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[M658]Mortgage Loan Interest Rates

by Ben Needles, Ben

During the past decades, it was a common thinking that a mortgage loan is a mortgage loan no matter whichever is chosen-- it was thought that there is no option on mortgage interest rates. But this way of thinking is not applicable anymore because of the many mortgage loan products with varied mortgage interest rates available in the market.

So, before choosing a mortgage loan or any other personal loans, it is of great importance to decide which one is right for you. Finding the right mortgage loan means balancing your mortgage alternatives with your housing requirements and financial picture, now and in the future. Also the right mortgage is not just having the lowest mortgage interest rate but much more than that. And this much more will be determined by your personal condition. Your personal situation and your limits to pay for monthly mortgage obligation can be evaluated by answering the following questions:

1. What is your current financial status (this would includes income, savings, cash reserves and debt-to-cash ratio)?
2. How you expect your finances to changeover in the coming years--your improvement in terms of financial stability?
3. Have you plan to return the mortgage loan before your retirement?
4. How long you plan to keep your house?
5. How comfortable you are with your changing mortgage payment amount-- are you able to manage flexible payment?

The answers to these questions will give you the knowledge of your financial condition. Now the next step is to decide two key options:

1. Mortgage length,
2. Type of mortgage interest rate (fixed interest rate or flexible interest rate).

The length of mortgage loan can be 15 years (minimum); can be 20, or at 30 years (maximum). While choosing a fixed or adjustable mortgage interest rate you should be aware of the facts that the adjustable mortgage interest rate is more risky because the interest rate will change, while a fixed-rate loan offers more stability because of the locked-in rate.

You will be able to pay off a shorter-term loan more quickly, but your monthly payments will be substantially larger. Long-term fixed-rate loans are well-known because they offer certainty, and many people find that they are easier to fit into their financial budget. Though, in long run they will cost you more, but you will have more available capital when you need it, and you will be less likely to default on the loan should an emergency comes.

In the light of above mentioned ideas and constraints, it is clear that the key to select the appropriate mortgage loan or any other personal loan for your needs should fit comfortably into your entire financial condition, that is having payments within your budget and comfortable level of risk connected to it.

Conforming loans provide low interest rates since they are almost guaranteed to be purchased by Fannie Mae or Freddie Mac, which allows more funds to be available for borrowers. However, these corporations have terms, such as maximum loan, that limit how much you can borrow. If you don't meet their terms, you will need to apply for a non-conventional loan with slightly higher interest rates.

Loan Purchasers

Fannie Mae and Freddie Mac are stockholder owned companies that purchase mortgages, package them into securities, and then resells them to investors. This allows banks and other financing companies to lend to more customers since their capital is not tied up in long-term loans.

Fannie Mae and Freddie Mac have strict requirements for purchasing loans. Basically, they want to reduce their risk level so they put a cap on loan amounts, credit score, income level, and down payment.

Conforming Loan Amounts

Each year Fannie Mae and Freddie Mac create new guidelines for loan amounts. In 2005, a mortgage limit for a single-family dwelling is $359,650. Limits for multiple family dwelling are significantly higher, roughly an additional $100,000 per family. Maximum loan amounts are also 50% higher in Alaska, Guam, Hawaii, and the Virgin Islands since property prices are higher.

Second mortgages also have their limit. In 2005 the limit was $179,825, but the total mortgaged amount of both loans could not exceed $359,650. As with first mortgages, second mortgages can also be 50% higher in designated areas.

Non-Conforming Loans

There are other loan options if you don't qualify for a conforming loan. If you need to borrow more than the maximum conforming loan amount, then you will want to apply for a jumbo loan. Because these types of loans are handled on a smaller scale, their rates are slightly higher than a conforming loan.

If you have poor credit or little down payment, you can use a subprime lender who specialized in lending to B/C type loans. You can expect to pay higher rates with these lenders, but many offer favorable terms. To find the best deal and to avoid scams, you must research your lender. Compare rates and terms until you find a favorable financing package.

Article Source : Pg. 53

About Author

Both Ben Needles & Carrie Reeder 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.

Ben Needles has sinced written about articles on various topics from Business Credit Cards, Anger Control and Business Credit Cards. About the Author (text)For more info,. Ben Needles's top article generates over 550000 views. to your Favourites.

Carrie Reeder has sinced written about articles on various topics from Finances, Mortgage and Finances. See my recommended online for the lowest rates possible. Carrie Reeder is the owner of ABC Loan Guide, which offers help findin. Carrie Reeder's top article generates over 135000 views. to your Favourites.