Choosing a mortgage

Mortgage rates have stayed relatively low, but they are still considerably above rock-bottom levels reached two years ago, and many worry that they will ultimately head higher. It is one of the reasons why Realtors think it is a great time to buy or move now.

Still, that's not the only consideration when choosing a mortgage. Here's how to make the decision.

1. 15-year versus 30-year debate

The first question you should ask is, "How much can I afford to pay on a monthly basis?"
Keep in mind, your mortgage payment is only part of what you'll pay to live in your home. You also should budget for furniture, your house's upkeep and the general expenses of life (like, say, food).

A 30-year mortgage will have a lower monthly payment and a higher interest rate than a 15-year mortgage.

So you'll have a smaller monthly obligation but you'll pay more for your house over time because you're paying it off with interest for a longer period.
Conversely, a 15-year mortgage will have a higher monthly payment and a lower interest rate so you'll pay less for your house because you're paying it off in a shorter period.

"For most home buyers, especially first-time buyers, taking a 15-year (or 20-year) mortgage is out of the question," said Keith Gumbinger, vice president for mortgage tracker HSH Associates. The higher monthly payments are often too much to handle for these types of buyers.
But for home buyers with sufficient income and a desire to be mortgage-free in a short time, a 15-year loan might be a good bet.

If you do not feel comfortable commiting to 15-year loan, do yourself a favor at least and every time you save some moeny put them toward priciple of the mortgage, it will reduce the amount of moeny your own, and therefore, it will reduce how long it will take to pay it off and some interest money.

2. Fixed versus adjustable-rate conundrum

The second question you should ask is, "How long will you be in the house?" You probably can't answer with absolute certainty, but you can play the odds.

Say, for example, you're single and buying a small condo but you can easily envision yourself married; or you've just started a family and plan to expand it at some point. Chances are good you'll want to trade up to a new home in five to seven years. On the other hand, maybe you've had your family and want to settle into a place with a good school system, which your kids will be using for the next 12 years.

My experience says that most people stay in the house/condo longer than they though they would originally. So keep that in mind.

Whatever the answer, it will help you decide whether it makes sense to get a fixed-rate or an adjustable-rate mortgage (ARM).

A fixed-rate mortgage locks in a rate for the length of your loan.

ARMs, meanwhile, are short-term fixed-rate loans: After the fixed rate term is up, the rate adjusts at regular intervals in accordance with current interest rate conditions at that time.

A 5/1 ARM, for example, has a fixed rate for five years and then adjusts every year for the next 25 years. (ARMs typically run on a 30-year schedule.)

The length of the fixed-rate term on an ARM typically can range anywhere from one month to 10 years. The longer the rate is fixed, the higher the interest rate you'll get.

But generally speaking -- and there have been exceptions in the past -- ARMs will cost you less in the short-term. With the ARM, both your monthly payments and interest rates should be lower than either a fixed rate 15-year or 30-year mortgage.

The risk with an ARM is that when interest rates rise, you could end up paying much more than you bargained for. "You're subject to the vagaries of the market," Gumbinger said. That's why in today's low-rate environment, he noted, "You want to maximize the fixed-rate picture to match your time frame."

If you know you'll be in a home for 12 years or more, a 30-year fixed rate mortgage might work better for you than, say, a 5/1 ARM, where you fix a rate for five years and then it adjusts every year after that. But if you think you won't be in the home longer than five or six years, a 5/1 ARM might make more sense.

3. A dollars-and-sense exercise

Say you need a $200,000 loan to buy a home and you can get the current average rates for a 30-year fixed, a 15-year fixed, or a 5/1 adjustable rate mortgage.

If the 30-year fixed rate mortgage is at 6.62 percent - a level it was at just a few months ago - your monthly payment would be $1,280. The interest you pay over the life of your loan would total $260,786.

With a 15-year fixed rate at 5.94 percent, your monthly payment would be $1,681. The interest you pay over the life of your loan would total $102,623, or about $158,163 less than the 30-year fixed.

With a 5/1 ARM at 4.20 percent, your monthly payment would be $978 for the first five years. The total interest you pay over the life of the loan if you stayed in your home past five years is anyone's guess because your rate would then adjust annually. But if you move after five years, that won't be an issue.

So, to say the least it is only few things to consider...And, always compare at least 2-3 mortgage companies, you will be surprise how different they charge you so called "closing costs"

What is a Bond?

We are better familiar with James Bond 007 as a fictional British agent[1] created in 1952 by writer Ian Fleming, featured in twelve novels, two anthologies, and a film series than financial bond which by the way affects mortage rates....

so, what is bond?

TECHNICALLY SPEAKING, a bond is a loan and you are the lender. Who's the borrower? Usually, it's either the U.S. government, a state, a local municipality or a big company like General Motors. All of these entities need money to operate -- to fund the federal deficit, for instance, or to build roads and finance factories -- so they borrow capital from the public by issuing bonds.
Now for a little bond-speak. When a bond is issued, the price you pay is known as its "face value." Once you buy it, the issuer promises to pay you back on a particular day -- the "maturity date" -- at a predetermined rate of interest -- the "coupon." Say, for instance, you buy a bond with a $1,000 face value, a 5% coupon and a 10-year maturity. You would collect interest payments totaling $50 in each of those 10 years. When the decade was up, you'd get back your $1,000 and walk away.
A key difference between stocks and bonds is that stocks make no promises about dividends or returns. General Electric's dividend may be as regular as a heartbeat, but the company is under no obligation to pay it. And while GE stock spends most of its time moving upward, it has been known to spend months -- even years -- going the other way.
When GE issues a bond, however, the company guarantees to pay back your principal (the face value) plus interest. If you buy the bond and hold it to maturity, you know exactly how much you're going to get back (in most cases, anyway. I will discuss some exceptions later). That's why bonds are also known as "fixed-income" investments -- they assure you a steady payout or yearly income. And although they can carry plenty of risk (I will discuss why in our How Bonds Behave lecture), this regular income is what makes them inherently less volatile than stocks.