This question should be answered in the same way as most other questions about financial services products. When you understand what lies behind the label and realise what the product offers (i.e. just what it does), then it’s a question of whether the price you pay is for something you genuinely want. Without seeming to answer the question too flippantly, therefore, the product is worthwhile if it delivers what you want at a competitive price.
What they are
First of all, then, what is an offset mortgage? The principle is really quite simple (many of them are!). The “offset” in the label refers to an ability to offset your debt balance (your outstanding mortgage) against other credit balances you may have – for example, any savings. Therefore, if you had an outstanding mortgage of, say, £150,000, but you also had savings of £15,000 an offset mortgage would let you discount one against the other so that you paid interest only on the net amount i.e. £135,000.
Offset mortgages will also offer similar benefits to so-called “flexible” mortgages, where you can pay back lump sums without incurring any penalty or take “payment holidays” if you have paid more than required during a given period (although you’ll still need to take care that underpayments or payment holidays could result in an extension of the mortgage term and/or an increase in the total amount outstanding).
Offset mortgages are certainly popular. According to the Council of Mortgage Lenders, the number of offset borrowers leapt 50% in 2007 to 170,000. Their borrowing totalled £29.3bn, which represented 7% of all new lending.
Worthwhile?
There’s no such thing as a free lunch, so as you’d expect, the benefits of such flexibility in repayment terms comes at a price. Interest rates for offset mortgages are usually higher than for standard mortgages. Furthermore, the rates are generally variable and will move as a reflection of the Bank of England’s base rate. As we said at the beginning, it depends on whether the product is right for you and whether it fits your individual circumstances. If you’ve done your sums carefully, have credit balances against which to offset your mortgage repayments, and are in a position to make full use of the offset features of this type of mortgage, then studies done by lenders Barclays Bank show that holders of this type of mortgage repay the mortgage (and therefore pay less interest) on average 8 years and 8 months earlier than standard mortgage holders.
As you’ll have already spotted, offset mortgages have the most to offer to people who either have significant savings or expect to save regularly in future. Such savings potential might come in the form of cash bonuses or dividends, for example. On the other hand, if your savings are likely to remain small or irregular, you could find that you are not using the offset facility as fully as possible and therefore paying an unduly high rate of interest for a feature you do not or cannot use.
So, just to recap, should you consider an offset mortgage? Remember…
* Offset mortgages might well be attractive to the self-employed, whose receipts might fluctuate from month to month
* They may also be worth considering for you if there is a distinct advantage in being able to repay less during some times of the year and more during others
* Do you have a lot of savings or plan to save regularly?
Article Source: http://www.ArticleStreet.com/
Friday, April 24, 2009
Monday, March 9, 2009
An Introduction to Mortgage Backed Securities
What Are Mortgage Backed Securities?
Mortgage backed securities are securities that are backed by the principle and interest payments on a group of mortgage loans. Lenders group together mortgages and the money that is repaid by the borrowers' pays investors in the mortgage backed securities.
Why Do Mortgage Lenders Issue Mortgage Backed Securities?
There are a variety of reasons that lending institutions issue mortgage backed securities rather than holding the mortgage themselves. Most lenders have a limited amount of liquid assets. By selling mortgages they are able to free up money in the short term to make additional loans.
Another reason that mortgage lenders sell off their loans as mortgage backed securities is to minimize their risk. Although every effort is made to establish the creditworthiness of an individual before a loan is made, circumstances can change. If a borrower defaults on his mortgage, the lender will have unplanned for expenses just in dealing with repossession and selling of the property. Adding in the lost principal and interest, and a small, local lender could find themselves in a financial mess very quickly.
When a lender sells a mortgage as a mortgage backed security, they receive their money up front, both the loaned amount and a percentage of the loan as their fee. The investors in a mortgage backed security then receive income each month, as the borrower pays back the principal plus interest on his loan.
Types of Mortgage Backed Securities
There are a variety of mortgage backed securities. The majority of mortgage backed securities are issued by the Government National Mortgage Association, otherwise known as Ginnie Mae, the Federal National Mortgage Association, or Fannie Mae, and the Federal Loan Mortgage Company, or Freddie Mac. These are all groups sponsored by the federal government. While Ginnie Mae is backed by the full faith and credit of the government, and guarantees its investors that they will receive their payments, both Fannie Mae and Freddie Mac have the authority to borrow from the Treasury, which makes them relatively safe investments as well.
In addition to the government agencies, brokerage firms and banks often offer mortgage backed securities. These are known as private-label securities.
Are Mortgage Backed Securities Risky?
Mortgage backed securities are not generally considered a risky investment. To obtain a mortgage, the borrower must go through a qualification process that assures the bank or lending institution that the loan will be paid back. The group who sets up the mortgage backed security will then group mortgages together in order to sell. By pooling the mortgages together, the risk to the investor is minimized. One borrower, who defaults on a loan, or, conversely, pays the loan off early, depriving the group of years of interest payments, will have less of an effect when he is a member of a large group. The same borrow, particularly one who defaults on a mortgage, can cause a real financial shock to a small lending institution.
Do Mortgage Backed Securities Make a Good Investment?
All investment decisions are extremely personal, and will depend on your personal needs. Decisions on investments are best made with help from a financial advisor. For someone who would like a monthly income, a mortgage backed security can make a good choice. A mortgage backed security, particularly one sold by Freddie Mac, Fannie Mae, or Ginnie Mae, can be excellent investment vehicles. In general, the greater the amount of loans held in a mortgage backed security, the safer the investment, because the risk is spread over more people.
Before investing in a mortgage backed security, you should find out your expected rate of return. While this can vary, it is nice to know what investors have been receiving. Remember, it is not only loan defaults that can affect your income from a mortgage backed security, but also prepayments and principal only payments. The income from the security is figured on full payment of both principal and interest over the life of the mortgage, typically 15 or 30 years. Any action taken by anyone holding a mortgage in the security can affect your income. It is important to be clear about this with the person you purchase the security from.
Mortgage backed securities are an excellent development for borrowers, lenders, and investors. No matter what group you are in, it is important to understand exactly how they work and what you can expect. By doing that, you are better able to make a wise financial decision.
Author : Craig
http://www.articleclick.com/Article/An-Introduction-to-Mortgage-Backed-Securities/970186
Mortgage backed securities are securities that are backed by the principle and interest payments on a group of mortgage loans. Lenders group together mortgages and the money that is repaid by the borrowers' pays investors in the mortgage backed securities.
Why Do Mortgage Lenders Issue Mortgage Backed Securities?
There are a variety of reasons that lending institutions issue mortgage backed securities rather than holding the mortgage themselves. Most lenders have a limited amount of liquid assets. By selling mortgages they are able to free up money in the short term to make additional loans.
Another reason that mortgage lenders sell off their loans as mortgage backed securities is to minimize their risk. Although every effort is made to establish the creditworthiness of an individual before a loan is made, circumstances can change. If a borrower defaults on his mortgage, the lender will have unplanned for expenses just in dealing with repossession and selling of the property. Adding in the lost principal and interest, and a small, local lender could find themselves in a financial mess very quickly.
When a lender sells a mortgage as a mortgage backed security, they receive their money up front, both the loaned amount and a percentage of the loan as their fee. The investors in a mortgage backed security then receive income each month, as the borrower pays back the principal plus interest on his loan.
Types of Mortgage Backed Securities
There are a variety of mortgage backed securities. The majority of mortgage backed securities are issued by the Government National Mortgage Association, otherwise known as Ginnie Mae, the Federal National Mortgage Association, or Fannie Mae, and the Federal Loan Mortgage Company, or Freddie Mac. These are all groups sponsored by the federal government. While Ginnie Mae is backed by the full faith and credit of the government, and guarantees its investors that they will receive their payments, both Fannie Mae and Freddie Mac have the authority to borrow from the Treasury, which makes them relatively safe investments as well.
In addition to the government agencies, brokerage firms and banks often offer mortgage backed securities. These are known as private-label securities.
Are Mortgage Backed Securities Risky?
Mortgage backed securities are not generally considered a risky investment. To obtain a mortgage, the borrower must go through a qualification process that assures the bank or lending institution that the loan will be paid back. The group who sets up the mortgage backed security will then group mortgages together in order to sell. By pooling the mortgages together, the risk to the investor is minimized. One borrower, who defaults on a loan, or, conversely, pays the loan off early, depriving the group of years of interest payments, will have less of an effect when he is a member of a large group. The same borrow, particularly one who defaults on a mortgage, can cause a real financial shock to a small lending institution.
Do Mortgage Backed Securities Make a Good Investment?
All investment decisions are extremely personal, and will depend on your personal needs. Decisions on investments are best made with help from a financial advisor. For someone who would like a monthly income, a mortgage backed security can make a good choice. A mortgage backed security, particularly one sold by Freddie Mac, Fannie Mae, or Ginnie Mae, can be excellent investment vehicles. In general, the greater the amount of loans held in a mortgage backed security, the safer the investment, because the risk is spread over more people.
Before investing in a mortgage backed security, you should find out your expected rate of return. While this can vary, it is nice to know what investors have been receiving. Remember, it is not only loan defaults that can affect your income from a mortgage backed security, but also prepayments and principal only payments. The income from the security is figured on full payment of both principal and interest over the life of the mortgage, typically 15 or 30 years. Any action taken by anyone holding a mortgage in the security can affect your income. It is important to be clear about this with the person you purchase the security from.
Mortgage backed securities are an excellent development for borrowers, lenders, and investors. No matter what group you are in, it is important to understand exactly how they work and what you can expect. By doing that, you are better able to make a wise financial decision.
Author : Craig
http://www.articleclick.com/Article/An-Introduction-to-Mortgage-Backed-Securities/970186
An FHA Home Loan without a Down Payment
Most of the time when you apply for an FHA home loan you will be looking at a three to give percent down payment, which is generally much better than you would get if you went with a conventional home loan. While this is a good deal, there is a program out there that will allow you to move into your new home without a down payment. This is using the FHA backed loan that you have already qualified for, but it just sweetens the deal because it will allow you to move into a new home without being burdened with the closing costs and down payment. The great thing about this is that many people dream of owning a home but all of the combined costs, even with FHA, prohibit them from enjoying home ownership.
The Neighborhood Gold Program Makes it all Possible
The Neighborhood Gold Program is what can allow people to move into their home without a down payment and closing costs. Of course, the costs are still there, this program just takes care of it for the borrower. This Neighborhood Gold Down Payment Assistance program truly does allow for a borrower to buy a home and there is no repayment. As an added bonus, the program is not just extended to first time homebuyers; instead it is extended to anyone that can qualify for an FHA home loan!
With this program, you could receive as much as three to 10 percent of the sales price that will go toward your down payment and closings costs. The amount that you receive will actually depend on the participation of the seller. The only requirements for the program are that the borrower has been qualified for the FHA home loan and that the seller is also willing to participate, and in most circumstances the seller is willing to get involved.
The Neighborhood Gold Down Payment Assistance program is a nonprofit program that basically issues cash grants to homebuyers that need assistance in closing their loan. One needs to be prepared going into the home buying process to take advantage of this program because it will need to be stipulated when making an offer, but if everyone agrees to using this program in the purchase offer it can allow the borrower to move in with very little or nothing out of pocket.
This is a great program to take advantage of and if you know that you will qualify for an FHA home loan and you hook up with the right realtor and the right buyer this program will enable you to move into a new home with very little or nothing out of pocket. While the FHA home loan allows for people to move into a home much more affordably than conventional loans, there are still a lot of costs involved and the Neighborhood Gold Down Payment Assistance program will reduce or eliminate those costs. Through this program thousands of people have been able to buy a home for the first time in their life and many others have been able to buy a home after foreclosure or bankruptcy. There is no greater joy than home ownership and FHA and this program come together to make this joy a really for large numbers of people every year!
Author : Ivan
http://www.articleclick.com/Article/An-FHA-Home-Loan-without-a-Down-Payment/992228
The Neighborhood Gold Program Makes it all Possible
The Neighborhood Gold Program is what can allow people to move into their home without a down payment and closing costs. Of course, the costs are still there, this program just takes care of it for the borrower. This Neighborhood Gold Down Payment Assistance program truly does allow for a borrower to buy a home and there is no repayment. As an added bonus, the program is not just extended to first time homebuyers; instead it is extended to anyone that can qualify for an FHA home loan!
With this program, you could receive as much as three to 10 percent of the sales price that will go toward your down payment and closings costs. The amount that you receive will actually depend on the participation of the seller. The only requirements for the program are that the borrower has been qualified for the FHA home loan and that the seller is also willing to participate, and in most circumstances the seller is willing to get involved.
The Neighborhood Gold Down Payment Assistance program is a nonprofit program that basically issues cash grants to homebuyers that need assistance in closing their loan. One needs to be prepared going into the home buying process to take advantage of this program because it will need to be stipulated when making an offer, but if everyone agrees to using this program in the purchase offer it can allow the borrower to move in with very little or nothing out of pocket.
This is a great program to take advantage of and if you know that you will qualify for an FHA home loan and you hook up with the right realtor and the right buyer this program will enable you to move into a new home with very little or nothing out of pocket. While the FHA home loan allows for people to move into a home much more affordably than conventional loans, there are still a lot of costs involved and the Neighborhood Gold Down Payment Assistance program will reduce or eliminate those costs. Through this program thousands of people have been able to buy a home for the first time in their life and many others have been able to buy a home after foreclosure or bankruptcy. There is no greater joy than home ownership and FHA and this program come together to make this joy a really for large numbers of people every year!
Author : Ivan
http://www.articleclick.com/Article/An-FHA-Home-Loan-without-a-Down-Payment/992228
The Pros and Cons of a Bi-Weekly Mortgage
Having a mortgage can be expensive; with the interest that is charged over the life of your mortgage, a large portion of what you end up paying is nothing more than interest payments and not the loan itself. Obviously it's important to be able to pay off your mortgage as quickly as possible in order to keep the interest at a minimum, just as it's important to make sure that all of your payments are made on time so as to avoid late fees or other costs. One option that can help you to pay off your mortgage early while giving you the added benefit of having to pay less at any given time is a bi-weekly mortgage.
If you aren't familiar with the term, a bi-weekly mortgage is a payment plan which allows you to make a partial payment on your mortgage every two weeks. It's not an actual mortgage loan, but instead is a service which will help you to pay off your mortgage faster than you would be able to by simply making your standard payments each month. There are a number of pros and cons associated with bi-weekly mortgage services, and you should stop and consider some of these in order to make sure that a bi-weekly mortgage plan meets your financial needs.
How Bi-Weekly Mortgages Work
When you're using your standard mortgage payment plan, you're making one payment every month for a total of 12 payments per year. With a bi-weekly mortgage plan, however, you're making a payment equal to one half of your current payment every two weeks… this equals out to 26 half-payments over the course of a year. A bi-weekly mortgage essentially allows you to make one extra full payment each year, taking a full month off of your repayment schedule every year that you're using the bi-weekly mortgage plan. Even though you have to pay a service charge to the company offering the bi-weekly mortgage service, the savings that you receive in interest works out so that you still save money even with the added fees.
Advantages of a Bi-Weekly Mortgage
Obviously, the biggest advantage to a bi-weekly mortgage plan is the fact that you can pay off your mortgage early and save a significant amount of money on the interest that you have to pay. For most homeowners, this savings will be quite significant as they will be able to pay their mortgage off as much as two or three years early. Since the individual payments are lower than they would be if you were paying the full amount once per month, bi-weekly mortgage payments can also be much easier to fit into your budget. Many companies who offer bi-weekly payment services will let you tailor your payment due dates so that they best fit your income, letting you make payments when you get paid.
Disadvantages of a Bi-Weekly Mortgage
While bi-weekly mortgage payments may sound wonderful, there are some drawbacks associated with them as well. Probably the most important of these is the fact that even though you're making your payments to the service provider, you are still the one who is responsible for your mortgage. The service provider isn't a lender and doesn't have any sort of influence or control over your mortgage itself. They only make your mortgage payments once per month, just like you would; in the unlikely event that there's some problem in processing the payment, you may be required to pay it out-of-pocket while the problem is sorted out or risk receiving late fees or an interest rate increase for a late payment.
Another main drawback to bi-weekly mortgages is that the service which these companies offer isn't anything that you couldn't do by yourself with proper budgeting. When it comes down to it, if you have the self-control to structure your budget similar to making bi-weekly payments you could actually save significantly more by doing it yourself than you would through one of these services. You will save more because the service will charge you a transaction fee for each time they process one of your payments (in some cases you may have a fee for each time that they receive a payment from you via direct deposit, for each time that they make a payment, and an additional fee for account maintenance.) Depending on how you budget your finances, you may also be able to pay off your mortgage even faster than you would through a payment service by simply setting aside slightly more than one half of your monthly payment every two weeks. This only applies if you budget your money, of course.
Author : Grant
http://www.articleclick.com/Article/The-Pros-and-Cons-of-a-Bi-Weekly-Mortgage/970192
If you aren't familiar with the term, a bi-weekly mortgage is a payment plan which allows you to make a partial payment on your mortgage every two weeks. It's not an actual mortgage loan, but instead is a service which will help you to pay off your mortgage faster than you would be able to by simply making your standard payments each month. There are a number of pros and cons associated with bi-weekly mortgage services, and you should stop and consider some of these in order to make sure that a bi-weekly mortgage plan meets your financial needs.
How Bi-Weekly Mortgages Work
When you're using your standard mortgage payment plan, you're making one payment every month for a total of 12 payments per year. With a bi-weekly mortgage plan, however, you're making a payment equal to one half of your current payment every two weeks… this equals out to 26 half-payments over the course of a year. A bi-weekly mortgage essentially allows you to make one extra full payment each year, taking a full month off of your repayment schedule every year that you're using the bi-weekly mortgage plan. Even though you have to pay a service charge to the company offering the bi-weekly mortgage service, the savings that you receive in interest works out so that you still save money even with the added fees.
Advantages of a Bi-Weekly Mortgage
Obviously, the biggest advantage to a bi-weekly mortgage plan is the fact that you can pay off your mortgage early and save a significant amount of money on the interest that you have to pay. For most homeowners, this savings will be quite significant as they will be able to pay their mortgage off as much as two or three years early. Since the individual payments are lower than they would be if you were paying the full amount once per month, bi-weekly mortgage payments can also be much easier to fit into your budget. Many companies who offer bi-weekly payment services will let you tailor your payment due dates so that they best fit your income, letting you make payments when you get paid.
Disadvantages of a Bi-Weekly Mortgage
While bi-weekly mortgage payments may sound wonderful, there are some drawbacks associated with them as well. Probably the most important of these is the fact that even though you're making your payments to the service provider, you are still the one who is responsible for your mortgage. The service provider isn't a lender and doesn't have any sort of influence or control over your mortgage itself. They only make your mortgage payments once per month, just like you would; in the unlikely event that there's some problem in processing the payment, you may be required to pay it out-of-pocket while the problem is sorted out or risk receiving late fees or an interest rate increase for a late payment.
Another main drawback to bi-weekly mortgages is that the service which these companies offer isn't anything that you couldn't do by yourself with proper budgeting. When it comes down to it, if you have the self-control to structure your budget similar to making bi-weekly payments you could actually save significantly more by doing it yourself than you would through one of these services. You will save more because the service will charge you a transaction fee for each time they process one of your payments (in some cases you may have a fee for each time that they receive a payment from you via direct deposit, for each time that they make a payment, and an additional fee for account maintenance.) Depending on how you budget your finances, you may also be able to pay off your mortgage even faster than you would through a payment service by simply setting aside slightly more than one half of your monthly payment every two weeks. This only applies if you budget your money, of course.
Author : Grant
http://www.articleclick.com/Article/The-Pros-and-Cons-of-a-Bi-Weekly-Mortgage/970192
Adverse Credit Remortgage - Help when Needed
Many people find for one reason or another that their bills start becoming too much to handle; most especially their mortgage payments. For these people, an adverse credit remortgage loan can be a help. Sometimes people try very hard to pay their bills even after losing a job or having some kind of financial crisis, but they find their selves getting farther and farther behind, causing payments to be late and their credit to be negatively affected. Adverse credit remortgage loans can help people who are turned down for other kinds of consolidation loans because of negatively affected credit, and this can mean the difference between keeping a home and losing it.
The equity that you already have in your home will be the security that you use for your adverse credit remortgage loan. This doesn�t mean that you only need to use it for refinancing your home, though. You can use the loan to stretch out and lower your mortgage payments, but you can also use the loan for home improvements or consolidating your bills. Bill consolidation is one of the main reasons that a person seeks an adverse credit remortgage loan, because it can take a lot of pressure off when times are financially difficult. Though you may end up paying a higher interest because of your negatively affected credit, this isn't necessarily always the case. You may be able to get the loan with a lower interest rate than you were previously paying.
If you have decided that you might be interested in an adverse credit remortgage loan, you should research before you approach a loan company. There are some loan companies that would take advantage of people with less than stellar credit ratings, convincing them that they will need to pay high interest rates if they want a loan. You owe it to yourself to shop around so that you can get the best deal possible. Search on the Internet for different loan companies and make a list of the ones that you think are best, then talk to an officer from each company and tell them what it is you need. Often when you tell them that you are talking to more than one loan company they will be willing to lower interest rates in order to secure your business.
In the end you want your adverse credit remortgage loan to be good for you financially; not only short term but in the long run as well. Don't get this type of loan if you don't really need it, but definitely look into it if you think that it can help put you on more even financial ground. When you talk to a loan company, have them spell out every step of the process for you, and ask them to explain how it will benefit you. You always want to stay on top of your financial situation so that you can ensure a more secure future.
Author : Drew
http://www.articleclick.com/Article/Adverse-Credit-Remortgage-Help-when-Needed/1072900
The equity that you already have in your home will be the security that you use for your adverse credit remortgage loan. This doesn�t mean that you only need to use it for refinancing your home, though. You can use the loan to stretch out and lower your mortgage payments, but you can also use the loan for home improvements or consolidating your bills. Bill consolidation is one of the main reasons that a person seeks an adverse credit remortgage loan, because it can take a lot of pressure off when times are financially difficult. Though you may end up paying a higher interest because of your negatively affected credit, this isn't necessarily always the case. You may be able to get the loan with a lower interest rate than you were previously paying.
If you have decided that you might be interested in an adverse credit remortgage loan, you should research before you approach a loan company. There are some loan companies that would take advantage of people with less than stellar credit ratings, convincing them that they will need to pay high interest rates if they want a loan. You owe it to yourself to shop around so that you can get the best deal possible. Search on the Internet for different loan companies and make a list of the ones that you think are best, then talk to an officer from each company and tell them what it is you need. Often when you tell them that you are talking to more than one loan company they will be willing to lower interest rates in order to secure your business.
In the end you want your adverse credit remortgage loan to be good for you financially; not only short term but in the long run as well. Don't get this type of loan if you don't really need it, but definitely look into it if you think that it can help put you on more even financial ground. When you talk to a loan company, have them spell out every step of the process for you, and ask them to explain how it will benefit you. You always want to stay on top of your financial situation so that you can ensure a more secure future.
Author : Drew
http://www.articleclick.com/Article/Adverse-Credit-Remortgage-Help-when-Needed/1072900
Subscribe to:
Posts (Atom)