From the category archives:

Essentials

September 12, 2008

How come my monthly payment has shrunk, while the rate has increased?

I can think of three reasons for that. One of them or any combination of them could result in such an illogical at first glance situation: • You made an extra payment towards the principal some time ago and now it’s taking effect. The balance has become so low, that even a higher rate cannot [...]

August 8, 2008

Is there a way to amortize an interest-only mortgage?

Normally, your monthly payments do not include anything to be paid towards the principal during the interest-only period of your mortgage. On the one hand, it makes these payments lower; on the other hand, when the interest-only period is over you have to face the debt you borrowed years ago in its full size again, [...]

August 6, 2008

How come I have been paying my mortgage for 2 years, but the balance is actually growing?

This very unpleasant situation is called negative amortization. The most likely causes are: i) You have an adjustable rate mortgage with a payment cap that does not allow you to raise your monthly payment enough to match the new interest rate. As a result, your monthly payment is probably high enough to cover the principal [...]

August 6, 2008

How come I have been paying my mortgage for 2 years, but the balance is (practically) unchanged?

The reasons for that can be: i) If your have a conventional fixed-rate or adjustable rate mortgage, and it is really as young as 2 years, it is natural for the balance to reduce insignificantly because of the “leveling” of monthly payments. You can find a more detailed explanation in my article about FRMs; but [...]

July 30, 2008

It is true that a biweekly mortgage pays a lot better than a conventional one?

It a sort of is. The main distinction between the two is the number of period payments made within each mortgage year. You may have a conventional mortgage with a period payment due twice a month, which is very close to, but not exactly every other week. With a conventional mortgage you make 12 (months)* [...]

February 29, 2008

Balloon Payment Mortgage

The payment calculation of a balloon mortgage is identical to a fixed-rate mortgage, usually a 30-year Fixed Rate Mortgage. However, this is all they have in common. If a conventional Fixed Rate Mortgage is expected to be repaid in 30 years, the completely amortizing final payment on a balloon mortgage is due at the end [...]

February 14, 2008

Interest-Only Mortgage

First of all, Interest-Only is not a separate mortgage type. It is an option that can be attached to virtually any mortgage repayment plan enriching it with its benefits or disadvantages (or both). Interest-Only has different effect on different plans, but it practically always makes the overall cost of a mortgage higher, as well as [...]

January 31, 2008

Flexible Payment Mortgage (Option ARM)

Once I googled for Option ARM and the top search result read Nightmare Mortgages. Very … hmmm … intriguing, isn’t it? Well, as I always say, you have to have a clear idea of how a mortgage plan works. Once you are sure, that you understand it, you can decide for yourself, whether such an [...]

January 26, 2008

Adjustable Rate Mortgage

The Adjustable Rate Mortgage does not seem to be very attractive to borrowers mostly because of the apparent complexity of its mechanism. When people hear about market indexes, constantly increasing rates and negative amortization, they don’t want to listen to this any more and just go for the good old Fixed Rate Mortgage. Before you [...]

January 25, 2008

Fixed Rate Mortgage

I don’t think it’s hard to understand why a Fixed Rate Mortgage has been the most popular type for decades – most people like stability, and that’s exactly what they get with this kind of mortgage: the Interest Rate is fixed throughout the life of the loan; the monthly payments are fixed, too, if you [...]

January 19, 2008

Types of Mortgages

A mortgage will become your biggest debt in years! For most people it is true, but it not as scary as it may sound. When you have the knowledge, when you understand what exactly is going on, when you are in full control of the situation – trust me, it is not scary! I am [...]