The payment calculation of a balloon mortgage is identical to a fixed-rate mortgage, usually a 30-year Fixed Rate Mortgage. However, this is all they have in common. If a conventional Fixed Rate Mortgage is expected to be repaid in 30 years, the completely amortizing final payment on a balloon mortgage is due at the end of the 5th or 7th (depending on the contract) year. For 5 (7) years your monthly payments are equal to those of a 30-year Fixed Rate Mortgage, which usually means lower interest rate, a stable predictable amount to pay, no fuss about the market changes in interest rates, the balance of your mortgage is gradually decreasing. This heaven ends when the payment day comes. You have to pay off the 25-year-big remains of your debt in one go. Here I want to note, that the payments you have been making for 5 (7) years have not decreased your balance significantly, as in any Fixed Rate Mortgage’s early years the proportion of money paid towards the interest is a lot higher than the amount paid towards the principal. Now, how good or bad is it?

It can be pretty good, actually, if you are in a situation for which a balloon mortgage can be recommended: you were not planning to own the property longer than 5 (7) years and you stuck to the plan.

In all other “inadvisable” situations you do have to either pay off somehow or refinance. Leaving the pay off option to your personal creativity, I will say a few words about the refinancing. Read the rest of this article »

 First of all, Interest-Only is not a separate mortgage type. It is an option that can be attached to virtually any mortgage repayment plan enriching it with its benefits or disadvantages (or both). Interest-Only has different effect on different plans, but it practically always makes the overall cost of a mortgage higher, as well as brings certain quite pressing issues into the sums to be paid monthly when the interest-only period is over. Always study the advantages you buy at the price thoroughly - they have to be really worth it.

The idea of the Interest-Only option is that your monthly payment pays in fact only the interest. You sort of pay some “salary” to the lender for using his money, but it remains his money anyway, as well as your (still potentially your) home remains his, too. No mortgage is 30 years interest-only nowadays, so eventually you are expected to start paying the principal off - only at that stage you will start to really buy out your home. Read the rest of this article »

Once I googled for Option ARM and the top search result read Nightmare Mortgages. Very … hmmm … intriguing, isn’t it?

Well, as I always say, you have to have a clear idea of how a mortgage plan works. Once you are sure, that you understand it, you can decide for yourself, whether such an Option is likely to become your nightmare.

The Option Adjustable Rate Mortgage offers the borrower several options for each monthly payment. The mortgage contract states what exactly variants are possible. The first one or two months, depending on the contract, the borrower is entitled to a very low interest rate and a very low period payment amount. When this introductory period expires, the rate goes up and each period payment is paid according to the selected option. The usual available options are: a minimum payment, or an interest-only on a 30-year mortgage payment, or a fully amortizing 30-year mortgage payment, or a fully amortizing 15-year mortgage payment. That means that one month you can pay only the interest and the next monthly payment may equal to a monthly payment of a 30-year Adjustable Rate Mortgage with your balance and the rate of the day. If you choose the minimum payment option, which is a really low amount - just imagine what you can do with the “saved” money!!! Where’s the nightmare, you say? Well, it is already there, but it is not obvious yet, that’s why a lot of people make a mistake and agree to these terms without reading the fine print thoroughly. The word “saved” is in quotes only when you read it, not when you hear the broker say it… Read the rest of this article »

The Adjustable Rate Mortgage does not seem to be very attractive to borrowers mostly because of the apparent complexity of its mechanism. When people hear about market indexes, constantly increasing rates and negative amortization, they don’t want to listen to this any more and just go for the good old Fixed Rate Mortgage. Before you follow their easy steps too, consider reading at least this article and make your final choice based on some knowledge, not on the lack of any desire to deal with anything more complicated than a fixed amount to pay every month.

Now, get yourself a cup of good coffee and prepare to learn about market indexes, increasing interest rates and negative amortization.

What’s the most important thing to remember about the Adjustable Rate Mortgage? Well, naturally, that the Interest Rate gets adjusted a number of times within the life of the mortgage, but – now comes the most important thing – it can increase (or decrease) only to the limit specified in your mortgage contract! That means that the lender is not totally free to impose any rate on you any time of the day. That’s the good news. The bad news is Read the rest of this article »

I don’t think it’s hard to understand why a Fixed Rate Mortgage has been the most popular type for decades – most people like stability, and that’s exactly what they get with this kind of mortgage: the Interest Rate is fixed throughout the life of the loan; the monthly payments are fixed, too, if you want them this way. There is nothing tricky or unexpected about this mortgage program. The Interest Rate may be higher than with an Adjustable Rate Mortgage, but you can be absolutely sure, that no matter what, it will not go any higher.

So it is a sound steady payment plan, but is it good for you?

Let’s see into the mechanism, which provides this stability.

Your monthly payment consists of two parts: repaying the Principal and paying the Interest. The amount of the Interest part is calculated as a percentage of the remaining Principal (the balance) of the day. So, every time you pay some of the Principal off (with your monthly payment or some extra payment), the balance becomes smaller, which means that the next Interest payment will be the same percentage but of a lower amount. This Fixed Principal scheme suggests that Read the rest of this article »

A mortgage will become your biggest debt in years! For most people it is true, but it not as scary as it may sound. When you have the knowledge, when you understand what exactly is going on, when you are in full control of the situation – trust me, it is not scary!

I am here to share all the knowledge of the matter I have, with you.

We’ll start with the general idea of the most frequently used mortgage programs.

The two fundamental types of mortgages are the Fixed Rate Mortgage and the Adjustable Rate Mortgage. They both are amortized mortgages, which means that you have to repay the money you borrow (the principal) plus the interest on this money. As the name suggests, the Fixed Rate Mortgage provides the comfortable stability of a fixed interest rate – no matter what, you always know that you will not wake up one day to find out that your debt has unexpectedly doubled. If you have a stable job and your income flow is smooth and steady – this kind of mortgage can be for you. The only problem is that its Interest Rate may be higher than the Interest Rate of an Adjustable Rate Mortgage. You have to pay for the comfort, but it may be well worth it, if you don’t feel very adventurous about your finance.

An Adjustable Rate Mortgage usually looks very appealing in the beginning Read the rest of this article »