Getting a Fixed Rate Mortgage Payment to Buy Property

Mortgage loans is one of the ways by which people try to purchase a property without shelling out a one time significant amount of money. Investing on property is a serious matter. It involves a big amount of money and at the same time committing to pay for it for a reasonable period of time. Mortgage loans have been very helpful in letting people achieve this dream of owning a property.

As for mortgage loans, there are several types: fixed rate mortgage payment, interest only mortgage payment, graduated payment mortgage, variable rate, negative amortization mortgage and balloon payment mortgage. There are advantages and disadvantages depending on the type of mortgage loan chosen.

Property buyers who prefer non-ballooning principal and interest rates at the end of the loan term payment, they can choose the fixed rate mortgage scheme. With this type of mortgage loan, the current interest rate stays the same all throughout the term of the loan. The borrower need not worry about loan payments that vary, which decreases with interest rate movements. Usually a come on for buyers, fixed rate mortgage payments are easily understood without the complications of calculating other variables that need to be considered with other types of mortgage loans. 

A classic type of mortgage loan, the fixed rate mortgage payment usually has a term of 15 to 30 years. Both shorter and longer terms are being made available.  The main difference with fixed rate mortgage is the interest rate. This includes as well the three values needed in order to come up with the right monthly computation for this type of mortgage loan, namely, the compounding frequency, amount of loan, and term of the mortgage. 

What is the catch on this type of mortgage loan? The fixed rate will definitely have a higher interest rate compared to those that will have to be paid in a shorter period of time. This, however, does not automatically make it a bad option for borrowers though. It only means that the borrower has taken to himself the risk of the interest rate on a fixed rate mortgage.

Nonetheless, under the terms of fixed rate mortgage payments, the borrower is protected from sudden and significant increases of interest rates. This is particularly a lifesaver in times when the market is volatile. So for those who foresee that their income or profits will go unchanged for a certain number of years, the fixed rate mortgage payment is advisable.

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How to Use an Interest Rate Calculator

The interest rate calculator is an interesting and helpful feature of many Websites today. It is particularly installed as a free and useable application of online mortgage and other loan sites. A potential borrower is now spared from the rudiments and stress of having to compute interest rate payments of particular loan products. But what is it actually and how useful could it get?

This type of calculator has become a popular and regular fixture of different Websites owned and operated by lenders. It is programmed to determine how much payment a borrower would shoulder as amortization to a loan given the current interest rates imposed and the intended principal. The borrower is offered the convenience of not having to take out the traditional physical calculator to compute the mathematical product of the principal, interest, and term.

The formula could be simple. However, there are several virtual calculators that are able to compute more complicated queries involving more factors. The nature of the Website owner could be an indication of the type of mathematical formula used. So how does one use the tool?

To use an interest rate calculator, simply fill up the blank fields provided in the page. Put the interest rate applied to the loan and the intended principal or loan amount. Click ‘compute’ or ‘calculate.’ In an instant, designated blank fields would bear numerical data. Those would pertain to the total loan amount and the total interest payment covering the entire loan maturity or duration. To put different interest and principal figures, simply click ‘reset.’

The calculator is usually posted in Websites of mortgage and auto lenders. Most banks’ online sites also feature the tool. Some other Websites opt to install the applications especially if their content is about loans and financial analyses. What’s more? Such calculators are readily useful 24-7 and are available for free.

A borrower who wants to determine how much his monthly amortization or payment to a loan could find the interest rate calculator a very useful and reliable tool. He could put different amounts of principal to make actual and accurate comparison. This way, anyone could instantly and easily find out just how much he should borrow from a loan provider for him not to compromise his monthly income and expenses. Interest rates could also be subject to change. Some calculators instantly apply interest rates while others require the user to provide such information.

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How Compound Interest Rates Work and Calculate

Loans and interest rates are directly related to each other. It is because when a person is looking on taking out a loan, he will always consider the rate of interest that will be applied on the loan. If the loan concerns merchandise, interests serve as the loan’s purchase price. For sure, a person will consider a much cheaper purchase price between two the same merchandise and will only purchase merchandise that he knows he can afford.

However, in contrast to a specific purchase price, interests are normally expressed in the form of a percentage known as interest rates. As such the amount of the interest is normally not obvious at first glance. Computation is needed to derive the specific dollar amount of the interest. In this regard, an understanding on how interests are computed can also help a prospective borrower in making a decision whether it will be smart to take out a loan or not.

There are two types of computing an interest. The first type is called the simple interest. From the term itself, this computation is as simple as multiplying the principal amount by the interest rate for the period and then by the number of periods. This method of computation only applies the interest rate on the principal amount. It does not consider applying the rate to the accumulated interests that have been generated from the past. Normally this method of computation is only applied for loans with short periods, usually less than a year.

The other type of interest rate computation is called the compound interest rate. It is a more complicated method of computation because it involves a series of simple interest computation to get the interest of the loan. This is because aside from the principal amount, the interest rates that have been accumulated in the past are also included in the computation of the interest.

Thus, interests that are accumulated before also earn themselves interests and this is added to the interest earned from the principal amount. Although, the rate is usually expressed in annual terms, computation may still vary either quarterly, semi-annually or annually. Usually, compound interest rates are applied to loans with longer duration that exceeds a year. And duration of a loan is typically longer than one year. As such, compound interest rates are the method of computation that is mostly applied to loans.
Compound interest rates formula can even be applied in getting the present and future values of an amount. As such, this method of computation is mostly used than simple interest.

How and Why To Get Out of Your Adjustable Rate Mortgage

Despite the mess that is the housing market, one good thing that came out of it all was low interest rates. Perhaps it can be the silver lining on you personal financial rain cloud. You could be stuck with an investment property you’d planned on flipping or just trying to hold on to your home. Here are the how’s and why’s.

          We all know that interest rates are at historic lows, why not take advantage of them and refinance.  Your interest rate may be low now, but the rates won’t stay down forever. Your mortgage payment could increase with the next rate hike. You can make sure that your mortgage payment stays the same for the life of the loan by applying for a fixed rate 30 year loan. This could make your payment rise. Is the stability of the mortgage payment worth the extra money?

          Your financial institution would probably be happy to help you learn about options to make you mortgage payment more affordable. It’s in their best interest that you’re able to make the payment, so you may find your lenders to be very helpful. They’re pros that know all the tools you’ll need to navigate the options. And of your credit is good, you may find it easy to refinance.

          If your mortgage balance is more than your home’s value, you could get help from the Federal Housing Administration. They can help you find alternatives for refinancing. The program’s lenders forgive any mortgage debt over 90% of your home’s value. Which can qualify you for an FHA loan.

          Facing a larger mortgage payment when times are tight can be very scary. Luckily, there are programs through the government and lenders that can help you keep your mortgage affordable. It’s really just a matter of researching and talking to your lender.

What caused the Double Dip in Real Estate?

There’s no question that the collapse of the real estate bubble is to blame for the collapse of the economy. Now, there is talk of a real estate double dip. What happened? Was the market getting better? How much more low can it go? It’s confusing stuff, but there are some fairly easy to understand contributing factors.

Remember the tax credit? The federal government was offering an $8000 tax credit to first time homebuyers and $6500 to repeat homebuyers. It was enacted, extended, and then, allowed to expire in May 2010. The tax credit helped to boost home sales while it was in effect. So when the offer expired, so went the boost.

Though mortgage interest rates are at historic lows, they may not stay that way for too much longer. To reverse the old adage: what goes down must go up. Reducing the mortgage rate may have helped lift the real estate market a little. However, as those rates rise, more and more people will find home ownership unaffordable, especially considering that unemployment is still very high. Also, irrespective of interest rates, lenders have tightened their lending policies, making it hard for even employed, responsible borrowers to get a loan.

Unemployment may actually be the crux of the matter. Without jobs, Americans can’t buy homes. With unemployment at multi-decade lows, the possibility of being able to afford a home grows slimmer each day.

Though the tax credit and low rates can help, houses can’t sell if people can’t afford to buy them. The principles of supply and demand will ultimately rule the market despite our best efforts. If there aren’t any buyers, home prices will drop to a point where people can afford to buy them and with the current rate of unemployment, that could be a long way.

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Interest is Calculated the Same on All Loans

Don’t get different types of loans confused. Car loans, mortgages, personal loans and credit cards are all the exact same type of loan. You borrow money and you pay a certain interest rate based on the collateral you give.

The first type of loan everyone gets in their life time is probably a credit card. A credit card company gives you a loan amount that you can spend at your leisure of say $5000. These loans are typically very high interest rates because they have nothing to sell of yours if you don’t pay the loan back. Usually anywhere from 15-30% based on your credit history.

The minimum payment will usually drag the credit card loan over about 30 years. What you want to do is use my mortgage calculator and plug in the amount you owe and the interest rate on the card to see what your minimum payment is over 5 years to pay that instead.

$5000 – Min Payment $110 

$5,000 x .25 (25%) = 1250 / 12 months  = $104/mo interest – $6/mo principal

Total Interest Paid – $32,500

The next type of loan with a high interest rate is a personal loan which I like much better. The interest rate is commonly around 10-13% in this 2011 economy and it’s an actual loan rather than a line of credit like a credit card. You’ll ask for a certain amount such as $5000 to start a small business or an online business for example.

Mortgage lenders will typically push this loan out over 5 years at 13% which is $113 per month for $5000. That’s not too bad and the good thing about it is you can’t continuously add to it like a credit card putting yourself more and more in debt. These types of loans will really boost your credit score if you pay the monthly payment on time.

$5,000 x .13 (13%) = 650 /12 months = $54/mo interest – $59/mo principal

Total Interest Paid – $1,825

Next is a car payment that you probably understand the most. The interest rate is usually very low in the 3-6% range with a good credit score because there’s collateral for the banks money. If your car is $5,000 and you get the loan over 5 years at 5% the mortgage calculator says it will be $193 per month. 

$5,000 x .05 (5%) = $500 / 12 months = $42 Interest – $151 Principal

Total Interest Paid – $661

A mortgage loan, like a car loan, has collateral as well. So they figure out the worth of the home to be sure they can get back the amount they’re loaning you. Current mortgage interest rates are in the 4-6% range right now and usually get pushed out over 30 years at a fixed rate. So if you got a loan for $100,000 at 5% over 30 years your mortgage payment ($536) would look like this:

$100,000 x .05 (5%) = 5000 / 12 months = $417 interest and $119 principal

Total Interest Paid – $93,200

Each type of loan has an amortization schedule because each time you make a monthly payment the total amount you owe goes down by the amount of principal. That means the second month will have less interest. The last example in bold above shows that $119 went to principal the first month lowering $100,000 to $99,881:

$99,881 x .05 = 4994 / 12 months = $416 interest – $120 principal

Then you add $500 to principal only:

$99,381 x .05 = 4,969 / 12 months = $414 interest – $122 principal

The same works for you car loan and personal loan. When you pay down part of the prinicpal you no longer owe interest on that money. The bank only collects interest on the money you have of theirs. That means you can use the same free mortgage calculator for any type of monthly payment with interest, not just a mortgage payment.

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Ways To Lower Your Mortgage Payment

It seems like during and after the housing crisis, those looking to buy were in the best position. Mortgage rates lowered, the government offered incentives and builders were practically paying shoppers to buy their homes. What about families already in a home that want to take advantage of the low interest rates? Well, luckily there are easy and hard ways to lower your mortgage payment. 

          A popular way to lower your mortgage payment is to refinance. This option may not be right for everyone. But may be ideal if your financial situation has improved. If you’ve paid off a large balance on a credit card or your income has increased then perhaps you’ll garner a better interest rate than you had before. This method may work especially well if you have a lump payment that you can apply toward the principal.

          You could also extend the term of the loan. Extending the term five years on a 15-year loan can save you over $100 on the monthly payment. However, by increasing the length of the loan, you pay and extra $20,000 in interest.

          If you don’t want to stay in your current home, there are also options.  You could downsize to a smaller home with less mortgage. One interesting option is to buy and live in a multi-unit rental property.

You can live in one unit and put the rent you collect from other units toward the mortgage. If this type of situation is right, you could avoid putting any money toward the mortgage at all. But you will have to deal with tenants.      

          What are you waiting for? Interest rates are still at historic lows.

Take advantage of the situation, talk to your financial institution about ways you can lower your mortgage payment.

Interest Rates are Still Low – Make Sure You Have a Current Rate

Though federal incentives to purchase a new home have run out, there are still a lot of great deals to be found in the housing market. Before you go shopping, remember that current interest rates are still low. Make sure you have a current rate by using these methods:
Shop around. A mortgage is just another product. Most of the time, we look for the best deal on groceries, why not do the same for your mortgage? Just like saving pennies on a pound of ground beef, you can save thousands of dollars over the course of the loan. You can begin at your financial institution and other local banks or shop online and compare standards and rates for institutions all over the country.
Fix your credit. This one may take a while but addressing your credit and debt can make you an ideal candidate for an excellent rate.
It can be as easy as ordering a free credit report and resolving issues. You also win by paying of consumer debt, especially if your debt-to-income ratio is close to 50%. Paying down a credit card will decrease your debt to income ratio, making you more attractive as a borrower, so does paying your bills on time. It seems like a no-brainer, but a lender will take a risk on someone who can’t pay a smaller bill on time.
If you already own a home, you can refinance to get a better interest rate. Refinancing to get a better rate could lower your mortgage payment significantly.
If you’re ready for home ownership, it may still be a good time to buy your dream home. Tax incentives may have expired, but good interest rates can still be had if you do your research and keep and eye on your credit.

New Mortgage Calculator Blog

I created this new Mortgage Calculator Blog to speak my mind about mortgages, calculating interest and how much you can borrow from the bank. My plan is to give tips and standard solutions to common mortgage questions. What is your borrowing power? What is you debt to income ratio? Do you know how to use a mortgage calculator?

Understanding interest rates and how to use a mortgage calculator can help you save thousands of dollars during the buying process. Buying a home is a known for being a great investment and better alternative to renting an apartment. Maybe you can actually afford a home by making a few simple changes to your finances that your mortgage specialist may have overlooked.

Keep updated with my blog and you will understand your monthly mortgage payment much better. It’s important to know how much principal and interest are in each mortgage payment you make. I like to think of adding principal payments as a retirement plan because the savings are so large. Money you save is money you don’t have to pay in the future.

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