The Basic Concept Of A Mortgage

If you are new to borrowing and are just looking for your first home, then you probably are unsure about how mortgages work, and what the various types of mortgages are. If you are about to get your first mortgage, then you need to know the basics of what mortgages are and their various features. Here is some useful advice on the basics of mortgage lending:

What is a mortgage?

A mortgage is the loan that you take out to pay for a property. The loan is split into the capital and interest. The capital is the amount you have actually borrowed to buy the property, and the interest is the amount the lender charges you for the privilege of borrowing. There are various types of mortgages, but in general the two main types are repayment mortgages and interest only mortgages. Repayment mortgages are ones that require you to pay back the capital and interest each month. Interest only mortgages require you to pay just the interest each month and then the final capital amount at the end of the mortgage term. Whatever type of mortgage you are looking for, there are a number of features you should consider:

Interest rate

The interest rate of the mortgage is very important, because the lower the interest rate, the less you will pay back over the loan term. Mortgage rates are lower than most other types of loans, at around 5 or 6 %.

Exit fees

When you take out a mortgage, you agree a length of time over which you will repay the loan, known as the mortgage term. If you leave during the mortgage term to use another lender, then the current lender will often charge exit fees to allow you to leave. You want a mortgage with low interest rates, but also make sure that you are fairly free to change lenders if required.

Insurance

As with all loans, you will be offered insurance on your mortgage, in case you are ill, out of work or die and can not make the payments on the mortgage. When getting mortgage insurance, make sure that you are not paying too much for it and that your other insurance policies do not already cover you.

How do you get a mortgage?

Mortgages can be obtained from banks, specialist mortgage lenders and online lenders. If you are looking for a mortgage, Cherry Creek Mortgage can help you find the best deals before committing to any particular loan program.

Ron Black Mortgage Time

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Economic News For The Week Of May 4th 2015

By Louis S. Barnes                                                                  Monday, May 4, 2015      The big news of the week: the US economy stalled in the first quarter, GDP rising 0.2%. And long-term rates, which go down on weak economic news instead went up.      There are several keys to this conundrum. The first: the economy did not stall. The most basic forward momentum in our economy (any economy): 321 million Americans need to spend money every day to live, and “personal consumption expenditures” in the first quarter plodded along at a 1.9% annualized rate. Second, there is no new evident weakness in employment, although next Friday’s payroll report could surprise.      Home sales are not rocketing, but not bad either: pending sales in March were 11% higher than one year ago. Today’s release of the manufacturing ISM index arrived unchanged in April at 51.5 despite weakness in the oil patch and the strong dollar hurting exports.      GDP calculations are weird. BTW: nobody should have been surprised by a poor number -- the Atlanta Fed’s real-time GDP tracker (“GDPNOW’) has had a near-zero figure for six weeks. Pulling GDP down: investments fell in Q1, everything from residential to business, some of that due to pullback in drilling. Another big sinker: imports rose, but exports fairly collapsed, down 7.3% in Q1 -- we were still spending, but buying the production of others.      The one aspect of the GDP report which does indicate a stall: businesses built a lot of inventory in Q1 which did not sell, but the production boosted GDP -- it would have been negative without the inventory accumulation. Now we infer that the overstock will mean underproduction in Q2. And the Atlanta Fed tracker shows no rebound in April.      If not a stall, certainly underperformance, then why the jump in mortgage and bond yields? Mortgages are still a hair below 4.00%, but the 10-year T-note is up to 2.11% and looks lousy. If ever you wanted confirmation that the outside world has more and more impact on daily life in the US, follow this bouncing ball.      Last winter the Fed adopted the rhetoric of inevitable rate-hikes ahead. If economic growth merely remained on current track, the Fed was coming. No need for inflation even to rise toward target, we’re coming. Simultaneously the European Central Bank and the Bank of Japan entered end-stage QE money-hosing -- panicked, really.      In the near term, currencies move relative to each other because of changes in local interest rates (longer term: inflation and trade balances). Money will flow to the highest return, and in the era of electronic money on 24/7 screens, moves FAST. So the dollar rocketed up, and the euro and yen crashed, as did nearly all important currencies, those central banks also hosing in order to be trade-competitive with Europe and Japan.      If you’re going to move to dollars you have to buy dollar-denominated bonds and stocks. Thus US bonds went up in price, down in yield, at max panic in early February, the 10-year to 1.65%. The NASDAQ returned to its all-time high. QE by the ECB and BOJ pushed yen and euro bonds almost to zero, adding to buy-pressure here.      Historically, big swings in currency values take a year or years to change the flow of exports and imports. In the modern era, not just money is made of electrons; so is a lot of world trade. The weak euro has suddenly pinked European economies, Spain now the strong man of Europe, second only to Germany. However, ruddy Europe is at the zero-sum cost of a pallid US, our exports tanking.      Hence the spreading global assumption that the Fed will have to hold off, maybe indefinitely. So the whole machine has run in reverse for 10 days: dollar down, euro and yen up. Euro bond yields up (all is relative, German 10s from 0.06% to 0.37%), US Bond yields up.      Hunch: all of this QE-currency hoo-ah has not changed a thing. The world is and has been caught in oversupply of labor, materials, commodities, and manufactures, soggy everywhere, German and Chinese predation making all worse. The Fed may lift off (Bill Gross: “If only to show they can still get out of bed”), but the economy and rates are not going anywhere. ------------------------------------------------------

Mortgage Time Economic Update - Week Ending April 17th

Capital Markets Update 4-13-15

By Louis S. Barnes                                                        Monday, April 13, 2015      The week began with a reverse-bang: last Friday’s payroll report was distinctly weak, and rates fell a lot that day, but on Monday morning markets immediately un-did themselves. Right back to where they were -- mortgages in the high threes, the 10-year T-note just under 2.00%.      That trading is a clear sign that the bond market is gradually awakening from denial. The Fed is coming. Two if by land, one if by sea, but either way, they’re coming.      This week the Fed released minutes of its March 17-18 meeting, which were widely described as “divided.” No, they’re not. The control group -- Chair Yellen and the governors appointed by the president and confirmed by Congress, joined by the capable regional Fed presidents (Dudley, Williams, Rosengren, Evans, Lockhart) -- is in complete agreement: the Fed will lift of from 0% this year unless the economy swoons. Most likely in summer, and at a very low slope. And without further warning. The warmer the economy looks, the sooner; if a tad cool, early fall.      The other chatter out of the Fed comes entirely from the other regional Fed presidents, who seem unaware and uninterested that their hawkish world view is out of touch. Nevertheless, the bond market is a big place, and a lot of it has become convinced that the Fed will stay at 0% forever. Uh-uh.      The part of the economy most vulnerable to liftoff is of course... us. Housing. It is possible that the extraordinary bond-buying QE by foreign central banks will hold down US long term rates even as the Fed raises the overnight cost of money. Very low inflation and oil prices may have the same effect. But we have to address the central question: is housing strong enough to withstand higher mortgage rates?      The question is a big deal -- last year despite all contrary forecasts, mortgage rates fell back into the threes, and housing still did not ignite. Just stumbling forward, underperforming nearly all forecasts.      But now, this spring, there are flickers of improving health. Little up-ticks in purchase mortgage applications. What does real health look like, and why? I live in the hottest housing market in the US, Denver Metro. Why us, and not elsewhere?      1. Our home prices stayed flat from 2001 until ignition in January 2013. We had no bubble. We had a mini-bubble 1998-2000, when the IT Fairy landed here, but when she left... flat. We had our foreclosure episode, plowing through consequences of idiotic subprime lending, but no bust, just flat. Flat is good, and long flat is ideal. During twelve years of flat prices, purchasing power accumulated -- even with wages growing at two, or three, or four percent, that’s a lot of accumulated power.      2. From 2000 to 2015 the state population grew by one million people, a 25% increase, most of them within commuting range of Denver. While prices were flat. And because of accumulated development, and our local mania for open space preservation (in CO outside a municipality, the minimum lot size is 35 acres by state law), as big as CO is we are short of land. Near Denver, very short. Near Boulder we can see the last single-family building sites ever. Our economy is diversified, heavy with stable government payrolls, IT, bio-T, and entrepreneurial.      Purchasing power meets scarcity, and ka-BOOM. Prices in 2013 and 2014 rose in an annual range of 5%-8% depending on the usual things. I had thought that mortgage hyper-regulation and appraisal lids would hold appreciation in the 8% range despite our explosive demand/supply mismatch. Uh-uh.       An attractive new listing this year will be sold in the listing office before it hits the market. Good ones which make it to market may have 40 showings in the first 48 hours. Offers commonly waive appraisal and commit to making up in cash any gap between appraisal and price. A new bubble? Nope -- the economic foundation is sound.      A few other places are like us, but most are not. Most have neither the scarcity, the long-flat, nor the income growth. The Fed knows housing is still fragile, but...      They are coming. ----------------------------------------------------- Five years of 10-year T-note. We are very close to the all-time 2012-2013 bottom, the heart of QE3, but now the Fed is going to lift off. We CAN still go lower, but it will take some really lousy news to do it.

Only 126,000 new jobs in March

By Louis S. Barnes                                                         Friday, April 3, 2015      The last line in last week’s column: “For complete chaos, and canceling all rate worry above: a weak report on jobs.”      And chaos it is! Masked until Monday by today’s holiday, but the ground is moving now. Only 126,000 new jobs in March, the prior two months revised down by 69,000, slightly declining hours in the workweek, overtime flat... this is the growing strength the Fed needs to pre-empt?      Stocks are closed, but bonds are trading: the US 10-year T-note at 1.81%, down from 1.98% on Monday, and all technical forecasting models suggest a re-test of February’s temporary two-year low at 1.65%. The next visit may not be so temporary.      But, be very careful here. Rising wages are much more important to the Fed than payroll numbers. At 5.5% unemployment the economy is already in the historical danger zone. Average hourly earnings in March rose 2.1% year-over-year, but last month climbed 2.8%.      Chair Yellen delivered a magnificent speech on March 27, one of the best-ever by a Fed leader, thinking out loud through all the reasons the Fed should liftoff from 0%. Buried and brief on page 3, reasons not to move:      “I would be uncomfortable raising the federal funds rate if readings on wage growth, core consumer prices, and other indicators of underlying inflation pressures were to weaken, if market-based measures of inflation compensation were to fall appreciably further, or if survey-based measures were to begin to decline noticeably.”      Today’s report does not show weakened wages, nor in other reports any weakening of inflation. We did see a weaker ISM manufacturing survey for March, down to 51.5 from 52.9, obviously hurt by a stronger dollar. Fed Vice Chair Fischer’s statement last fall that “Falling oil prices are an unambiguous benefit” has proven wildly overconfident, the drop not yet stimulating consumer spending but currently shaving jobs.      On the happy side we have a slowly but consistently improving housing market, sales up 12% year-over-year, and prices rising at double the rate of inflation.      On net: presumption that this jobs report has intercepted liftoff in June or in September, or in 2015 is very premature. Specifically to gambling on mortgage rates, these extremely low levels are held down by overseas central banks, which the Fed sees as artificial -- not a signal of US weakness, and possibly requiring Fed interception.      For now, rejoice in low rates. And also in an unusual cluster of other good news.         First, little noticed, the WSJ reported this week that the Fed in 2014 began to lean on bank boards of directors to do their jobs. To supervise management. Not just take fees, get their buddies on other boards, back-scratch executive and their own compensation, take five-star junkets -- and when their ward institutions bring down the global financial system, sniff in indifference. Fed supervisors are leaning hard, one director at a time, especially on previously inert and crony “independent” directors. I have believed ever since 2005 that bank-director indifference to bank conduct was the primary failure leading to the meltdown. The Fed is late, but hooray anyway.      Next, Nigeria replaced its crooked head of state in a non-violent election. Good luck to Muhammadu Buhari in his promised fight against corruption and Boko Haram. Nigeria is 178 million souls today, quadrupled in 50 years, and in another 30 years will be more populous than the US.      Then the Iran deal. In the last two weeks as the negotiation deadline drew near and passed and revived, financial markets traded on the outcome. When the deal looked dead, stocks and rates went down, risk up; alive again, stocks up and rates up. Nobody knows how the deal will turn out, but markets like the fact of six powers talking.      Last, some would argue whether good or bad news, but we can hope in the next two weeks to get a resolution to Greece. If they are out, then quick downward pressure on rates here, fearful of chaos (that word again...). If they stay in, nobody will care. For my own part, an end to the story would be a blessing. ------------------------------------------------------- 10-year T-note in the last week, although NOT including semi-closed trading today. As above, off the bottom of this chart at 1.81%. The sharp drop on Wednesday followed the weak ISM survey, and the rise on Thursday coincided with the good news from Iran talks.