Home Mortgages Continue to Change
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A home mortgage is often thought of as a sacred bond between the mortgagee and the lender or mortgage company. The pact says as long as the mortgagee pays, the bank will let them keep your house. These days with rising interest rates and property taxes, the home mortgage has become the ruler of many people's lives.
A few years ago qualifying for a bigger mortgage wasn't too difficult and it even made the mortgagee feels more wealthier. There's little doubt that paying down one's home mortgage makes you feel smarter and more secure. To better understand why there's now problems with the sub-prime lenders, it's necessary to understand how the mortgage lender views the agreement the mortgagee has signed.
In many cases, these mortgages were treated like a cash commodity that was to be traded like a stock. Believe it or not, the document that causes people to go to work is actually just like IBM shares. With little money down, home mortgages were closed on all over the country.
Multiple notes were bundled and sold as a financial package to bigger companies and eventually overseas to investors who believed that they were buying AAA grade debt. Home mortgage packages with higher interest rates are typically sold for more on the market than ones with lower interest rates.
To make it more complicated for the average person, home mortgage companies don't actually loan you their own money. They borrow it from the federal government. So when the government charges them more as they have over the last few years, the mortgagee will eventually pay more.
The Fed doesn't simply sell banks their money, they auction it. To a certain extent it's like Ebay. What has happened over the last few years is that several markets are working at once. This should have been enough to destabilize the cost of home mortgages (the interest rate).
There are a limited number of home mortgage buyers. Right now home ownership rates are higher than almost any time in history. So there are few people that want to buy houses. There continue to be refinancings and people selling one home to buy another. The fact that real estate values are dropping and home mortgage holders may be having troubles making monthly payments while the rates continue to increase, you have the potential for a buyers' market.
So how do you use this complexity to your advantage?
While interest rates on home mortgages go up and down like a stock market, you can learn to read the signs to understand the trends. Although there's not too many weird home mortgages anymore, if you find terms that are confusing or seem like a deal that Enron would have created, then that mortgage company may be getting desperate. Before you decide what rate to input into a mortgage calculator, take a look at the business or finance section of the daily paper to get the latest interest rates.
Any mortgage calculator can tell you what interest rate on a home mortgage will get you into the house you want (under 6% on a fixed mortgage, is considered a fantastic interest rate). I recommend using a mortgage calculator because it's a great tool to help you determine the best terms. Print the results out.
Now call a major home mortgage player, Countrywide is a good example. Talk to a representative and provide the terms you desire for your home mortgage, just don't include the interest rate. If they offer what you want, or lower, take it. If not, bargain as best as possible. Then have them send you their best offer in writing.
Take this offer and call another home mortgage company and make them compete for your business. Don't forget, they're desperate at this point. You are not. These days with a slow real estate market, mortgage brokers need the sale. Bargain like you would for a car, but harder because the payments will be much bigger. When you think you've negotiated the best deal possible, get it locked in. Recognize that in today's market, interest rates and terms could change tomorrow.
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