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Thursday, June 28, 2007

How Do Prepayments Affect My Mortgage

When you obtain a mortgage from a lender, your mortgage usually allows you to prepay some or all of your mortgage in one or two different ways.

An "open" mortgage allows you to prepay any amount on your mortgage at any time. For example, if you have a $100,000.00 mortgage and you are currently making mortgage payments of $268.72 every two weeks at 5% interest, you have the option of paying an extra sum of money toward your mortgage at any time. It could be an extra $500.00 that you have saved, or it can be the entire balance owing, if you won the lottery (lucky you!).

If you have a "closed" mortgage, this means that you are more restricted in the amount of money that you can prepay on your mortgage. Depending on the terms of your specific mortgage, you can usually prepay up to 15% of the original amount of your mortgage once a year, or you can increase the amount of your mortgage payment by 15% once a year, although these terms can vary from mortgage to mortgage. The exact details can be found in your copy of the "Standard Charge Terms" for your mortgage. The number of the Standard Charge Terms can be found on your mortgage document, or you can get a copy from your lawyer or your bank.

Let's say you have a $100,000.00 mortgage with a closed 5 year term, meaning you are making fixed mortgage payments for a term of 5 years. Your payments are $295.67 every two weeks at 6% interest. Your Standard Charge Terms indicate that you are entitled to prepay up to 10% of the original amount of your mortgage once a year, or you can increase the amount of your mortgage payment by 10% once a year. Therefore, your options for this year are to either increase your mortgage payments to $325.24 every two weeks or to pay $10,000.00 down as a prepayment on your mortgage. How would either of these options affect your mortgage?

If this was the first year of your 25-year mortgage and you prepaid $10,000.00, this would save you approximately 5 years of mortgage payments, or $38,437.10. In 25 years, your $10,000.00 investment has almost quadrupled in value.

Alternatively, if, during the first year of your mortgage, you increased your mortgage payments by 10% from $295.67 to $325.24 every two weeks, the would have approximately the same affect on your mortgage, by saving you almost 5 years of mortgage payments.

Remember that these options are available to you each and every year that you have your mortgage.

If becoming mortgage-free is your goal, consider making a prepayment on your mortgage and watch the years disappear!

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Understand Your Mortgage Broker When Refinancing Your Home Mortgage Loan

Understand your mortgage broker and how they make their money and you can avoid overpaying thousands of dollars in unnecessary mortgage interest. Mortgage brokers routinely mark up the mortgage interest rates their customer’s qualified to receive a kickback from the lender they represent. Homeowners who learn to recognize this markup can avoid paying too much for their mortgage interest rate. Here are several tips to help you understand your mortgage broker when refinancing your mortgage loan.

Mortgage brokers are compensated for their work with the origination fees you pay when closing on a new mortgage. Reasonable origination fees for the work the broker does are 1-1.5 of your mortgage amount. The problem comes from the wholesale mortgage lender’s incentive for overcharging you.

When your loan application is approved by the wholesale lender your mortgage broker represents, the application is approved at a specific interest rate. Your mortgage broker marks this interest rate up because the lender pays them a bonus for overcharging you. For every .25% you agree to pay over the interest rate you qualified, the broker receives an additional 1% of your loan amount. This markup of your mortgage rate by the broker is called Yield Spread Premium. If you agree to pay Yield Spread Premium you will overpay thousands of dollars every year for this mortgage interest.

How can you avoid paying Yield Spread Premium on your mortgage interest rate? Tell your mortgage broker you will not pay any retail markup of the mortgage rate. Ask to see the rate lock from the wholesale mortgage lender and compare the mortgage rate to the interest rate lock you receive from your mortgage broker. If the mortgage rates are different your broker is not being honest with you about your loan.

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Online Mortgages: Online Mortgage Applications and Obtaining Low Mortgage Rates Online

Mortgage Loans

There are several different types of mortgage loans. Some of the main types of amortized loans represent the adjustable rate mortgage and the fixed rate mortgage. Many mortgages are available online as well as online mortgage quotes.

Fixed Rate Mortgage

Fixed rate mortgage interest rate and the monthly payment is always fixed for the duration of the mortgage loan. Some of the common mortgage terms are 10, 15, 20, and 30 years. In the recent years some lenders have been offering terms that are amortized for 40 and 50 year mortgage terms.

Adjustable (Variable) Rate Mortgage

Adjustable or variable rate mortgage interest rate is fixed for an agreed period of time. After the expiration of this time, it will periodically adjust upwards or downwards according to market index levels. Those indices include the Prime Rate, the London Interbank Offered Rate, and the T-Bill (Treasury Index).

Mortgage Rates : Bad Credit Good Credit Game

Lenders refer to the borrowers' credit reports and credit scores when approving a mortgage application. The better (higher) the score, the better rates a borrower can obtain. Lower credit scores, however mean higher risk to the lender, therefore mortgage lenders will require higher interest rates in order to compensate for the increased risk.

Balloon Type Mortgages

A balloon, or partial amortization loans are the ones in which the mortgage monthly payments are calculated over a certain period of time. The outstanding principal balance is payable at by the end of the mortgage term. This type of payment of the principal is also called a balloon payment. A balloon mortgage loan can either be of fixed or an adjustable interest Rate.

Online Mortgage Applications and Obtaining Low Mortgage Rates Online

Mortgages online can typically be obtained at lower online rates. Many people save thousands of dollars when applying for a mortgage online or when getting an online mortgage quote.

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