Understanding Your Mortgage Options

There are two types of mortgage options, and don't let anyone coax you into signing anything that departs from these two types: fixed rate and adjustable rate. If you get a fixed-rate mortgage, your monthly payments don't fluctuate, and you have peace of mind knowing you wouldn't have to fork over more money in the long term if interest rates take a turn for the worst. The good thing about an adjustable-rate mortgage (ARM) is that you get a low teaser rate, but unfortunately that rate could change in the future if interest rates go up thanks to Federal Reserve's actions or a booming economy. Understanding your mortgage options is important, but make sure you talk to the right people, use an amortization table, and find proper ways to get adequate coverage on your house, especially private mortgage insurance, or PMI.

How Can Mortgage Services Help Me Get Good Options?

Within a bank or other financial institution, Mortgage Services is the department that handles everything from mortgage application to loan closing and property appraisal. Personnel who work in that department include underwriters, mortgage advisers, and customer service representatives, all of whom are good people to know and talk to as you embark on the new-mortgage bandwagon.

For example, reaching out to your mortgage adviser can help you understand options available to someone with your financial situation. The adviser may tell you that your credit score and financial status as well as the overall state of the economy position you well for an ARM mortgage, something you would not have figured out on your own.

Understanding Your Mortgage Options

How Do I Use an Amortization Schedule?

An amortization schedule calculator tells you how much money you would need to dole out each month to meet the contractual conditions you signed when buying your house. Also known as a mortgage loan calculator, a mortgage loan calculator takes into account your mortgage option, making sure the rate type in your loan agreement fluctuates in accordance with contractual stipulations as would be the case, for example, for an ARM option.

Using an amortization schedule calculator is as simple as figuring out how the remote control on your new, hi-fi plasma TV functions. You do it once, and you remember it – forever.

To determine your monthly mortgage payments, enter the following information:

  • Loan amount
  • Loan term
  • Interest rate
  • Location
  • Location
  • Start date

Also, don't forget to choose the amortization type "Show by month" rather than "Show by year" because most people are interested in monthly mortgage remittances.

In addition to online amortization schedule calculators, you can use Excel to figure out how much to fork over every month to keep your mortgage current.

Is PMI a Good Mortgage Option?

Private mortgage insurance is not a mortgage option like fixed or adjustable rate. PMI is coverage you get when your down payment in a mortgage transaction is less than 20%. Think of PMI as insurance that picks the financial slack when your loan-to-value (LTV) is more than 80%. By requesting PMI, the lending institution, in effect, is protecting itself against the risk that you might default or something adverse would cause the property to lose value.

Don't forget, though, that PMI is only valid and required when your LTV is less than 80%, so when your payments add up to 20%, call your lending institution and request that PMI premiums be discontinued.

Irrespective of the mortgage option you get, you still have to pay PMI premiums if you don't disburse at least 20% of the property's value as a down payment. For example, say you want to buy a house valued at $100,000 but only have $10,000 at the moment. You would pay PMI premiums because you are paying only 10% of the property value down. You will continue to be billed for PMI until you bring your equity in the property up to 20%, that is, $20,000.

Does the Mortgage Bankers Association Oversee My Mortgage Options?

The Mortgage Banker Association (MBA) represents the real estate finance sector at the national level, but it does not influence the decision-making process of banks and other lenders, especially when it comes to mortgage lending. The MBA performs research, among other activities, and shares results and economic trends with its member companies. This is where the MBA might be of importance to you: If you want to buy a new house and wish to learn more about your mortgage options, check the organization's forecast section. It is filled with helpful data about rate trends, the state of the overall economy, what options banks overall are providing, and relevant mortgage legislation that could affect your application.

How to Save My Home through Better Mortgage Options?

Life is not an easy trip in itself, and sometimes we all cope with economic tedium. If you are in financial straits, have a fixed-rate mortgage or ARM, and cannot make your payments, contact your lender, explain your situation, and ask about options that are available to you. Procedures vary by lender, but the U.S. Department of Housing and Urban Development suggests that you do a couple of things:

  • Request that your lender lower your monthly payments, pursuant to the Making Home Affordable (MHA) Program
  • Modify the mortgage – the lender may ask for specific paperwork, including a "financial distress" letter, showing that you indeed are going through difficult times, economically speaking.
  • Refinance the mortgage – the success of this initiative depends on how long you have been behind in your payments with the existing mortgage lender.
  • File paperwork with the Home Affordable Unemployment Program – this application suits you if you have been unemployed for several numbers. Through the program, you can have your mortgage temporarily reduced or suspended for at least one year while you seek a job.
  • Seek help through the Homeowners' Loan Program (EHLP) – only valid if you live in Pennsylvania, Connecticut, Delaware, Idaho or Maryland. Contact your state's Department of Financial Services for more information about mortgage-related financial help or reprieve.
  • Contact an organization that assists homeowners in pre-foreclosure and foreclosure initiatives. That way, you have a better understanding of all options that are available to you early on in the process.

Take-Away

Understanding your mortgage options before buying a house – condo or apartment, for that matter – is financially smart because you then can better negotiate with the lender and make informed decisions about things like rate, down payment requirement and PMI. Note that mortgage options vary, depending on where you are in the mortgage cycle. Before purchasing a house, your options are fixed rate and adjustable rate. As a homeowner, if you are experiencing economic difficulties, your mortgage options run the gamut from refinancing and modifying the loan to temporarily suspending or reducing your monthly payments.

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