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[H1066]How To Figure Interest Rate

by Dan Lewis, Dan

Using Points To Cut Your Interest Rate

When discussing mortgages, it is important to understand what points are. Points are essentially an upfront cost you pay a lender in exchange for getting the loan in question. The better your financial profile – credit score, wages, down payment amount – the fewer points you have to pay, if any. That being said, you may actually want to demand points in certain situations.

Points and interest rates have a unique relationship in mortgages. Generally, the more points you pay, the lower your interest rate. This is not always the case in bad credit situations, but it is a generally accepted fact for most bowers. You can use this relationship to your advantage.

Regardless of how many points you pay on a loan, the cost will never remotely approach the amount of interest you pay over the life of the loan. If you intend to live in the property in question for a long time, you should make an almighty effort to cut your interest rate as low as possible. This is where you will save the most money. This is also where points come in.

If you are cash rich when you buy the property, you can buy down your interest rate by agreeing to pay the lender a significant number of points. The key is to find out from the lender how much they will reduce the interest rate per point paid. You want this in writing! Once you have it, use a mortgage calculator to see how much money the various lower interest rates will save you over time. Also, see how much you monthly payment is reduced. Once you have the numbers, compare them to the total cost of paying additional points and make your decision.

Contrary to popular opinion and marketing ads, points do not represent the evil side of the mortgage industry. Use them wisely and you can save hundreds of thousands of dollars over the life of a loan.

Mortgage debt elimination, this is the word that rings a bell in many of the home owners out there. Ever imagined paying off your mortgage in one go when you strike a first prize lottery or the day you inherited a lump sum of cash from a deceased old woman down the street whom you always say good morning to? Reality says this is not going to happen nor is there any magical formula that will pay off your mortgage the next day.

Well, if you're still reading after the first paragraph, there are actually ways that would make you better off by lightening your mortgage debt.

First off, one of the most commonly adopted methods is to increase your monthly mortgage repayment. By increasing your monthly repayment rates, you are effectively shortening the duration of your repayment period. I'm sure most of the homeowners out there would realize that by the end of their repayment period, they would have paid off more than the value of the house itself. This addition of payments would namely be known as interest rates. By shortening your repayment period, you are effectively decreasing the amount of interest rates you pay. A quick illustration says that if you pay an extra $100 per month for a $120,000 (30 years @ 9%) mortgage, you would be looking for a saving of approximately $80,000 after the end of your repayment.

It should be noted that there are shortcomings in increasing your mortgage repayment rates. For example, the extra $100 per month could have been invested elsewhere that would potentially generate more than $80,000 under the same period of time. However imagine this; if you are someone constantly being tempted to stick your hand into the piggy bank, increasing your repayment rates would be a wiser option as there is a good chance of you blowing away your investment/savings before the compounding of interest rate takes effect.

Secondly, this seems like a rather old suggestion but if you cannot afford more than 20% down payment, you should rethink the value of your house. The reason is because for a less than 20% down, you will be required to pay for additional insurance which is known as mortgage insurance. Unlike a life insurance, the mortgage insurance is there to protect the better interest of the bank (ssshh, let's not say you hear that from me) because it covers only the mortgage. Life insurance basically covers you because in case unpredicted fate takes place in your life, the compensation would be able to cover your mortgage and your life whereas mortgage insurance basically covers only, errr the mortgage.

Last but not least, consider this when you are taking your mortgage. If you are a wise money saver (or we call them penny pincher in some cases) and if this is within your means, take a shorter repayment period. In the short term, it may seem you are paying more compared to other homeowners. However consider this, your mortgage is spread across for 15 years as compare to 30 years and effectively, although you are paying an extra say $100 per month, the savings from interest rate paid for a 30 years mortgage will not even come close to what you have saved from a 15 year mortgage. Additionally, the plus is you get a peace of mind and security knowing you have paid off your mortgage earlier.

Think about this, buying a house is one of life's biggest purchase. If you think you are not ready, take a little time off for reconsideration as the decision you make today would affect you for years to come.

Article Source : Live Transfer Mortgage Leads

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Both Dan Lewis & Paul Moss are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.

Dan Lewis has sinced written about articles on various topics from Mortgage, Finances and Business and Finance. Dan Lewis is with Great Western Mortgage - provided by San Diego Mortgage Brokers. Great Western Mortgage is a. Dan Lewis's top article generates over 18100 views. to your Favourites.

Paul Moss has sinced written about articles on various topics from Family Concerns, Public Relations and Home Management. Find out more on how you can save yourself with Paul's essential resource website at. Paul Moss's top article generates over 9900 views. to your Favourites.