Thursday, July 21, 2011

Multiple home loan choices: Weapons of mass destruction or tools, to save money?

Some encouraging signs are in the U.S. housing market: there are many more loan opportunities available today than at any time in the last two to three years. While it's way too early to say that the mortgage market in a perfect form, a new trend is now the top a positive sign, take to foot. For one thing, if there is to the real estate finance, which is more choice and better chance that the loan product to end-user needs, and that will be optimized, a good thing. Why? Short answer: because borrowers thousands of dollars on interest can save it, affordability, as well as the number of the overall level of loan defaults.

At a depth of this most recent great recession, it seemed that the only loan programs available to purchase or refinance of residential properties were standard "bread and butter" 15 or 30 years fixed mortgages. These types of home loans proclaimed they were "safe" and the best way to go for those who dared to obtain a mortgage loan at all. All other "exotic" loans products such as adjustable-rate mortgages (arms), option ARMs (30 year mortgages with interest rates for 3, 5, 7 or 10 years laid down) "Mass destruction" of Wall Street "Fat Cats" ARMs or intermediate invented and were sold by shady mortgage broker declared.

With mortgage interest rates at historically low levels can like someone with a long-term fixed-rate loan wrong? Is not the best and safest way to go? Not necessarily. The "one size fits all" model worked very well in the old Soviet Union and it works well in the mortgage world either. The problem with the offer of only long-term fixed mortgages is that not all borrowers long-term plans for your home or mortgage.

In fact, the average duration of residential property in the United States according to the National Association of Realtors is years, only about 6-8. It is even less in transient States such as California, Nevada and Florida. But that's not all. The average duration of a bond is shorter due to the possibility of refinancing. So what? The problem is, the longer the fixed term of the loan, the higher the interest. For example, the interest rate on a 30-year mortgage is fixed loans about 1.00% - 1.25% above the rate on a seven-year loan fixed.

For example, the average was home loan amount, to purchase or refinance, in San Diego, CA 2010 around $400,000. The difference in the rate of 1.125% means $4,500 per year. If the borrower reasonably can expect, that he/she tell us the property for let will hold five to seven years, is it really have no reason a 30-year fixed mortgage. It is an overkill. Understandably, no one has a crystal ball the exact length of a few years in advance know home ownership. Therefore it is recommended, your loan for security, some extra fixed term add, above all, if you not in ARM loans confidence, but it must be not 30 years!

If it is estimated that he will keep the House for five years, for example the seven-year could be fixed sufficiently. For the same reason, if one thinks that he/she moved in seven years, loans for 10 years should do the work fixed. The bottom line is simple: the more optimized the term of your loan, the more money you save in interest. And that's real money, which will remain not some imaginary savings in your pocket.

Borrowers, however, are not the only beneficiaries of such mortgages "precision shot." Creditors also benefit from this scenario, because lower interest rates mean lower monthly payments, to in turn translate into better affordability and lower default rates. Despite some public misconceptions, lenders make no more money on the intermediate poor compared to the fixed mortgages. Completely opposed. Historically speaking, long-term fixed mortgages were the most profitable for lenders, because these loans generate higher yield based 30-year term, but is very rare for the entire duration.

Finally be more home loan products always homebuyers and House- and homeowners that now have a better chance select their mortgage financing according to their individual home purchase or refinancing needs available. Borrowers should questions, their mortgage professionals about the availability of the various loan programs and ask for a detailed explanation of their professionals and consumption forecast "A mortgage hat" fits all, borrowers should the concept of optimizing their mortgages according to their individual financial needs and home ownership plans.

Robert W. Dudek is a Chief Lending Officer at statewide home loan Corporation, San Diego, CA, United States. Statewide home loan Corp. is brokerage company mortgage to purchase financing and to refinance residential and land in California and Hawaii real estate company. For more information on or by calling 1-800-507-9990.

(c) Copyright - Robert W. Dudek. All rights reserved worldwide.

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