The reason? The borrower is seeking financing for an investment, or rental, property. The increase in rate seems significant so the borrower inquires about it. The loan officer explains that an investment property represents a higher degree of risk for a lender.

Then, what happens all too often, unscrupulous loan officers advise their clients to simply state that the home will be used as a second residence. Second homes typically carry the same rate of interest as a primary residence.

This is a very big mistake for two reasons.

The first reason is that this misrepresentation is a crime! Here is the exact wording that a borrower is asked to sign at the closing:

I have read and understand this Statement of Applicant. I understand that the making of false certifications or declarations is a crime under section 1014 of Title 18 of the United States Code.

You may not see this wording with your initial application but it will be there in the closing package. Most closings contain a form specifically addressing occupancy with the above wording directly below the statement.

Few people want to break the law. But adding the additional cost to words like “Oh, people do this all the time” from the loan officer, many people opt to mislead the lender. Of course the loan officer is also breaking the law by advising their client to do this, but very few ever get caught. But borrowers can get cauhght. Lenders check for occupancy on many of their loans. They check phone and tax records. It’s actually pretty simple to catch these law breakers but because of the volume of loans that lenders provide, few people are ever convicted of this crime. And that is why so many people “take the chance”.

But what is really puzzling about all this, is for how little people are willing to break the law. Fannie Mae and Freddie Mac are two government-sponsored agencies that purchase a large majority of the mortgages loaned in this country. The agencies have a set of rules. or “guidelines”. If a loan falls within those guidelines, either entity will purchase the loan. The agencies take no issue with purchasing loans secured by investment properties other than they require a slightly higher fee, or interest rate.

How much higher?

That depends on how much is being borrowed. With a 10% down payment, there is an add-on of 2.5 points – each “point” represents 1% of the amount being borrowed. A $200,000 loan amount will cost a borrower $5,000 in order to get the very same rate they would get for a primary residence. A 20% down payment would have an add-on of 2 points and down payments of 25% or more would have an additional 1.5%. But these add-ons DO NOT have to be paid in upfront cash.

A borrower can elect to accept a higher interest rate rather than pay the extra fee. When paying points, borrowers are “buying down” the interest rate. The longer they have the mortgage, the more beneficial the rate “buy-down” becomes.

In a typically buy-down, one point (1% of the loan amount) will “buy down” the interest rate approximately 1/4 of 1%. If 1 point = 1/4%, then, 1/2 point = 1/8%. So a total of 2.5 points will be an approximate increase of 5/8% (0.625%). 2 points will be about 1/2% increase and 1.5 points will be around 3/8% (0.375%).

Going back to the above example of a $200,000 mortgage, at current interest rates, an increase of 5/8% adds $82 to the payment; a 1/2% increase is an additional $66 and 3/8% would add $49. Is it worth those kinds of numbers to break the law? I hope you feel like me and not even think twice.

Another part of this equation is that it becomes easier to qualify for an investment property because lenders will often use a portion of the projected rental income and add that to the borrowers regular income.

So follow Spike Lee’s advice and “Do the right thing!”

Ron Borg is the founder & CEO of Mortgage123.com – offering mortgage shoppers a safer way to comparison shop online.
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Balloon mortgages are quite popular amongst many home buyers. It has a shorter time period, having a term of five to seven years, but with the payment is based on a term of 30 years. The interest rate in a balloon mortgage is lower than the usual mortgage, and it has been found that, it is easier to avail compared to the traditional 30 year fixed mortgage. However, there is a disadvantage in this type of mortgage, where you would need to fully pay off the balance outstanding at the end of the mortgage term. This condition may put you in a situation where you would need to go for re-financing against the real estate property that you have purchased, sell your home, or convert the existing balloon mortgage into the traditional one at the prevailing rate of interest. Balloon mortgage may not suit all. It is ideal for those people who have need for loans for a short period of time. There are several loan schemes that are available, which would need a balloon payment at a specified period of time.

If you avail balloon mortgage, you will need to pay a fixed amount for a defined period of time, may be three to seven years. After that period is over, you would need to pay the full outstanding in one go. The payments that you make against this type of mortgage are less than necessary for amortizing, and this puts you in the advantage in making lower than normal payments. This type of mortgage becomes attractive to people, because of its lower payment, and this lower payment is availed by people who could be looking for a larger house, for which they do not have enough money.

The balloon mortgage is available for a definite term, after which you are required to pay back the balance in a lump sum. The condition is that, the outstanding has to be paid off fully after the term is over. Since there is no other way, you have three options with you. You may like to go in for re-financing and a conversion of the balloon mortgage into the traditional mortgage that we know. This option is taken by most of the people. The second option is to sell your house before the balloon mortgage term gets over. In taking up the third option, you would be paying larger sum as installments each month, being more than what has been stipulated in the terms of payment. In this way you would be paying off the complete mortgage dues at the end of the period, or you will have an affordable outstanding when the balloon mortgage term gets over.

J Amalorpava Mary is the owner of MortgageCentreDirect.Com, to find out more on Mortgage Loan, Mortgage Rate and much more mortgage information visit her site.

Average house prices in the UK have now risen to around GBP160,000. This means a couple buying their first home would need a deposit of at least GBP8,000 and a combined yearly income of GBP50,000. Of course, this assumes that they can still get a mortgage with a relatively high loan to value (LTV) rate of 95%.

Despite recent cuts to the base interest rate by the Bank of England, many mortgage providers are failing to pass these cuts on to consumers. In a move born from greed, mortgage providers are keen to protect their profit margins at the expense of first time buyers, looking to get a foot on the property ladder.

Equally, with so many established home owners able to use the equity from record breaking house price rises in the last few years, it is becoming more and more difficult for first time buyers to find competitive mortgages. The high LTV first time buyers require also weighs heavily against them when compared against the equity heavy home owners who are moving properties.

In the face of the deepening subprime crisis, and facing significant profit cuts or even losses, mortgage lenders are now tightening their lending criteria. The fear is that the 95% LTV mortgages days are numbered, as lenders push for larger deposits and smaller LTVs. On top of this lenders are weighting interest rates to discourage borrowers from taking up high LTV mortgages, forcing buyers to come up with much higher deposits.

The increasing cost of University education is also taking it’s toll. With UK students leaving University with an average of GBP13,000 of debt, it is taking longer for buyers to save up their deposits. Student loans are no longer the sole source of debt for students, with reckless lending by banks and a number of credit cards aimed at students all increasing the burden of debt for many young people.

Juggling their existing debts while struggling to qualify for lenders’ increasingly harsh mortgage qualification criteria is making mortgages for first time buyers tougher than ever. With a gloomy financial outlook, both for the UK and globally, this trend looks set to continue for some time.

Tom Kranz writes articles on debt prevention and management, debt management solutions, and debt management programs. His articles regular appear on finance-portal.co.uk.

Unfortunately, there is a lot more involved in a monthly house payment than principle and interest. It is these extras that can make the difference between making mortgage payments with ease, and foreclosure.

In this article you will find out how to calculate a mortgage payment the right way, in its entirety. By doing this, you will borrow an amount of money you will be able to pay back without stress. This will make it easier to budget your money without fear of getting behind on your payments.

Principal and Interest are the Starting Point

$100,000 financed for 30 years at 7% requires a mortgage payment of $665.30. Knowing this in today’s market gives you a heads up when you need to quickly estimate a mortgage payment. Of course, the mortgage payment you will be estimating will be the interest and principle only. This is the starting ground from which your monthly house payment will be calculated.

For simplicity’s sake, we will say you are thinking of buying a home where you will need a mortgage of $200,000 and the going interest rate is 7% and, like almost everyone else, you will be financing for 30 years. This means your principle and interest payment will be 2 times $665.30 or, $1,330.60 a month. Now, what else will be added to this amount each month?

Taxes and Insurance

Most lenders make sure you have homeowner’s insurance. They will also see to it you pay your property taxes. They do this, not so much because they are nice guys, but because they don’t want somebody else to take your property away from them. How could this happen?

If someone got hurt on your property and successfully sewed you, they could take everything you had, including your house. This would give your lender a legal burden they wouldn’t want or need. To prevent this from happening, the lender usually collects money from you each month to pay for your homeowner’s policy. This way you and they will be protected against this kind of suit.

Another entity that could fight your lender for ownership of your house is the local government and this is exactly what they will do if you default on your property taxes. For this reason, the lender will collect money from you every month to be used to pay your property taxes.

You can figure your yearly property tax will cost you at least, 1 to 2% of the worth of your home. So, on a $240,000 property, you can guess you will be paying $2,400 to $4,800 a year. This calculates to $200 to $400 a month.

This amount will depend upon where you live. You should be familiar with a town’s mill rate before you buy a home there. Your homeowner’s policy will cost about $700 to $1,000 a year, so you can figure around $75 a month for this expense.

Water and Sewer

Another pair of monthly housing expenses are water and sewer. If you live in the city, this is a classic case where they get you coming and going. City water will easily cost you $50 a month and the sewer, which is just another word for tax, will cost you, in some cities, about $1,000 a year, which figures out to $85 a month.

If you live out of the city, your water and sewer charges become the cost of the upkeep of your well and septic system. However, after all is said and done, one problem with either one of these things will cost you an amount that will be close to what the cost is for city water and sewer.

These costs will come at much larger intervals than a monthly expense but they will be much greater amounts. In other words, it all evens up in the long run. Or should I say it all comes out in the wash?

Your Payment is Bigger Than the Calculator Told You

The end of the story is, to pay this $200,000 mortgage; you will need to pay $1,330 a month for interest and principal. Plus, you will be paying, let’s say, $300 a month property taxes and $85 a month for homeowner’s insurance. So far, this amounts to $1,710 monthly. Then add $50 for water and $85 for sewer and you will come up with $1,850 a month for your real mortgage payment.

Of course, there are more expenses required to live, but taxes and insurance, along with water and sewer are things that people who rent don’t ordinarily pay. It is knowing about these expenses in advance that is the key to realizing you could be overextending yourself financially thus, risking foreclosure. So, be sure to calculate your complete monthly mortgage payment before you say, “I’ll take it!”

Ed Lathrop is a successful Real Estate investor. He has developed EzCalculator, a Mortgage Calculator that shows you how to save $100,000 on your mortgage. Come visit this free site at Free Financial Calculator. Also, find out how to get your amortization schedule and use it to save big money at: Amortization Schedules Free. These sites are not owned by any lender, so no one will harass you for visiting!

Types of mortgage loans

There are several types of mortgage loans, each suitable for specific situations. The most common types are fixed rate, adjustable rate, and balloon loans.

Fixed rate mortgage loans

In a fixed rate loan, the interest rate stays the same throughout the term of the loan. Consequently, the monthly payment does not change, regardless of the prevailing market rates. This offers more stability for the mortgagor, but at the price of higher interest rates.

Fixed rate mortgage loans usually last 15 or more years. When the mortgagee grants a long term loan, they take on the risk of rising interest rates. This means that if the prime interest rate goes up, the lender, instead of the borrower, will pay the difference.

Adjustable rate mortgage loans

Adjustable rate loans start with a fixed rate for the first three to seven years, and then switch to an adjustable rate after the initial period. In this type of loan, the interest rate changes according to the market rates. This means the mortgagor assumes the risk throughout the loan. When the market rates go up, the buyer pays the higher interest rate. As a sort of incentive, the interest rate for the initial period is lower than that of the fixed rate loan.

Balloon mortgage loans

Also called a reset mortgage, a balloon mortgage loan starts with a very low fixed rate for seven to 10 years. After that, the buyer has to pay off the entire balance. Many people take out these mortgage loans and refinance their homes before it reaches the balloon phase. However, the risk in this scheme is that there is no way to predict the interest rates at the time of refinancing.

Refinancing mortgage loans

A common technique is to refinance a home while paying off a mortgage loan. This helps the owner find lower interest rates, reduce monthly payments, or avoid the risk of long term commitments. Refinancing can be done with most types of mortgage loans, depending on the mortgagors situation.

The simplest type involves switching between two adjustable rate mortgage loans. This is useful when the new loan has lower rates or shorter terms. It is also possible to switch between different types of mortgage loans, such as adjustable rate to fixed rate, or vice versa. The latter is usually done after the initial fixed rate period to maintain stability. Fixed to adjustable rates are ideal for people who do not plan to stay in the home for a long time, and thus may not find mortgage loans profitable.

Today with the state of the economy there are also loans called Short Refinance Loans. These help people where their equity in their home has fallen below their loan amount. For current information about this sort of loan do a standard search of Short Refinance Loan such as on Google.

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