Real Estate Mortgage Terms

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Real Estate Mortgage Terms By John Harris

Whether your are obtaining a mortgage for your first home, or your tenth in a series of real estate investments, the type of mortgage you choose will have a lasting impact. The consistency of your payments, the amount of interest you pay, and the amount of money you put down will all affect your decision. Here's a quick glossary of the terms you need to know. Fixed vs. Variable Mortgage Loans The standard 30 year fixed real estate mortgage isn't so standard anymore. It's still extremely popular because you can lock in a one-time interest rate that will stay consistent over the life of your mortgage. But this doesn't work for everyone, which is why the other real estate mortgage options have evolved. The variable mortgage, also called an adjustable rate mortgage (ARM), or floating mortgage, is often attractive because the payments and interest rates can be significantly lower. The problem is that the interest rate will fluctuate along with the prime lending rate. This means your mortgage payment could increase at any time. This is a good option only if you know you can handle the jump in payment without consequence. Interest Only Mortgage Loans If you have ever looked at the amount of interest and principle paid on an actual real estate mortgage payment, then you know why interest only loans are so popular. Someone who pays $1,250 monthly, at a 5.875% interest rate, is actually making a payment of about $670 to interest, $400 to escrow, with only $180 going towards paying off the principle of the loan. By paying off the interest in the early years of the loan, your monthly payment will be significantly lower. A traditional mortgage would require that additional payment to principle each month. While your payments with an interest only real estate mortgage loan are guaranteed to jump once the interest is paid off, this can work towards your advantage in some situations. For instance, a young person just starting out in a career may expect to be making more money by the time the monthly real estate payment increases. Also, the flexibility can allow you to borrow more money, or create more cash flow in your real estate investment, in those early years.

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On the down side, you don't accrue any real estate equity when you're not paying off the principle amount owed. Also, the unpredictability of the real estate market makes this a riskier loan. Most financial advisors also counsel against taking out an interest only loan if you can't afford the house without it. Negative Amortization A negative amortization loan is most often used in areas where real estate costs are very high, with the goal of helping people who could not otherwise afford to buy into the area. Basically, the real estate lender agrees that the mortgage holder will pay less than the amount of interest due each month for a short, usually 5 year, period of time. The owed amount is tacked on to the remaining real estate loan at the end of that period. Also known as a deferred interest or Graduated Payment Mortgage (GPM), this is considered risky since the "jump" at the end of the lower payment period will be significant. Balloon Mortgages Balloon Mortgages have inspired come controversy in the real estate industry, because some shady real estate professionals have advised them inappropriately. With a balloon mortgage, you pay a fixed rate for a specified period of time (5/7/10 years) and then pay off the remaining principle in a lump sum when that time is up. Balloon mortgages are attractive because the interest rates are usually lower. One way to use a balloon mortgage for your real estate purchase is to take advantage of the lower interest rate, and then attempt to refinance at a low fixed rate at the end of the term. This is especially appealing when interest rates are high. Just remember, have a plan, and a back up plan, for paying off the final amount if you are thinking about a balloon mortgage. The best advice is probably to talk to someone you trust who has a good real estate background, and who can assess your specific situation. Every real estate transaction is different, and so are your mortgage needs. John Harris is a researcher and writer on applicable real estate topics such as economics, credit improvement tips, home selling advice and home buying preparations. For more information please visit http://www.twtrealestate.com/Del Mar Realtors

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All About Real Estate Investment Trusts (REITs) By Stuart Chng

Real estate is a big business and everyone seems to want to invest in real estate. You keep hearing a lot of stories about how people made a quick buck by investing in real estate. There are stories about people who made $50000 in a fortnight by making the right kind of investment in real estate. Every now and then, newspapers keep coming up with statistics about the appreciation in the real estate prices. There seems a mad rush for investing in real estate (and this gets even bigger when the mortgage interest rates are falling). However, not everyone has the time, money and expertise to be able to profitably invest in real estate. So what does one do? Is there any other option? Yes, there is another way of investing in real estate and that is through Real Estate Investment Trust. Real Estate Investment Trust is an organisation that invests in real estate as a full fledged business. By investing in a Real Estate Investment Trust, you can become part of the real estate investment party and enjoy profits (of course, the assumption here is that the Real Estate Investment Trust is good and professionally managed). Investing in Real Estate Investment Trust is very easy too. You can just buy Real Estate Investment Trust shares which trade on all major exchanges. There are certain laws governing the Real Estate Investment Trusts that help them avoiding the tax at corporate levels e.g. it is mandated that Real Estate Investment Trust’s portfolio has 75 percent of investment in real estate. Moreover, 75% of the income of Real Estate Investment Trust must be from rents or mortgage interest. There are various types of Real Estate Investment Trusts. Some Real Estate Investment Trusts own properties themselves and hence feed on the rental income from those properties. Some others indulge in providing only mortgage loans or go for mortgage backed securities. Then there are Real Estate Investment Trusts which do both i.e. rental focussed investments and mortgage based investments. There are a number of Real Estate Investment Trusts operating in the market and a lot of these Real Estate Investment Trusts are doing good business. By investing in Real Estate Investment Trust you are basically investing in real estate without actually buying a property yourself. This is one easy way of investing in real estate (and much safer too). You must surely evaluate this option for your real estate investments. The writer is the founder of www.EastLiving.com.sg . Having accumulated a wealth of experience in dealing with thousands of private home buyers and sellers, Stuart Chng and his team, has honed their real estate negotiation skills and a thorough understanding of the needs and psychology of home buyers. Sign up for EastLiving's daily Singapore Property News at http://blog.eastliving.com.sg .

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