• Fixed rate mortgage – Also known as FRM, these are the traditionally oldest form of mortgage and the safest, if not the most convenient. In an FRM you need to make your mortgage payments at an interest rate that is fixed during the time of purchase of the mortgage loan. This interest rate remains the same throughout the term of the mortgage. Thus this mortgage offers you a lot of stability. You know precisely what amount of payment you have to make every month, so even if there is some erratic fall in your income, you can arrange for the mortgage payment through other sources.  However, if the mortgage rates fall considerably, you still need to keep on paying the old interest rate unless you get a refinance done.

• Adjustable rate mortgage – This is a slightly newer version of mortgage in which your interest rate keeps changing throughout the term of the mortgage depending upon the market interest rate. The positive part of an ARM is that the initial rate of interest offered is quite low as you are sharing a risk with the lenders. Now as the interest rate changes after a certain period of time, so does the payment. Hence this kind of loan doesn’t have any stability. If the interest rate is low you may have very little payment to make but if the rate shoots up high the monthly payment spirals out of control.

Thus now that you know the pros and cons of both you can choose the most suitable one for you.

(This guest post is presented courtesy of EasyFinance.com.)

• Check and improve your credit score: The foremost consideration of a borrower should be to check his credit score so that he knows the exact amount of loan and the interest rates that he may be offered by the lender. Most mortgage lenders demand a credit score of about 720 in order to lend with a reasonable interest rate. You should understand that the lender will only lend the mortgage loan amount to a borrower who has a good credit score as he can believe him and trust him regarding making timely payments.
• Shop around and get quotes: Before you settle on a particular loan, you should get multiple quotes from multiple lenders so that you may choose the best loan in the market. There are multiple loan offers that you’ll be flooded with and therefore unless you’re able to choose the best loan with the most reasonable and affordable interest rates.
• Save enough money: Whenever you’re thinking of taking out a home mortgage loan, you should start saving money as you require paying the exact down payment on the loan. Once you take out a particular loan amount, you have to ensure that you pay down at least 20% of the loan amount. If you can’t pay the required down payment, you have to qualify for the PMIs and this will unnecessarily increase the monthly payments. Try and save money in order to grab low and affordable interest rates.
• Lower your debt obligations: Having too much unsecured debt will become risky as to getting low rates on the loan. You should try and lower the unsecured credit card debt obligations so that your DTI ratio is lowered. The more is your DTI ratio, the more will be the interest rates that you’ll be subject to.

Therefore, when you’re worried about your mortgage loan payments, ensure taking the above mentioned steps so that you can grab a mortgage loan at an affordable rate.

Banks

The mortgage industry and Banks are going to change forever and we can only hope this will be a good thing. In the US 100 Mortgage companies have disappeared over the last year or so.

With Banks dropping interest rates many people who fixed at the height of the rates are being quoted around $20,000 per year per $500,000 mortgage to get out of their loans. In the UK some Lenders will no longer provide a variable rate on Investment Property. The mortgage can only be taken at a fixed rate. There is talk of a global bank or global currency so who knows what the future holds in that regard.

If you are looking to refinance or to take out a new mortgage good mortgage Brokers or Bankers can help. Also take the following into consideration when looking at the Lenders.
Financial Considerations

1. Does the Bank have a large deposit base of cash from their customers. (this means they are more likely to be able to continue to keep interest rates low.)
2. If the Banks offers a discount off the standard rate is it for the life of the loan or just 1-2 years and then reverts to a higher rate. (In most cases the smaller discounts for the life of the loan are much better)
3. What are the costs to get out of the mortgage in the 1st few years if you sell or move (some Banks charge a flat fee and others a percentage of the loan that can be up to 2%)
4. For investment properties are you more concerned with saving money and therefore happy to have all your properties with one Bank. Or are you more concerned with risk management and therefore have property with a variety of Lenders.

Hopefully the laws in the US may change around the sub prime mortgage market so that this crash in property prices can never happen again. This practice of having a mortgage effectively secured against a property and not the person has ended in financial suicide for the Lenders. In other countries the mortgage is always tied to the person in some way. So that the person not the banks are responsible for not being able to pay the mortgage. Therefore halving of property prices just does not happen on a mass scale like this.

Despite the 1st Home owner grants and dropping interest rates around the world mortgage finance has become much more difficult to obtain. In Australia the four biggest Banks are in the top 8 in the world. 105% mortgages were available in April last year, and around 6 Lenders financed 100% home loans. This has rapidly changed so that 105% mortgages no longer exist, 100% home loans are down to 1-2 lenders and the major Lenders are at 90-95% LVR mortgages. Low doc home loans in most cases went from 80% finance to 60% finance making a huge impact on developers and the self employed.

It is important to do your research and choose good Banks. There is a lot to consider when looking at lending and Interest Rates

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Investment Property

Your Investment Property
Buying Investment Property is a great long term wealth strategy. I am often surprised by people who have the financial ability to use property as a wealth strategy but don’t because they are too worried about tenants wrecking the property or just too scared in general because of the negative press they hear.
There is a saying that if you have a good experience you tell 3 people but if you have a bad experience you tell 9. So it is no wonder that people hear more bad stories about Investment Property then good. In my experience like everything it is not what happens but how you deal with it that counts. In my Property Investment career I have had negative experiences however it is relatively easy to find solutions quickly and end up better off.

‘Time to Money’ ratio
When I look at the amount of time I have put into Investment Property compared to the money it has made and will make, the time to money ratio is astounding.?I have been buying property since 1994. So over the last 15 years I have made approx $700/ hour. The time spent includes looking for Investment Property, buying it, doing it up (if needed), finding a management agency and dealing with things when they call me. If I keep all my property and buy no more, continue renting it out through an agency, and only spend time on it when the agencies call, and the values goes up 7% a year (conservative) then over the next 10 years I will make approx $3000/hour.?Can you make this kind of money in your job? Once you have an Investment Property that is managed by an agency, you would be lucky to spend 10 hours a year on it. Property investing is therefore an excellent way to trade time for money.

What to consider when buying an Investment Property
1.    Does the rent cover the majority of the mortgage repayment?
2.    Can I do it up or increase the value in the future via splitting the block, or building apartments etc?
3.    Is this an area that people will want to live in the future?
4.    Is there more then one reason why people will live there (industry, environment)?
5.    Usual things like close to transport and schools/college

Things people fear
A. Tenants not paying

I always use an agency now as they can find better quality tenants faster for my Investment Property. The only time I had tenants not pay the rent and had to ask them  to leave was when I found them myself. If your tenants lose their job or some other circumstance occurs then go and see them or phone them. Listen very carefully to what they say. Tell them you understand and feel for them. Explain that you can not afford your mortgage without rent and know that they would understand that if they can’t pay they will have to move out. The agency should be able to find them a cheaper place and you could ask if they could move in with friends or try house sitting. In most cases they just want to know that someone cares enough to talk to them and understands what they are going through.

B. Tenants doing damage

Make sure you have insurance on your Investment Property that covers accidental and malicious damage. Otherwise the best thing to do is just forget about it. There is nothing you can do once the damage is done except repair it. Again using an agency will be the best protection against this. I have never had any problems. Again this is fairly rare, however the stories from some Property Investors create an image in your head so property investing appears a greater problem then it is.

C. Problem Agency

I did have an agency once that did not pay me for 6 months even though the tenants were paying rent on my Investment Property. They kept saying they would pay me but nothing turned up. So I filed a claim against them in the small claims court online. I had my 6 months rent within a week. This is very rare and I have never heard of anyone else having this problem. So regardless of what happens just take action.

D. Floods/Fire/etc

Make sure you have insurance that covers your Investment Property.

The chances of any of these things happening are slim and easy to deal with anyway. The financial rewards compared to the time invested in buying and looking after an property are a fantastic reason to Invest. So what is stopping you from buying a property for Investment?

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Interest Rates

Variable Vs Fixed Interest Rates

Did you fix your Interest Rates?  Many people fixed at the top due to the fear they may go higher. Some people took out fixed mortgage rates on half their loan. As it turned out remaining on variable would have been better. But no one had a crystal ball and it all happened so fast that by the time even the quick people had made a decision it was too late in most cases to avoid payout fees.??People often ask mortgage brokers about fixing interest rates or staying variable. A mortgage broker can not advise on what to do, however the evidence shows that over a 30 year period you are better off with variable.

Consider Fixing when

A) You can not afford rates to go up because

1. No extra money
2. Having a baby and therefore less income
3. Changing to a lower paid job or less hours

B) If it causes you too much stress to live with the uncertainty

C) Interest Rates are at historical lows (however picking the bottom is still a game)

Refinancing

If you are trying to refinance to a variable loan that is a lower rate then your current rate then you will often be hit with huge exit fee’s. The difference in changing loan rates from 6% to 4% over five years on a $200 000 mortgage is $20 000 in interest. So the banks will charge you more than this to refinance to lower Interest Rates.?? Mortgage interest rates are at historical lows all around the world. Great if you own investment property as they are likely to be positively geared. Bad if you have money in the bank and want to live off the income.

Historical Changes

Interesting how in most cases when there is a step drop this is followed by a time of no change or slow increase. Also a steep rise is followed by a plateau. This drop has been incredibly fast. What does this mean for the future? If it follows the past then history suggests a plateau over the next few years in Interest Rates.

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Finance, Mortgages, Business and Money

This site has been created to provide information from the many experiences that I have had over the years in Finance and I really hope it is useful and informative. The world is changing rapidly and there will be many wonderful things that happen over the next few years and people are forced to change and look at a new path. In the cycle of life, death and birth go hand in hand and that is now where we find ourselves. It is the death of many old ways of doing things and the birth of a new world. Now is the time for great innovation and to stand out from the crowd. How is your investment going?

The strongest oak of the forest is not the one that is protected from the storm and hidden from the sun. It’s the one that stands in the open where it is compelled to struggle for existence against the winds and rain and scorching sun – Napoleon Hill

Your financial future and therefore your Retirement Plan

can be very bright depending on what you do right now.

The Future

To understand the future we need to turn to the experts to learn as much as we can. Robert Kiyosaki is writting a new book ‘New Rules of Money’.

How to drive out fear in these uncharted waters  -  Take action!

1. Praise, pay and promote people who deliver bad news

2. Failure to act is the only true failure. So punish inaction not unsuccessful action

3. Encourage people to talk about their failures and what they have learnt

It is your responsibility to take action in your situation and make changes for a different future. This is true for everyone in every situation. There will always be a roller coaster in everything we do. Our greatest learning’s will come when times are tough and we have to stand back, look at our choices, move forward and take new action.

An example of doing something different are the companies who choose to keep staff and invest in training so that when times get better they have a new resource rather then firing and rehiring. So take new action and change your long term outcome for business. Think of the long term and where you want to be. There are always choices. There are many Banks or Lenders who are offering great deals right now. It is difficult to find High Yield Savings however you can always look at Investment Property and Business as a source of cashflow.

By using the information from the past and refining it to come up with a course for the future we create a mind set based on what can we do? Interest rates are lower then they have ever been. If you want to see what happened during and after the great depression in 1930 then get a copy of ‘Think and Grow Rich’ by Napoleon Hill. It details the stories of 500 successful people and what they did to succeed when things were stacked against them and in the face of adversity. Your future is bright if you choose it to be. Finance your way to success.