| |
| |
|
Mortgage & Refinancing Information |
|
|
The Right Home Loan - Floating or Fixed Rate Loan
Choosing a home loan has never been tougher. Yes, with all these cheap interest rates floating around, you as a customer are faced with a happy predicament. The banker finally seems to be your friend. He calls you in the morning, day and evening. He remembers your name and offers you the best deal. He meets you and tries to convince you to take a loan to buy your dream home. And in cash if you have only a vague idea of your dream home, the banker friend might also help you decide on the property. With all these friends to help you, it is advisable that you look at the choices objectively and arm yourself with the requisite information. Before deciding on a lender and before a lender evaluates you, one of the first things you need to grapple with this the choice between a floating and a fixed rate of interest. Floating rates swing both ways. They could rise in the long term or may fell. The rates that the lenders announce are for new borrowers. While this is grate news for new borrowers, it leaves people who took a floating rate loan a few years ago with a sinking feeling. This is due to a basic flaw in the floating rate loan arrangement on account of the respective benchmarks of interest (read: prime lending rate or PLR) not keeping pace with the fall in interest rates all across. As a new customer you get the best deal as offers at sub - PLR interest rates. But if you are an existing borrower, you will have to take the initiative to strike a better deal. For example, take someone who took a floating rate loan one year back for 20 years at the rate of 7% and now pays 5%. As against this, a fresh loan for the same tenure is available at 4.5% (Dec' 2004). This is only because the lender didn't cut its PLR (to which the floating interest rate is pegged) to the extent of the fall in rates. Just imagine, if the home loan market grew by $40,000 million (fresh loans disbursed) in the last fiscal and on an average, the lenders increased their spread by, say, 100 basis due to the above, then the home loan customers stand to lose $400 million! It is a serious consumer rights issue. Lenders benefit more than the borrowers in the above situation. The anomaly in the contract is that while both the lender and the borrower take equal interest rate risks by entering into a floating rate contract, the rewards are shared unequally by the two. What this indicates is that the timing and reduction of the PLR applicable for home loan is not all that transparent and a customer might not know when he is suppose to expect the cut. From the analysis of the trend in movement of PLR it is clear that competition has been the main driver in reduction and the timing of reduction for the PLR. The PLR is supposed to be the rate at which a lender offers loans to prime borrowers. Due to increased competition, lenders offer rates well below PLR to new customers. However, the reference point for these loans is still the PLR. So the lenders can offer the best deals to attract new customers but when it comes to changing the rates, it depends upon the change in PLR.The banks have a system of reset dates. These are the dates when existing floating interest loans can be repriced in cash the PLR changes. But the important thing is that if a lender does not reduce its PLR, it is hard to get a reduction in the rate. You might argue that you could transfer your loan to another lender in case the existing lender dose not reduce rates in the future while it offers lower rates to newer customer. Loan transfer is something that is best avoided. There might be a penalty on it. (The fact the new lender will finance your penalty charges also is no consolation.) So the penalty cancels out the lower interest rate that the new lender might offer you. Also, the existing lender will insist that you clear up the loan first and then only will the property documents be released. And the new lender will refuse to release the loan without the property documents! I am sure bankers fix up a date on which the documents are exchanged and loan is transferred but the loan transfer process takes time and effort. So choose the lender and the loan option sensibly. Author: Aron Dsouza NOTE: This article can be re-printed and/or published online or offline for free, provided the website, http://www.RefinanceMortgagesLoans.com/, is posted along with it. The article must remain intact without any alteration.
MORE RESOURCES:
Google News |
|
|
|
RELATED ARTICLES
6 Helpful Mortgage Tips Here are some mortgage tips that can help you obtain a mortgage with less hassle, and at a lower overall cost: Determine how much home you can afford. Based on your income and any long term debt, know the maximum payments you can be certain of making comfortably. Refinance Your Home Mortgage Online The largest financial obligation most people ever take on couldn't escape the reach of the Internet. Home mortgage loans originated online comprise an integral part of one of the largest and most profitable aspects of the banking industry. Mortgage Loans Explained In Plain English With the many different kinds of mortgage loans out there, choosing the right one for your needs can be a difficult task. The following points will help you understand the pros and cons of the different types of mortgage loans available to you. Home or Investment Property Equity: Be Sure the Bank Gives You All that You Deserve Home equity is your own personal money machine. If you want financial freedom, a home equity loan is probably the best way to achieve it. 4 Things to Watch Out for When Choosing a Mortgage Company We all know that there are a lot of mortgage companies out there. But how do you know which company to choose? Some companies have flashy advertisements about low interest rates, but are they really the best company to choose? A mortgage is a very large investment, so the company that you choose has to be the best company out there for you. Home Loans -- Federal Regulators Warn Lenders to Be More Careful Federal banking regulators have recently expressed some concern over the housing market as home prices in the United States have risen to record levels. While homes are more unaffordable than ever for many people, the lending market remains strong, mostly because of the introduction of new, ever-more-flexible types of loans. How to Get the Best Mortgage This is a guide on how to get the best mortgage deal. Do not rush into the first offer that is made to you even if you are in a hurry for a mortgage. What On Earth are Home Equity Loans? Home equity loans are one of the most common types of financing for doing improvements on your house. These loans are not necessary used for home improvements but can also be used to simply obtain extra cash. 5 Things In Selecting The Best Mortgage - You Should Know Your goal is not only to find the best rates and programs, by searching through a huge number of lenders products, and save yourself thousands of dollars on mortgage payments every year, but also, to save time and hassle by simplifying the loan process and reducing the paperwork. Here are some things you can keep in mind when selecting a mortgage provider. How To Find A Mortgage With Bad Credit Shopping online for mortgages ought to be trouble free, even should you have poor credit or no credit score. You can nonetheless find a bad credit lender that can facilitate you. Home Mortgage Quotes Online - How Do They Compare To a Quote From a Broker in The Real World? Online home mortgage quotes are very similar to the quotes given by mortgage brokers in "the real world," except lower. With the reduced cost due to a simplified application process and reduce overhead for office space and personnel, online mortgage lenders can offer financing with no fees or lower interest rates. Save Yourself from Homebuying Disasters Whether you are a first time home buyer or a happy home owner who wants to refinance an existing home loan, there are some cardinal "dos" and "don'ts" to follow. For many, home ownership is the biggest investment in their lives and that could be the reason why some people act irrationally, as if they purposely want to sabotage the deal. Tips for First Time Home Buyers When looking at tips for first time home buyers, you've come to the right place. Many people are looking all over the Internet for reliable information. A New Choice for Home Financing: Correspondent Lenders When you begin your search for a new home loan, one of the first things to consider is where you'll get the money. Your basic choices will be mortgage brokers and banks. Do You REALLY Need a Home Equity Loan? Your equity is the amount your home is worth, on the market, minus the amount you owe to your mortgage broker. For example, if your property is worth $200,000 and the balance you owe your mortgage broker is $100,000, then your home equity - the part of your property that you own free and clear - is $100,000. Bad Credit Mortgage Lenders - Things You Should Know About Subprime Lenders Interest rates and fees vary between subprime lenders just like regular mortgage lenders. Just because you have bad credit, that doesn't mean you should accept the first financing offer from a subprime lender. Guide to Home Equity Loans Here is a useful guide to home equity loans. A home equity loan is quite simply a loan against your house. For Mortgage-Refinance Help, Get the Best Mortgage Professional, Not a Bank Loan Officer When you need a mortgage -- either because you are buying, refinancing, taking out equity or getting into investment real estate, you need a good mortgage professional. Now, you may be tempted to go to your local savings and loan, as they may promise lower fees or zero costs. Home Loans - Lenders Continue to Offer High-Risk Loans Home prices in the Untied States continue to soar, and the remarkable run of real estate as the "must have" investment continues. The median price of a new home, which only recently crossed the $200,000 barrier, is now $215,000. Homes, To B(uy) or Not to B(uy) Whether you are just moving out on your own for the first time, or you've moved ten times before, there is always a big choice to make. Do you rent or buy your home? There are valid arguments on both sides, and in different scenarios either one could be the right choice.
|
| home | site map |
| © 2006 TIGER MEDIA |
