LONDON INTERBANK OFFERED RATE (LIBOR)
This index is used to determine the interest rate for some types of ARMs.
LIBOR is the rate on dollar-denominated deposits, also known as Eurodollars, traded between banks in London. The index is quoted for one month, three months, six months as well as one-year periods.
LIBOR is the base interest rate paid on deposits between banks in the Eurodollar market. A Eurodollar is a dollar deposited in a bank in a country where the currency is not the dollar. The Eurodollar market has been around for over 40 years and is a major component of the International financial market. London is the center of the Euromarkets in terms of volume.
The LIBOR rate quoted in the Wall Street Journal is an average of rate quotes from 16 major banks.
The most common quote for mortgages is the 6-month quote. LIBOR's cost of money is a widely monitored international interest rate indicator. LIBOR is currently being used by both Fannie Mae and Freddie Mac as an index on the loans they purchase.
LIBOR is quoted daily in the Wall Street Journal's Money Rates and compares most closely to the 1-Year Treasury Security index.
Interest Only Loans
"Interest only" products are an easy way to save money and a very popular alternative to traditionally fixed rates but they are not without risk. An "Interest Only" loan can offer consumers greater purchasing power, increased cash flow and a number of other benefits, which are listed later in this article.
First, let us start with a quick explanation of how the product works. With Interest only loans, the borrower has the flexibility of paying only the interest due on the mortgage. Most of these products allow you to pay extra if you choose.
The positive aspects of these loans are as follows:
- They work well for borrowers that are restricted by a tight budget, and the savings can be as much as $300-400 per month!
- Interest Only loan can allow you to qualify for a bigger home. If the underwriter considers only the "Interest Only" payment, you may be able to upgrade to a nicer or larger home.
- This type of loan works well for people who only want to stay in a home for a just a few years. During the first couple of years with a conventional 30 yr. mortgage, most of your mortgage payment is being applied directly to the interest of the loan. If you want to stay in the house for only 3-5 years, an "Interest Only" loan may be the right loan for you. You can receive a lower payment and have almost the same principal balance as the borrower who chose a 30-year, conventional mortgage if you choose to sell in 3-5 years.
- You want to buy a very expensive home. Most people who buy a very expensive home have no desire to pay off their home completely, and the rate of appreciation on the house is usually very good. An "Interest Only" loan allows these borrowers to deduct their interest payments, and the money they save can be directed to other investments.
- You want to buy a rental property. The lower payment can help improve cash flow on a rental property.
As with every loan program, with positives, there are always negatives.
- You are not paying down your principal on your mortgage. If your property doesn't appreciate over those 3-5 years, you may even have to pay money if you choose to sell the home. While the likelihood of this happening is high, it is a risk that must be considered when thinking about using Interest Only loans.
- Most "Interest Only" products have a specified term. For example, on most 30 years fixed "Interest Only" loans, most lenders allow interest payments for 10 years, and then you must repay the loan during the last 20 years. This loan now must be amortized over a 20-year period, and this will carry a higher payment than a 30 year fixed mortgage. These loans may be a good option for you as a borrower, but each person's situation is unique.
- Lastly, when in a period of incredibly low fixed rates "Interest Only" products will be very attractive. However, if you are planning to stay in your home for an extended period of time, you may want to consider a traditional fixed product.
Interest Rate Buydowns
In certain markets, Interest Rate Buydowns may be available. In general, Buydowns this is how they work. Payments are reduced and figured on a lower interest rate over a specific term. The difference between the “real” note rate and the lowered interest rate is paid in cash by the seller or the buyer. The more common Buydowns are 3-2-1 and 2-1.
For example, the 2-1 Buydown with a loan amount of $350,000, which has a fixed interest rate 6.75% for 30 years. To “buy down” the interest rate, the cost would be a lump sum of $8,063.
- The first-year interest rate is 4.75%, the monthly payment is $1,826.
- Second-year interest rate is 5.75%, monthly payment is $2,043.
- Years three through 30, the interest rate is 6.75%, the monthly payment is $2,270.
- 1st-year savings (as compared to $2,270 per month) is $444 per month or $6,332.
- 2nd-year savings (as compared to $2,270 per month) is $228 per month or $2,731.
Add up the annual savings: $6,332 + $2,731 = $8,063. Therefore, it costs $8,063 to buy down the interest rate and payments for two full years.
Contact your mortgage professional to discuss the availability of these options for you
A reverse mortgage is a special type of loan made to older homeowners to enable them to convert the equity in their home into cash.
A reverse mortgage is a special type of loan made to older homeowners to enable them to convert the equity in their home to cash to finance living expenses, home improvements, in-home health care, or other needs.
With a reverse mortgage, the payment stream is "reversed." That is, payments are made by the lender to the borrower, rather than monthly repayments by the borrower to the lender, as occurs with a regular home purchase mortgage.
A reverse mortgage is a sophisticated financial planning tool that enables seniors to stay in their home or "age in place" and maintain or improve their standard of living without taking on a monthly mortgage payment. The process of obtaining a reverse mortgage involves a number of different steps.
The first most widely available reverse mortgage in the United States was the federally insured Home Equity Conversion Mortgage (HECM), which was authorized in 1987.
A reverse mortgage is different from a home equity loan or line of credit, which many banks and thrifts offer. With a home equity loan or line of credit, an applicant must meet certain income and credit requirements, begin monthly repayments immediately, and the home can have an existing first mortgage on it. In addition, there is no restriction on the age of borrowers.
In general, reverse mortgages are limited to borrowers 62 years or older who own their home free and clear of debt or nearly so, and the home is free of tax liens.
Borrowers usually have a choice of receiving the proceeds from a reverse mortgage in the form of a lump sum payment, fixed monthly payments for life, or line of credit. Some types of reverse mortgages also allow fixed monthly payments for a finite time period or a combination of monthly payments and line of credit. The interest rate charged on a reverse mortgage is usually an adjustable rate that changes monthly or yearly. However, the size of monthly payments received by the senior doesn't change.
Some reverse mortgage products also involve the purchase of an annuity that can assure continued monthly income to the senior homeowner even after they sell the home.
The size of a reverse mortgage that a senior homeowner can receive depends on the type of reverse mortgage, the borrower's age and current interest rates, and the home's property value. The older the applicant is, the larger the monthly payments or line of credit. This is because of the use of projected life expectancies in determining the size of reverse mortgages.
Seniors do not have to meet income or credit requirements to qualify for a reverse mortgage.
Unlike a home purchase mortgage or home equity loan, a reverse mortgage doesn't require monthly repayments by the borrower to the lender. A reverse mortgage isn't repayable until the borrower no longer occupies the home as his or her principal residence.
This can occur if the sole remaining borrower dies, the borrower sells the home, or the borrower moves out of the home, say, to a nursing home.
The repayment obligation for a reverse mortgage is equal to the principal balance of the loan, plus accrued interest, plus any finance charges paid for through the mortgage. This repayment obligation, however, can't exceed the value of the home.
The loan may be repaid by the borrower or by the borrower's family or estate, with or without a sale of the home. If the home is sold and the sale proceeds exceed the repayment obligation, the excess funds go to the borrower or borrower's estate. If the sales proceeds are less than the amount owed, the shortfall is usually covered by insurance or some other party and is not the responsibility of the borrower or borrower's estate. In general, the repayment obligation of the borrower or borrower's estate can't exceed the value of the property.
In general, a borrower can't be forced to sell their home to repay a reverse mortgage as long as they occupy the home, even if the total of the monthly payments to the borrower exceeds the value of the home.
Home Loan Pros, Inc.
2011 Commerce Dr NPhone Number: (770) 472-7533
Peachtree City, GA 30269
Peachtree City, GA 30269