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Glossaries »
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How you can get Low Interest Rate while using different Payment Options w
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Mortgage Loan Basics - Mortgage 101
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Before Mortgage Loan Apply
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Internet Mortgage Lead Sponsors
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After Mortgage Loan Applied
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• Paying Mortgage Faster
• Mortgage Refinance
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Mortgage Loan Tips
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• Do and Don'ts
• Rights and Liabilities
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Other Loan Articles Regarding Your Mortgage
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Mortgage Best Pick Online
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Marketplace
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Mortgage News RSS Feed
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Mortgage Links Internal
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How a mortgage lender can get a Low Interest Rate by using a 'term' effectively! Things To Know Before Mortgage Loan Application
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Short Term Mortgages and Long Term Mortgages
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Amortization vs. Term
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The amortization of a mortgage is divided up into smaller time periods called term. There are various mortgage companies offering different mortgage terms that may be from six months to 10 years, but majority of institutions offer mortgage that usually range from six months to five years. Mortgage term consist the prevailing interest rate that will be fixed for the specified term with the fixed payment amount untill the next upcoming term. Mortgage loan life may consist of various terms with various interest rates, at the end of the every term, you can renew your mortgage for a new term at prevailing interest rates. On the other hand variable rate mortgages, the payment amount may, or may not change.
There are various factors that are affecting interest rates continously and no one can be certain about what rate is to pick for the best possible results and savings, trend may be downward, upward and both with unspecified time. Because it is not possible to know what the interest rates will be over any given period of time. Most of the people while planning their finances, prefer to stay in their budget that is spcified for the certain product or service, because they dont want to get into any problem and disturb their feeling of security. Thats why many consumers seeking certainty in their mortgages choose a longer term with a fixed interest rate so that they know in advance about how much they will have to pay for their mortgage, for a specified period of time. Although the longer the term, generally carries the higher interest rate.
Generally, the shorter term results in the lower interest rate and the longer term results in the higher interest rate, e.g., illustrated table bellow shows from low interest to high interest rate with the increase in the term i.e., 1 year term at 5.85%, 5 year term at 6.45%, and 10 year term at 6.75%. Moreover, monthly payments are fixed and guaranteed for the specified length of the term.
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Short Term Mortgage vs. Long Term Mortgage - General Payment Behaviour
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Term
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Annual Interest Rate
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Monthly Payment
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Mortgage Amount
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1 year
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5.85 per cent
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$630
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$100,000
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5 year
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6.45 per cent
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$665
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$100,000
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10 year
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6.75 per cent
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$685
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$100,000
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Note: Error and ommission may occur. For illustration purposes, numbers in this example have been rounded off. Financial institution may calculate interest differently. Monthly payment was calculated over the period of 25 years amortization for the $100,000 mortgage loan with zero down payments.
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Mortgages without term may be suitable during periods when interest rates are expected to fall, consumers may choose variable-rate mortgages to take advantage of lower rates without re-negotiating their mortgage. Moreover, if the same situation any consumer'll get with the fixed terms then the following table will reflect, how much saving any consumer will get with a slight fall in the interest rate.
Moreover, if this same financial situation arises in which at every renewal of a new term a consumer gets a slight lower trend in the interest rate while having fixed mortgage term, the following table reflects how much saving any consumer will get with a slight fall in the interest rate.
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Low Interest Rate Trend - An Ideal Example
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Term
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Annual Interest Rate
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Monthly Payment
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Still Owing at End of Term
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1-5 years
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6.45 per cent
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$665
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$90,395
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6-10 years
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6.30 per cent
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$660
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$77,020
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11-15 years
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6.15 per cent
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$655
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$58,620
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16-20 years
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6.00 per cent
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$650
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$33,610
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21-25 years
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5.85 per cent
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$645
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$0
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Note: Error and ommission may occur. For illustration purposes, numbers in this example have been rounded off. Financial institution may calculate interest differently. Monthly payment was calculated over the period of 25 years amortization for the $100,000 mortgage loan divided into 5 years term.
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