12 September 2007
Foreclosure doesn't just happen to people who don't make their mortgage payments. Your homeowner's association (HOA) can take your house or condo if you're not careful. In one case, a disabled California man lost his home in a foreclosure sale because he was $123 behind on his homeowner's dues. The house was worth $280,000. Unfair? Abusive? You bet!Read More »
The How-to-Refinance Toolkit: Why Length Matters
By Richard BarringtonNFNS Columnist
Borrowers have an
ever-widening array of mortgage terms available to them. Choice is good, but it
does make comparing mortgage providers a little more difficult. One challenge when
researching how to refinance mortgages is making accurate comparisons between, what
can be, very different products. Matching up time periods before comparing
lenders’ interest rates -- or better yet, annual percentage rates (APR) -- is an
important item for your how-to-refinance toolkit.
The Yield Curve -- Interest
Rates Over Time
A fifteen-year mortgage will almost always have a different interest
rate than a thirty-year mortgage. In general, interest rates on short-term
loans are lower than long-term loans, with the rationale being that risk
increases the longer money is owed. On rare occasions, the yield curve (think
of a graph plotting interest rates from short-term to long-term) becomes
inverted, meaning long rates are actually lower than short rates. Again though,
this is rare, and the important point is that interest rates for longer loan
periods tend to have higher APRs.
Comparing Mortgages
-- Matching Lengths
Another tool for your how-to-refinance kit is knowing not to
compare mortgage providers based on rates for loans of different lengths. Decide
first which length fits your needs, and then use that as a basis to compare.
When refinancing, you'll also want to compare a potential mortgage
against your existing mortgage. As you do this, remember that the length of
your existing loan is the number of years left on the mortgage, not the
original term of the loan. Therefore to make a valid comparison, try to match
the length of a new mortgage with the time remaining on your current mortgage. This
will give you a better comparison of whether or not you can replace your
existing debt with a similar loan at a lower rate.
About the Author
Richard Barrington is
a freelance writer and novelist who worked as investment industry executive for
over twenty years.
About the Author
Richard Barrington is a freelance writer and novelist who previously spent over twenty years as an investment industry executive.