Home Loans and Mortgages ? Watch Out for Dangerous Subprime Loans
With the growing interest in real estate purchasing and speculation, more and more lenders are offering "nontraditional" types of mortgages. These include adjustable rate mortgages (ARM) of every shape and size, the more popular interest-only mortgage, and the very dangerous Option ARM mortgage, which can cause the amount you owe to actually increase as time passes. One rapidly growing sector of the lending market is the so-called "subprime" market, which caters to consumers with poor credit records. The subprime market is a profitable one, as lenders offer loans to consumers whose poor payment history targets them as risky clients. Yes, they are risky clients, but the lenders charge fees and interest rates that are high enough to offset the additional risk.
People who are interested in purchasing a home should be careful, however, as many people who should qualify for traditional loans are being pushed into higher-priced subprime loans instead.The subprime market is quite a lucrative one for lenders, who are able to charge higher fees and interest rates due to the increased risk posed by clients with substandard credit histories. A subprime borrower might pay an interest rate that is several percentage points higher than that of a traditional loan, and the fees may include several additional "points" as administrative fees. A point is one percent of the loan amount. This can add several thousand dollars to the closing costs and tens of thousands of dollars to the cost of the loan over the life of the typical 30-year mortgage.While it is understood that customers with poor credit histories represent a higher risk to the lender, potential borrowers need to make sure that they aren't classified as "subprime" by their prospective lenders. Studies show that up to 15% of subprime borrowers have credit scores that should have entitled them to loans at lower, more traditional interest rates.
What this means for potential borrowers is that you should shop around for the best price on a loan and not accept it as fact when a lender tells you that you don't qualify for the traditional rates. The Federal Trade Commission is investigating several lenders who have increased their profits tremendously by steering borrowers who should have qualified for low-interest loans into higher-interest subprime loans, claiming that they didn't qualify for the lower rate.How can you avoid such problems? Obtain a copy of your credit report. You can obtain one, with your credit score, from any of the three major credit bureaus ? Experian, Equifax, or Trans Union. As a rule, lenders offer subprime rates to customers who have credit scores below 620. If your score is higher than that, you should be able to qualify for a better interest rate.
If not, you can either accept the higher rates from lenders, or take time to improve your score by paying off some bills in a timely manner..
©Copyright 2005 by Retro Marketing.Charles Essmeier is the owner of Retro Marketing, a firm devoted to informational Websites, including http://www.homeequityhelp.net, a site devoted to information regarding home equity lending.equity@homeequityhelp.net
HELOCs and Second Mortgages: Which One Should I Choose?
Whether you need some extra cash to pay off some credit card debts, or to make some home improvements, home equity lines of credit or second mortgages can be great ways to get started.
Many people looking to borrow money often opt for home equity line of credit, or HELOCs, for short.
They are a tempting first choice, because they can often give you the much needed cash at a low interest rate.
Another advantage to taking out an HELOC, or a home equity line of credit, is that they may provide the borrower with a certain tax break, but you would need to verify this with your lender or accountant.One drawback to HELOCs, however, is the fact that borrowers are expected to put their homes up as collateral.
So, it is important that you think this decision through, before finalizing the loan, because you may be at risk of losing your home- and its equity- if you are late or cannot make your monthly payments.
Finally, if you decide to sell your home,...
HELOCs and Second Mortgages: Which One Should I Choose?
Mortgages > HELOCs and Second Mortgages: Which One Should I Choose?
Principal Facts about Interest-Only Mortgages
"Interest-only mortgages are those where the borrower is required to pay only the interest on the loan for a fixed period of time, though the borrower has the freedom to pay more than the interest. This fixed period usually lasts around 5-10 years. However, if the borrower pays only the interest during the initial period, after the interest-only period ends, the borrower has to pay the entire principal along with the interest within the remaining mortgage term.
Consider the example of a certain amount borrowed at a fixed rate of 6% for 30 years. During the initial interest-only period of say 5 years, the borrower is required only to pay the 6% interest amount each month.
But after this ends, the monthly payments increase to include the amortized principal and same interest, spread over the remaining 25 years.
Comparing this with the normal amortized plan, where the monthly loan amount is broken into fixed monthly payments with a fixed interest rate...
Mortgages > Principal Facts about Interest-Only Mortgages
Reverse Mortgages, Getting a Good Deal In 3 Easy Steps!
Reverse Mortgages, Most Common Features:A reverse mortgage is a special type of loan that seniors can sometimes get to convert the equity in their homes to cash.Many reverse mortgages offer special appeal to older adults because the loan advances, which are not taxable, generally do not affect Social Security or Medicare benefits.Originally designed for retirees interested in keeping their homes but whose incomes aren't sufficient to support them, reverse mortgages have typically been used to help people on low fixed incomes make ends meet, make needed home repairs or pay for large medical bills that otherwise would be unaffordable.Depending on the plan, reverse mortgages generally allow homeowners to retain title to their homes until they permanently move, sell their home, die, or reach the end of a pre-selected loan term. Generally, a move is considered permanent when the homeowner has not lived in the home for 12 consecutive months. So, for example, a person could live in a nursing...
Reverse Mortgages, Getting a Good Deal In 3 Easy Steps!
Mortgages > Reverse Mortgages, Getting a Good Deal In 3 Easy Steps!