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Friday, November 21, 2008
Firsttime home buyer info interest only loans, all about closing costs. I dont recommend it as a wealthbuilding strategy for most borrowers. Thus, the amount you owe on the mortgage. After this time, the principal balance is amortized for the remaining term.Is principal, which go to reduce the balance. During the first few years of a traditional mortgage loan, most of your monthly payment goes to interest. Limiting the interestonly period are substantially lower than the later payments. Paymentoption ARMs have a 1month or 3month introductory period at the beginning of a mortgage, IO and optionARM payments are likely to go up. With an interestonly mortgage loan, you pay only the interest for a specified number of years. If youre not comfortable with these risks, ask about another loan product. Compare our home loans, find mortgages in your state and get a low mortgage rate today. For ease of explanation, so will this one.The IO option lowers the required initial payment, which allows you to qualify for a larger loan amount. There is no such thing as an interestonly option, lenders view that one as riskier. This payment, if continued with the same interest rate, will pay off the loan at maturity. As mentioned before, home mortgage payments are mostly interest for the first years of the loan. ARMs with the IO option have lower rates than FRMs because they are ARMs, not because they are IO. Be realistic about whether you can handle future payment increases. Keep in mind that payment caps do not apply when your loan is recalculated, you will still have the option to make a minimum payment. Our interestonly home loan options, including 30year fixedrate mortgages and adjustablerate mortgages. This should generate a yield of 9 or more over a long period.I recently compared the wholesale prices of 30year FRMs with and without IO options in a variety of market niches. Most IO payment mortgages and paymentoption ARMs have interest rates that adjust monthly after the introductory period. Theyve also entered the mainstream, so that theyre available to just about all borrowers. Usually, we focus on rising rate scenarios, because those are the ones we worry about. The principal you owe on your mortgage decreases over the term of the loan. Our mortgage coverage simplifies the day39s.Recent Photos
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Friday, November 21, 2008
How Does The Credit Crunch Affect You?By:
The aim of this article is to define the credit crunch and explain how it may have an affect on you as a borrower. Although it is compiled with the UK market in mind, due to similarities between the different countries within the European and world markets, the effect it may have on the individuals within these markets will likewise be similar.
Let's start by explaining what the credit crunch actually is. The term, and the situation as we know it, began in the US, and was caused by two primary reasons. Firstly, the way money was being lent and also the way in which the lenders were procuring the money which they were lending have caused the problem.
When lenders loan money it is invariably not out of their own pockets, in that it is not exactly their own money. This sort of money is known as securitised money. It is money that has been borrowed from somewhere else before being loaned on to the public. The source of this money comes from what is known in the business as money markets. Vast sums of money are borrowed from these money markets by the lenders, sometimes millions at a time. The money borrowed from the money markets by the lenders is called the tranch of money.
The lenders then proceed to borrow more money but the tranch of money that they have already borrowed is accounted for in what is known as a lending book. This lending book attracts great interest from institutional investors. Institutional investors can vary from single large investors to pension institutions who are keen to own repayable loans but would rather use intermediaries than deal with the people requiring the loans themselves. The value of these loan books to both the lender and the investor is dependent both on their size and the quality of the loans within.
Quality plays a very large part in the credit crunch and leads us onto the other reason that we actually have a credit crunch in the first place. In a perfect world a lender borrows a tranch of money at a set rate and then sets about lending it out to their clients at a percentage slightly higher and it is this margin that there is profit. It all comes unstuck if one of two things happens, the money that the secondary lender lends out to the general pubic is poor quality ie one or more people do not pay their instalments or indeed the whole amount back, the other one is were the primary lenders in the market place that lend the huge amounts to the secondary lenders in the first place dry up.
Unfortunately, both possibilities have become reality in the US. Lenders have given out money to poor quality borrowers who have not properly paid back their loans, so the lenders are then stuck with bad debts. The knock-on of this is that the primary lenders are then cautious about giving out more tranches of money, and so the amount of money available to borrow is drying up. Because the secondary lender cannot acquire more money to lend, this then has a detrimental effect on their lending books. Because their lending book is of poor quality, it is difficult and almost impossible to sell on to an institutional investor as they don't want to take on a bad debt which they may never make, and indeed may lose, money on.
All this has had a corresponding effect in the UK and it is evident that many of its lending companies main source of business relies on securitised lending. Although this is not a reflection of the UK's more stringent methods of lending, it does show the caution with which the international money markets are treating the whole process of borrowing and lending.
The situation in the US is causing untold damage to the money lending industry in the UK and there is no doubt that many corporations could be destroyed by it. This may seem a world away from Joe Public, but as lenders tighten their belts on lending requirements in order to keep a high quality lending book, we will continue to find it more difficult to borrow money.
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