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Mortgage Payment
Buying a home is probably the biggest financial decision
most people will make in their lifetime. The percentage of down
payment you put in will make a huge difference for the health of
your personal finances for years to come. What percentage of down
payment you should choose is largely dependent on the current mortgage
rate.
20% Down Payment
It's common for a lender to require 20% down payment
from homeowners for mortgage
financing. The initial payment does look hefty, but the
homeowners won't be required to purchase mortgage insurance at least.
If the mortgage rate is high, large percentage of initial down payment
will reduce the total cost of home ownership over a course of 15
or 30 years of your mortgage payment unless the rate is so high
that you know for sure you will refinance or remortgage in a few
years.
0% Down Payment or 100% Mortgages
When economy is slow and the mortgage rate is low,
it is possible to obtain 100% mortgages that cover the full
value of a property, without the requirement of a down payment.
100% mortgages are designed particularly for first time homeowners
who do not have a deposit available. If the real estate market falls
in coming years, you may end up owing more money than your house
is worth. In a rising property market, the value of your property
make quickly exceed the amount of mortgage you own.
Cash Back Mortgages
In a slow real estate market, some lenders are even
pushing for A cash back mortgage for borrowers with good
credit ratings and the backend of a reasonable personal wealth.
Borrowers can borrow the amount of money that is more than the value
of the property they'll purchase. This is even more common for mortgage
refinance when the mortgage you own is only a small amount of the
value of the property.
Some homeowners may put the extra cash injection into
home improvement, while other actually put the cash in low-risk
investment (such as S & P 500 index fund) and hope to make some
money from the investment as the economy and stock market and recover.
I. Mortgage Refinancing to Reduce Your Monthly
Mortgage Payment
The most common reason homeowners have for mortgage
refinancing is to lower their monthly mortgage payments. There are
several different ways to accomplish this. If you plan on staying
in your home for a long time, consider paying a point or two in
order to buy down your mortgage interest rate. If your financial
situation has improved since purchasing your home, you may qualify
for a better interest rate without points. If you are unable to
qualify for a lower rate, you can still lower your monthly mortgage
payment by extending the term length of your mortgage loan. Mortgage
loans typically come with a term length of thirty years; however,
there are now forty and even fifty year mortgages to choose from.
II. Mortgage Refinancing to Switch Your Adjustable
Rate Mortgage (ARM)
If you purchased your home with a risky Adjustable
Rate Mortgage and concerned with the risk of rising interest rates,
refinancing to a fixed interest rate loan could give you the financial
peace of mind you need. Fixed interest rate loans typically come
with higher rates than adjustable rate mortgages; however, you can
lower your payment amount with the new interest rate by extending
the term length. A lower payment with a fixed interest rate mortgage
will allow you to plan your monthly budget around the mortgage payment.
III. Mortgage Refinancing to Avoid Balloon Payments
Balloon mortgages are popular because they come with
very low monthly payments; however, once the balloon payment is
due you could be facing a financial hardship if you’re unable
to pay. Refinancing to a fixed or adjustable rate with a long term
length could match your current payment amount.
IV. Mortgage Refinancing to Stop Paying Private Mortgage
Insurance
Many homeowners that purchase their homes with
less than 20% down or borrow above a certain level of home equity
are required to purchase Private Mortgage Insurance. Private Mortgage
Insurance is expensive; the premiums can add hundreds of dollars
to your monthly payment amount and does nothing else for you. Private
Mortgage Insurance only protects the lender from losses if you default
on the mortgage. Even if you have not build up sufficient equity
in your home there are a number of mortgage refinancing programs
to help you drop this costly insurance.
V. Mortgage Refinancing to Borrow Against Your Home’s
Equity
Another popular reason for mortgage refinancing is
to cash out equity in your home. This cash can be used for any reason:
you can pay off credit cards, make repairs to your home, pay for
college, even purchase a new car or take a vacation. With cash-back
mortgage refinancing this is fast and easy. You even gain a tax
deduction for the interest you pay when borrowing against your home
equity.
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