Posted on: 17th Jun, 2004 01:22 am
No-Point Mortgage or a low-point loan is a type of mortgage which requires no points. It is a popular option with homebuyers having shortage of cash. By taking a no-point mortgage, borrowers can reduce the closing costs. But on the other hand, the lender will ask for a higher rate of interest.
The benefits of a no-point mortgage include:
Homebuyers often prefer to have a no-point mortgage loan if they anticipate that the interest rate will be going down in future. In such a case, they can refinance and pay points to buy down the interest rate on the new loan.
The key factor to determine whether or not to go for a no-point mortgage is for how long you wish to keep the loan. If it is for a shorter period, a no-point mortgage may help but if it is for a longer period then it may cost more on account of higher interest rate.
The benefits of a no-point mortgage include:
- Buyers having shortage of cash can easily qualify for a mortgage.
- One can save by paying lower closing costs, although in the long run he will have to make higher interest payments.
- It is useful to borrowers who plan to keep their mortgage for a short period of time.
Homebuyers often prefer to have a no-point mortgage loan if they anticipate that the interest rate will be going down in future. In such a case, they can refinance and pay points to buy down the interest rate on the new loan.
The key factor to determine whether or not to go for a no-point mortgage is for how long you wish to keep the loan. If it is for a shorter period, a no-point mortgage may help but if it is for a longer period then it may cost more on account of higher interest rate.
My question is this: If I want to purchase a new home and need to borrow around $485,000 what type of loan would you advise? I own a home worth 500,000 and I own 127,000 and I am putting it up for sale this week, hoping that I can sell quickly. When I sell I will put all the profits into the new loan paying it down. What would you suggest I do for a loan? Thanks Judy
Judy, your question makes it sound like you are buying the new home with a $485,000 mortgage before the present home is sold.
If that is the case, I am guessing you qualify carrying the mortgage debt for both properties, because, you would have to have income high enough to do that.
If you have a $485,000 mortgage, that is either a jumbo mortgage because it is over $417,000 or it is a semi-jumbo mortgage presently authorized to be done in one of 73 high cost counties in the United States. It is not known at this time if the larger loan limits will be extended thorough next year as being authorized to do. That is important because the secondary market for jumbo mortgages is not so good, although, in certain areas some regional banks have taken up the lending for those.
Anyway, you have a choice between Fixed Rate and Adjustable Rate mortgages.
If you have a fixed rate mortgage and pay down the balance, your payment remains the same, you have a lesser term left and the mortgage would pay off faster.
With and ARM, when you pay down the balance the payment will adjust whe the rate adjusts.
If you have an interest only loan, the payment will adjust right away to a lower payment.
Rates are so low right now, I would suggest fixed rate and when the balance drops and your payment stays the same, the mortgage will pay off faster. I suggest this only because if you can qualify for two mortgage payments, it is probably not important that your payment drop when you pay down the balance.
If that is the case, I am guessing you qualify carrying the mortgage debt for both properties, because, you would have to have income high enough to do that.
If you have a $485,000 mortgage, that is either a jumbo mortgage because it is over $417,000 or it is a semi-jumbo mortgage presently authorized to be done in one of 73 high cost counties in the United States. It is not known at this time if the larger loan limits will be extended thorough next year as being authorized to do. That is important because the secondary market for jumbo mortgages is not so good, although, in certain areas some regional banks have taken up the lending for those.
Anyway, you have a choice between Fixed Rate and Adjustable Rate mortgages.
If you have a fixed rate mortgage and pay down the balance, your payment remains the same, you have a lesser term left and the mortgage would pay off faster.
With and ARM, when you pay down the balance the payment will adjust whe the rate adjusts.
If you have an interest only loan, the payment will adjust right away to a lower payment.
Rates are so low right now, I would suggest fixed rate and when the balance drops and your payment stays the same, the mortgage will pay off faster. I suggest this only because if you can qualify for two mortgage payments, it is probably not important that your payment drop when you pay down the balance.
