A.P.R. vs. Interest Rate – What’s the difference?

You’re most likely to encounter low interest rates and low annual percentage rates (A.P.R.) on television commercials or newspaper ads as lenders vie for the attention of potential borrowers. As Jerry Seinfeld says “Ahhh, the timeless art of seduction.” But buyer beware, not all that glitters is gold.

A.P.R. was created to provide a way for borrowers to account for costs associated with the mortgage. This sounds good because it may not be very easy to choose between a loan with a lower rate and higher fees or a loan at a higher rate with low fees.

Although APR is supposed to be a shopping tool, it’s an inaccurate tool at best. While it's designed to make it easier to compare loans, it's sometimes confusing because the A.P.R. includes some, but not all, of the various fees and insurance premiums that accompany a mortgage. And since the federal law that requires lenders to disclose the A.P.R. does not clearly define what goes into the calculation, A.P.R.s can vary from lender to lender and loan to loan.

Another problem with APR is that it is calculated over the life of the loan, even though over 90% of all borrowers sell their house or refinance their mortgage before term. This can lead borrowers with relatively short time horizons astray.

For more helpful advice on A.P.R. and interest rates check out these articles:

http://www.mtgprofessor.com/A%20-%20Mandatory%20Disclosure/does_the_apr_help.htm

http://credit.about.com/od/regulatory/a/041305.htm

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Brian Daniel is a loan officer for www.bendmortgagegroup.com., a mortgage company in Bend, Oregon. He is also the company's marketing coordinator. For more articles visit www.bendmortgagegroup.com/Articles.

What Does the Future Hold?

The outlook for the economy and mortgage rates is more of the same. Despite higher energy prices and the devastation of the hurricanes, economic growth is expected to continue due to productivity increases and tax cuts. The 30-year traditional fixed mortgage rate is predicted to reach 6.50%. For borrowers with adjustable rate loans, it’s still not too late to do a refinance mortgage into a fixed term given that long term borrowing rates are still attractive. To see where interest rates are at right now visit http://www.bendmortgagegroup.com/RateSheet

For more helpful advice and articles visit http://www.bendmortgagegroup.com

Home Equity Lending Will Increase While Refinancing Will Decline

Rising interest rates = decline in refinancing = increasing home equity lending.

"In a 2002 study the Federal Reserve found that the average household extracted $26,700 in equity with each refinancing. One-third of that money was used to pay off old debts or add to savings; the other two-thirds was spent. The Fed estimated that the extra spending added a quarter to a half-percent to consumer spending. That provided a welcome boost to demand as recession, terrorist attacks, and a sagging stock market were dragging down household purchases." (Business Week, "After the Housing Bubble," 4.10.05)

"Due to the most recent rate increases, minimum credit card payments are predicted to double. Many consumers will be either unwilling or unable to make the necessary adjustments within their personal budgets to accomodate these increased expenditures. Because of significant increase[s] in housing value, many Americans will look to eliminate credit card debt with lower interest rate, tax deductible mortgage products and mortgage interest." (Lorne lahodny, president of Secured Funding Corp.)

Essentially, as the refinance boom ends, borrowers will want to stick with their low rate first mortgages, and as rates continue to rise and homeowners continue to be in need of money, they will need to access their equity. Whether it's paying college tuition, buying a car, or paying off high-interest debt, most homeowners will be looking to second mortgages and home equity lines of credit.

For more helpful news and articles visit http://www.bendmortgagegroup.com.

Can You Get A Home After Bankruptcy?

Yes, you can get into a home again after a bankruptcy, but be prepared for higher interest rates.
A bankruptcy will stay on your credit report for seven to ten years, but it stops affecting your credit significantly after two years.

Be sure to check your credit report annually, and make sure that all accounts that were part of your bankruptcy were discharged.

Larger down payments decrease your rates. Cash reserves and a large income can also offset your credit risk. The lower your debt to income ratio, the better score you will get.

It’s also important to remember that not all lenders will treat your application the same. So it’s important to shop around for the right mortgage with the right terms.

Interest-Only Loans Can Buy More House and More Trouble

They're spreading like wildfire--interest-only mortgages appear to be the panacea for rising home prices and the incomes that can’t quite catch up. You can buy "more house" and have a low mortgage payment and a big tax deduction. Who wouldn’t want one, right?


Well, a large number of consumers are getting into these loans when they shouldn’t. Interest-only mortgages work well for some individuals and are dangerous for most others, yet the number of interest-only loans is rising rapidly.


Take a look at San Diego. In 2004 almost half of the mortgages required interest-only payments in the first few years according to a study done by LoanPerformance, a San Francisco--based real estate information service. Could this have something to do with the housing market? You bet it does. Are home prices rising faster than salaries and incomes? They sure are. So how is one supposed to afford a house in such an expensive housing market? You guessed it--an interest-only loan.


Interest only-loans were originally aimed at more sophisticated investors who wanted to leverage their income by re-directing what would have been the principal portion of their payment to higher yielding investments that exceed the rate of their home appreciation. These types of investors typically have more assets and financial discipline than most and therefore aren't as likely to get in as much trouble with such a loan.


Today, interest-only loans are being utilized by borrowers who are trying to leverage debt. What they are doing is getting more debt for their buck; they're borrowing more money but keeping their payments low (initially) in order to compete with other buyers in sellers’ markets. Here are some of the potential dangers that face such borrowers:


If the principal balance isn't being reduced, than no equity is being built, and if home prices are stagnant during the interest-only period and the borrower needs to sell, he'll need to be able to pay sales costs out of whatever equity there is in the house, if there is any. Remember, mortgage amortization is in the borrower’s control, appreciation is not.

If there’s a downturn in home prices, the borrower could end up “upside down,” meaning the mortgage balance on the property could end up being greater than the property’s market value. In this case, the borrower would be responsible for sales costs and the remaining mortgage balance which could lead to foreclosure.


Interest-only mortgages make sense for borrowers:


who have seasonal incomes or earn commissions and/or bonuses and have a desire to pay on the principal when it’s convenient.

who are upwardly mobile and expect to earn more in a few years and want to buy “more house” early on rather than later.

who intend on investing their cash flow in higher yielding investments or paying down high-priced debt.


Make sure you know what you’re getting into with an interest-only loan. Consult with your mortgage broker or lender to know what the possible repercussions could be, and be sure you’re getting the loan for the right reasons. Eventually, you want to own your home, and it’s better to be planning on that sooner than later.

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Brian Daniel is a loan officer for http://www.bendmortgagegroup.com/, a mortgage company in Bend, Oregon. He is also the company's marketing coordinator. For more articles visit http://www.bendmortgagegroup.com/Articles. For help with an Oregon home loan visit http://www.bendmortgagegroup.com.

Happy Holidays...

With all the controversy in the news about politically correct greetings for the holidays I'm nervous just typing this. I'll just say that I hope everyone had a good time these past few days, and I hope that the new year brings you much happiness and joy. From all of us at Bend Mortgage Group Ltd., we wish you and yours the best.

Good Mortgage Broker vs. Bad Mortgage Broker

According to the NAMB (National Association of Mortgage Brokers), two out of three Americans work with a mortgage broker to purchase a home because of the broker’s expertise and wide selection of loan products and lenders. However, with so many so called "experts" out there, how does one separate the wheat from the chaff? How do you know if a broker is honest? And how do you know they're an "expert" or not?

The NAMB says that over 70 percent of brokers are legitimate, that is they have safeguards and policies in place to make sure that they stay on the straight and narrow. So what about the other 30 percent? Well, the whole 30 percent isn’t bad, but just as in any classroom, you’re going to have those at the top, some in the middle, a few at the bottom, and others who simply don’t show for class. Obviously, those at the bottom and the no shows would not be your first choice if you were going into surgery and they were holding the scapel, nor should they be handling your loan when you purchase a home or refinance.

Because of the surge in numbers of mortgage brokers in the past few years, there are plenty of incompetent and dishonest brokers out there. In order to avoid the 30 percentile, I offer the following tips to help you find a mortgage broker that is not only an expert but honest and reputable as well:


Don’t believe everything you hear. Asking friends or family to recommend a mortgage professional is usually the first place people start. However, how do they know the broker is reputable and trustworthy? Check with your state regulatory offices and licensing bureau once you have some referrals. Better to be safe than sorry.

Use an NAMB certified mortgage broker. Brokers certified by the NAMB practice the highest ethical and professional standards in the industry. There is a "Find a Broker" link on the NAMB’s website at http://www.namb.org/.

Use an Upfront Mortgage Broker (UMB). These brokers disclose their fees to customers in writing in advance at the customer’s request. They also disclose the wholesale prices they receive from lenders. For a list of UMBs visit http://www.mtgprofessor.com/.

Honesty is the best policy. If a mortgage broker suggests that you lie on your loan application in any way, he/she is most likely in the 30 percentile. Walk away.

They need to show you the money. If a mortgage broker doesn’t disclose your closing costs in three business days, it’s probably best to take your business elsewhere.

If you’re not bleeding, they shouldn’t be applying pressure. A mortgage broker who pressures you into anything you are not comfortable with probably failed ethics. No reputable broker will pressure you into anything you don’t feel comfortable with.

There are no stupid questions. Does the mortgage broker answer all your questions to your satisfaction? Are his/her answers straightforward, honest, and respectful?

Do you have a reservation? If you feel comfortable with whom you’re working with and feel like they have answered all your questions and put all your reservations to ease, you’ve probably found a good mortgage broker.

Brian Daniel is a loan officer for Bend Mortgage Group Ltd. a mortgage company in Bend, Oregon. He is also the company’s marketing coordinator. For more information or help with an Oregon home loan visit www.bendmortgagegroup.com.