year loan carries lower rate than a 30. However, you will see a much higher payment with a 15 year loan than a 30, so if you are pushing the top of what you can afford, the 30 will have lower payments for you.

Most banks allow you to prepay your loan without penalty. But be sure this is what you are getting. Some banks, like Wells Fargo, have programs where you can make different payment plans to pay your loan off quicker if you want. (Like pay every 2 weeks, etc). If you want to do this make sure you sign up for a plan and don''t just start splitting up your mortgage payment without having the bank understand what you are doing. I have seen people do this and totally mess up their credit!

Yes, do a pre approval before you buy a house. It will save you a lot of time and you will be in a better position to negotiate since you will be a stronger buyer.

if you can afford it do a 15 yr fixed

or make 1 extra payment every year.

 

[D&T]

Here is jus the basic understaning, If you are comfortable to do the higher payment 15 yr term then do the fixed pay if off sooner (but your payment is going to be huge compare to the rest), however, if you only are able to pay a certain amount, then do the 30 years, and pay a couple extra per year or one extra payments per quarter. this will significantly reduce your terms and your overall payment, just make sure there is no limitation to how many extra payments you can make. If you go ARM which is usually less in monthly payment until it reset then you can go that route, take advantage of the lower initial interest, pay off other bills that have higher interest, then before it reset, do a REFINANCE to a fixed rate (this usually have a prepayment penalty period and you usually can''t refi during the first term)
A couple of reason why real estate agents like to deal with those who are already Pre-approved, is because they are serious about buying a house, and know their price range so when it is time to make an offer, they already have a pre approval letter to submit to the seller so the seller doesn''t have to wait to see if you will or will not get approved to buy their house. It saves a lot of time, and the seller doesn''t feel like you''re just putting their house on hold status until they know for sure you are ready / willing/ and able to buy.

Here is a spreadsheet that will give you a rough guestimate of how much monthly mortgage will cost you, just play with the interest rate and / or term, and the dollar amount you think you will be borrowing... also if you know how much home insurance will cost as well as property taxes, add those into the bottom cell. This is just for fixed rate, but you can at least guage at how much it will cost in overall scheme of things. hope this some what helps. I''ve done this with my own mortgage and my sisters, and it came to about $75 under ..

 

[lovegem]

Thanks a lot Brooklyngirl, Beacon, DF and D&T. Is it true that you can shop for cheaper rate? For example, if bank A pre-approved a fix rate of 6% for 15 years, we show that to bank B, they may consider giving us 5.5% for 15 years?

 

[D&T]

Date: 6/24/2009 5:12:25 PM
Author: lovegem
Thanks a lot Brooklyngirl, Beacon, DF and D&T. Is it true that you can shop for cheaper rate? For example, if bank A pre-approved a fix rate of 6% for 15 years, we show that to bank B, they may consider giving us 5.5% for 15 years?

Going through a mortgage broker, will help you find the best possible rate instead of going to one bank after bank after banks and credit reports being pulled a number of times, versus going through a mortgage broker will shop for you, they have many lenders they can work with and they only need to pull your credit report once.

 

[lovegem]

D&T, that''s a great idea. Do I contact companies like lending trees and Ditech for a mortgage broker?

 

[D&T]

Date: 6/24/2009 6:53:49 PM
Author: lovegem
D&T, that's a great idea. Do I contact companies like lending trees and Ditech for a mortgage broker?

I just talked with my broker friend, and he says don't go with the larger firm, they have switched out or have done some stuff at closing that hikes the rates on a few occasions as he have seen. So your best bet is to go onto the BBB if you don't know of anyone or a trusted broker. This way you can find info about the Mortgage brokers and other peoples experience, and also get quotes from three different mortgage broker, independent of Banks, because they're bottom line is to get you as a client and will ulitmately cut back on their commission in order to save you just a little bit more than the other guy or going directly to the banks and have you as their clients. He also says that the banks usually will have higher cost than going through brokers. He's told me the inside scoop on how they get paid and shopping around through different mortgage broker will help your bottom line and get you the best rate... There's quite a number of ways that some mortgage brokers will help their clients at closing cost to reduce the rates.

ETA:you have 14 days grace period on pulling your credit but it has to be within the same industry and it will only count against you once even if you get it pulled four or five times. just remember to shop around and decide on who you want to work with in the 14 days period of your first credit check.

 

[Efe]

I, personally, am not comfortable with anything but a fixed rate mortgage. If I could afford a 15 year, I would still get a 30 year and make payments as if it was a 15 year. That way, if anything happens financially, you are not obligated to make the bigger payment. I have used internetmortgage.com with a great outcome. They don''t charge an origination fee or points. Right now they have a 5.5% 30 year fixed rate. Application was done online and everythig else by FedEx. Hope this helps and good luck.