Adjustable vs Fixed Rate Mortgages
Brought to you by http://www.wolverinefinance.com
Mortgage rates can either be fixed for the duration of your loan or can be adjustable. An adjustable rate mortgage is a loan that is set up with an interest rate that changes based on pre-determined criteria, primarily tied to the federal interest rate. If the interest rates are up, then your interest rate on your loan will be higher, if the interest rates are low then the interest rate on your loan will go down.
Adjustable rate mortgages (ARM's) are generally fixed interest rates for a period of time and then become adjustable. Generally speaking, the introductory interest rate for an ARM loan will be lower than a fixed rate mortgage. This is done in order to lower initial payments and allow people to take out larger mortgages, or give them smaller payments for the introductory period. This is attractive to people who may know that their income will be increasing over that period of time.
Whether or not to choose an ARM or a fixed rate mortgage has been debated for as long as there have been ARM's. Though people feel strongly in both camps, simple mathematics can assist you in determining which mortgage is best for you and your personality. Your personality? Yes. Some people are not comfortable with any uncertainty in their lives. The idea of having an uncertain mortgage payment in the future may cause them more stress than the money they are saving is worth. Therefore, factor your own comfort level into the equation.
Generally speaking, ARMs are 2, 3 or 5 years, though they can be longer or shorter. At the end of that period your interest rate will become variable unless you sell your home or refinance. If you think that the likelihood of your selling or refinancing within the period of the ARM is strong, than the lower interest rates of the ARM loan will be of great benefit to you. If you think it is unlikely that you will sell or refinance within that period, then you may not benefit from an ARM. Bob and Robyn are a young married couple just starting out. Bob is in advertising sales and Robyn is a teacher. Bob is fairly confident that his income will continue to increase over the next several years as he works his way up to becoming an account executive. Robyn's income is more predictable and is on an upward trend. Being a young couple they do not have the finances for large mortgage payments.
Bob and Robyn are presented with two mortgage proposals for their $150,000 mortgage. Proposal one is a 30-year fixed rate mortgage at 6% and the other is a 5-year ARM at an introductory rate of 5.25%. The fixed rate mortgage payments would be $899.33 per month, not including taxes. The ARM would have a 5-year period where payments would be $828.31 per month, not including taxes. Bob knows that even if he can afford the extra $70.00 per month for the fixed rate mortgage, that $70 per month may be better spent knocking down principle during the ARM period. He is further confident that as his salary increases, he is likely to upgrade his home within five years or refinance to make home improvements. Bob and Robyn took the ARM loan.
John and Catrina are a married couple with three grown children. John has been employed at the same company for 18 years and Catrina has been with her company for 12 years. They have consistent and stable income. Neither John nor Catrina expect any substantial increases in their salaries. After their last child moved out of the home they decided to downsize and buy a smaller home. They have a substantial down payment and will only be taking a mortgage of $100,000 on their new home. John and Catrina are presented with the same loan options as Bob and Robyn were. John and Catrina, however, know that it is unlikely they will sell or refinance in the next five years. They are comfortable with the payment schedule and, therefore, prefer the certainty of the fixed rate mortgage.
There are countless websites that offer mortgage calculators to determine your mortgage payment. For your convenience we offer one on our site. You can review the different payment schedules based on the interest rates quoted for the fixed-rate and the ARM. Once you know the different payment amounts you will be able to determine which loan makes the most sense for you and your unique circumstances.
Your mortgage professional should also be able to assist you in reviewing the options and making the best decision for you. The more open and honest you are with your mortgage professional the more helpful they will be. It is only if they are armed with full and honest information that they will be able to make recommendations to you. About the Author: Max Hunter is the author of many credit related articles. If you are looking for help with Home Loans or any type of credit issue please visit us at http://www.wolverinefinance.com For Credit Repair Software, other products, ebooks & articles, visit http://www.globalbizwiz.com
About the Author
I own a mortgage company and want to keep people in the know. You'll always pay more if your credit is poor!
Wednesday, April 11, 2007
Divorce, Debt & Credit... Facts you need to know
Before a divorce, during a divorce, and after getting a divorce you need to concern yourself with credit... credit establishment, credit files and credit scores. Though divorce and credit is a concern for both men and woman, woman tend to have the greater credit difficulty due to societal standards. Therefore, I encourage woman of any age or marital status to learn as much as possible from this and other articles. But for all men and woman, essential credit and financial matters must be addressed when contemplating a divorce in order for either and/or both parties to fiscally survive. Even if legally divorced, until finances are divorced, there is still a partnership as will soon be apparent. Here are some key points concerning credit that should be dealt with.
Joint Accounts - Joint Responsibility The Federal Trade commission says: "If you're considering divorce or separation, pay special attention to the status of your credit accounts. If you maintain joint accounts during this time, it's important to make regular payments so your credit record won't suffer. As long as there's an outstanding balance on a joint account, you and your spouse are responsible for it." If you divorce, you may want to close joint accounts or accounts in which your former spouse was an authorized user. Ask the creditor to convert these accounts to individual accounts. By law, a creditor cannot close a joint account because of a change in marital status, but can do so at the request of either spouse. A creditor, however, does not have to change joint accounts. The creditor can require you to reapply for credit on an individual basis and then, based on your new application, extend or deny you credit. In the case of a mortgage or home equity loan, a lender is likely to require refinancing to remove a spouse from the obligation. SPECIAL NOTE: any time you open an individual account, you may authorize another person to use it. A creditor who reports (good or bad) credit history to a credit bureau, will report it in the file of any person you have named as "authorized user" as well as your own file.
BEWARE - Defaulting on a Joint Account Regardless of any court decision, if one joint account holder defaults on a loan, I guarantee the creditor will not care who the court ordered to pay it. The creditor will definitely come after the other joint account holder. Even if declaring bankruptcy, a creditor will make every effort to reclaim their lost revenue or property from the surviving spouse. Therefore be fully aware that if a creditor does not agree to transfer joint accounts to an individual, then both of you are still responsible for full repayment to the creditor, regardless of how you've agreed to split the bills in the divorce settlement. If a spouse fails to make a payment, a creditor will come after the remaining joint holder, regardless of any divorce agreement. Additionally both joint holders will have negative comments on their credit file regardless of fault.
Experian Offers Tips Experian says, "There are several ways you can prevent credit obligations from making divorce more difficult - and reestablish your own distinct credit lines after divorce occurs. You may wish to consider the following: Communicate with your ex-spouse. Make as clean a financial cut as possible. Communicate with your creditors. Decide which credit belongs to whom, then ask each company and bank that extended you credit to transfer the debt to the name of the person who will be responsible. During divorce negotiations, keep your joint bills current, even if you ultimately will have no responsibility for the debt. If you don't, your creditors could become more reluctant to release one party from joint liability. Ask the credit grantor to remove your spouse's name as an authorized user or close the joint account to additional charges. If your spouse runs up large amounts of debt, you should cancel as many of the accounts as possible. Inform all creditors, in writing, that you are not responsible for these debts. This may not prevent them from trying to collect, but it does show that you attempted to act responsibly. Upon your divorce settlement, you and your ex-spouse might consider obtaining individual consolidation loans to cover your share of the joint bills. Pay off the joint bills with your individual loans and close all joint accounts. This helps ensure you'll be responsible only for those bills you agreed to pay. It also will help you establish or reestablish credit in your own name. "
Other Points To Ponder During a divorce people rarely consider the impact on their credit, yet the ramifications for failure to properly prepare for future credit can be devastating. Here then is a checklist and summary for a potential divorce in order to best protect your credit and rating. Get a bank account in your name only. Get at least one unsecured credit card in your name only. At a minimum get a secured credit card but in your name only. (This should occur whether divorcing or not.) Ask to freeze any joint accounts with an outstanding asset or liability (bank, credit card, loans, etc.) so that both signatures are required before any transactions can be made. Notify all creditors in writing (and call them) Document dates and who spoken to: Have joint accounts closed if a zero balance or if possible have the account placed in the primary responsible party's name only; Instruct all creditors that you want all authorized users removed except the primary holder; Inform all creditors you are not responsible for charges from that point on if not in your name. The primary party may have to re-qualify with the lender. This also means whoever will be responsible for a mortgage will probably have to refinance in order to remove the secondary party's responsibility. Get copies of your 3 credit reports and inform all credit bureaus when the divorce is final. Make every effort to separate your credit file from that of your former spouse.
MyVesta and Divorce.net MyVesta.org adds the following great suggestions "Make sure your name is listed on your utility accounts, an item often overlooked by many. When you go to get credit, they often look to see if you have a phone number in your name. If you don't, even if you are listed in the phone book at that number, it can be problematic. "Before signing the divorce papers, consider one addendum: change of name authorization. Crazy as it seems, many states require your ex-spouse's signature before issuing you a driver's license or other ID in a previous or maiden name. Men who added hyphens during marriage could encounter identity trouble, as well." Divorce.net offers very fitting final thoughts. "Your spouse may be in contempt of court for disobeying a court order that requires him [or her] to pay certain bills. However, if you are jointly liable to a creditor as in the case of a mortgage or co-signed credit applications, your spouse's contempt of court is NO EXCUSE for your non-payment. It simply isn't a legally sufficient defense to say, "It's no longer my responsibility because the court ordered my spouse to pay." _______________________ And from yours truly I add this. Until you are financially divorced with your own credit established, you remain tied to your former spouse. Divorce is not the tidy little package some people would like to think it is. It is not simply a matter of walking out one day. Over and above issues of child support and alimony, there are other financial ramifications beyond the emotional ones. The greater the communication at these times on both parts, the less of an impact there will be to both parties and the sooner the final separation will occur. Communication is critical in a marriage. It is just as critical in a divorce.
About the Author
Mike has been an Internet Guide/Writer in the field of Credit/Debt Management for over 10 years. His site was awarded Best Of Net by Forbes Publication from 2000 to 2005 with site visitation doubling to over 500,000 average views per month in the last year. He has also offered debt elimination seminars to businesses and community colleges for the last 9 years. He has been interviewed,and referenced in numerous publications. http://learncreditmanagement.com/
Joint Accounts - Joint Responsibility The Federal Trade commission says: "If you're considering divorce or separation, pay special attention to the status of your credit accounts. If you maintain joint accounts during this time, it's important to make regular payments so your credit record won't suffer. As long as there's an outstanding balance on a joint account, you and your spouse are responsible for it." If you divorce, you may want to close joint accounts or accounts in which your former spouse was an authorized user. Ask the creditor to convert these accounts to individual accounts. By law, a creditor cannot close a joint account because of a change in marital status, but can do so at the request of either spouse. A creditor, however, does not have to change joint accounts. The creditor can require you to reapply for credit on an individual basis and then, based on your new application, extend or deny you credit. In the case of a mortgage or home equity loan, a lender is likely to require refinancing to remove a spouse from the obligation. SPECIAL NOTE: any time you open an individual account, you may authorize another person to use it. A creditor who reports (good or bad) credit history to a credit bureau, will report it in the file of any person you have named as "authorized user" as well as your own file.
BEWARE - Defaulting on a Joint Account Regardless of any court decision, if one joint account holder defaults on a loan, I guarantee the creditor will not care who the court ordered to pay it. The creditor will definitely come after the other joint account holder. Even if declaring bankruptcy, a creditor will make every effort to reclaim their lost revenue or property from the surviving spouse. Therefore be fully aware that if a creditor does not agree to transfer joint accounts to an individual, then both of you are still responsible for full repayment to the creditor, regardless of how you've agreed to split the bills in the divorce settlement. If a spouse fails to make a payment, a creditor will come after the remaining joint holder, regardless of any divorce agreement. Additionally both joint holders will have negative comments on their credit file regardless of fault.
Experian Offers Tips Experian says, "There are several ways you can prevent credit obligations from making divorce more difficult - and reestablish your own distinct credit lines after divorce occurs. You may wish to consider the following: Communicate with your ex-spouse. Make as clean a financial cut as possible. Communicate with your creditors. Decide which credit belongs to whom, then ask each company and bank that extended you credit to transfer the debt to the name of the person who will be responsible. During divorce negotiations, keep your joint bills current, even if you ultimately will have no responsibility for the debt. If you don't, your creditors could become more reluctant to release one party from joint liability. Ask the credit grantor to remove your spouse's name as an authorized user or close the joint account to additional charges. If your spouse runs up large amounts of debt, you should cancel as many of the accounts as possible. Inform all creditors, in writing, that you are not responsible for these debts. This may not prevent them from trying to collect, but it does show that you attempted to act responsibly. Upon your divorce settlement, you and your ex-spouse might consider obtaining individual consolidation loans to cover your share of the joint bills. Pay off the joint bills with your individual loans and close all joint accounts. This helps ensure you'll be responsible only for those bills you agreed to pay. It also will help you establish or reestablish credit in your own name. "
Other Points To Ponder During a divorce people rarely consider the impact on their credit, yet the ramifications for failure to properly prepare for future credit can be devastating. Here then is a checklist and summary for a potential divorce in order to best protect your credit and rating. Get a bank account in your name only. Get at least one unsecured credit card in your name only. At a minimum get a secured credit card but in your name only. (This should occur whether divorcing or not.) Ask to freeze any joint accounts with an outstanding asset or liability (bank, credit card, loans, etc.) so that both signatures are required before any transactions can be made. Notify all creditors in writing (and call them) Document dates and who spoken to: Have joint accounts closed if a zero balance or if possible have the account placed in the primary responsible party's name only; Instruct all creditors that you want all authorized users removed except the primary holder; Inform all creditors you are not responsible for charges from that point on if not in your name. The primary party may have to re-qualify with the lender. This also means whoever will be responsible for a mortgage will probably have to refinance in order to remove the secondary party's responsibility. Get copies of your 3 credit reports and inform all credit bureaus when the divorce is final. Make every effort to separate your credit file from that of your former spouse.
MyVesta and Divorce.net MyVesta.org adds the following great suggestions "Make sure your name is listed on your utility accounts, an item often overlooked by many. When you go to get credit, they often look to see if you have a phone number in your name. If you don't, even if you are listed in the phone book at that number, it can be problematic. "Before signing the divorce papers, consider one addendum: change of name authorization. Crazy as it seems, many states require your ex-spouse's signature before issuing you a driver's license or other ID in a previous or maiden name. Men who added hyphens during marriage could encounter identity trouble, as well." Divorce.net offers very fitting final thoughts. "Your spouse may be in contempt of court for disobeying a court order that requires him [or her] to pay certain bills. However, if you are jointly liable to a creditor as in the case of a mortgage or co-signed credit applications, your spouse's contempt of court is NO EXCUSE for your non-payment. It simply isn't a legally sufficient defense to say, "It's no longer my responsibility because the court ordered my spouse to pay." _______________________ And from yours truly I add this. Until you are financially divorced with your own credit established, you remain tied to your former spouse. Divorce is not the tidy little package some people would like to think it is. It is not simply a matter of walking out one day. Over and above issues of child support and alimony, there are other financial ramifications beyond the emotional ones. The greater the communication at these times on both parts, the less of an impact there will be to both parties and the sooner the final separation will occur. Communication is critical in a marriage. It is just as critical in a divorce.
About the Author
Mike has been an Internet Guide/Writer in the field of Credit/Debt Management for over 10 years. His site was awarded Best Of Net by Forbes Publication from 2000 to 2005 with site visitation doubling to over 500,000 average views per month in the last year. He has also offered debt elimination seminars to businesses and community colleges for the last 9 years. He has been interviewed,and referenced in numerous publications. http://learncreditmanagement.com/
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