What Kind of Mortgages are Available?

All you have to do is log on to the Internet to be bombarded by opportunities to acquire a new mortgage or refinance your existing home. The rates posted sound great, but bewildering. A mortgage calculator is an invaluable tool when it comes to assessing the various mortgages available to you. While the hype that accompanies each kind of mortgage tells you the technical information, the mortgage calculator will show in actual terms what this means as regards your monthly finances.

Fixed Rate Mortgage (FRM)

The fixed rate mortgage probably financed your grandmother or mother's house immediately post World War II. With a fixed rate mortgage, you pay the same amount each month and work your budget around it. Every month is the same for the length of the loan. The interest doesn't change. Think of buying a car; this is it. No worries of interest rate fluctuations or inflation eating you alive.

With a simple mortgage calculator and the current average interest rate for fixed rate mortgages, you can quickly find your top buying price for a home. Unfortunately, the interest rates tend to be higher than for adjustable rate mortgages. If the interest rates drop, your payments will remain the same, unless you want to refinance. A refinance mortgage calculator can give you the information you need to decide about refinancing with a fixed rate mortgage with information about breakeven points.

Adjustable Rate Mortgage (ARM)

An adjustable rate mortgage, no longer the new kid on the block, means that you will pay a different amount as the index to which it is keyed changes. If the index goes up, then your payment increases too. But, if it declines, then so does yours, sort of. With caps on payments and interests rate, lenders may recoup interest in some mysterious way if the interest rate declines. In weird fact, you may owe a larger payment with a decline in the interest rate. Usually, but not always, the rates on your loan may be adjusted annually, or every three or every five years. Using a mortgage calculator, even one designed for an ARM, can only give you a rough idea of what your payments might eventually. The large number of variables inhibits the investigation.

You need to find out what the most you could afford to pay each month would be, and then choose a house that will allow the interest rate to rise substantially. And, plan on working with your mortgage calculator on a regular basis and finding someone trustworthy who really knows what's going on.

Comparing the FRM and ARM

If you aren't sure about whether the initially lower, but more, risky adjustable mortgage, or the safer, more expensive fixed rate mortgage is for you, then use a comparative mortgage calculator such as the ARM vs Fixed Mortgage offered by The Mortgage Professor. He'll explain it in such detail that you'll know you'll never be sure. He also has many other calculators and articles for consumer use.

Other Types of Loans

If you qualify for any of these loans, use the mortgage calculator to see how they measure up against the more traditional ways of financing your home.

* FHA (Federal Housing Administration) insured loans are mainly for first time buyers in the low to middle income bracket.

* VA (Veterans Administration) may insure your loan, if you have been in the military service. You may qualify for a lower down payment with a loan of up to 100%. The states also have loan programs supporting those having served in the military. Check out the VA loan mortgage calculator.

* "No-doc" (no-document) loan is for those with some kind of negative history. However, the lack of financial scrutiny comes at a cost of a higher than average interest rate.

Use a mortgage calculator to input the same loan amount and calculate what the each of the interest rates offered on each of the above types of mortgage would translate to in monthly payment.

Finding A No-Load Bi-Weekly Mortgage Solution

Every month I write a check to my mortgage company for $840.52. And, I will continue writing that check for almost thirty more years, if I live that long. So, I was very interested to hear that I could take that same payment (for a small additional monthly fee and one larger set-up charge) and cut $1,000s and years off my mortgage. Something sounded too good to be true.

They called it a bi-weekly mortgage. When I checked out a bi-weekly mortgage calculator on the web, it sure enough was going to save me large sums of money. Then I noticed that I wasn't making 12 months of payments, but 13. You know, 52 divided by 2 does not equal 24, but 26. That fifth week we get in a month once a quarter adds up to a whole month by the end of the year. So, of course, I'll save money by the suitcase full. That's because I'm putting a whole extra payment a year in it.

What I learned, I'll share with you:

Beware; bi-weekly mortgages are not what they seem. That poor mortgage calculator can only do so much. It can provide the figures for you to decide whether or not bi-weekly mortgages are something you want to explore, but it can't verify the company said mortgage. A mortgage calculator is only good for the figures, for the contractual terms you must read the small print yourself.

Some companies offer bi-weekly mortgages. What they do is take your monthly mortgage payment, split it in two and take two equal payments electronically from your account each month. (Sound familiar?) The savings your mortgage calculator said you would make with a bi-weekly mortgage becomes void with this kind of mortgage. You see, you still, in effect, make 12 payments during the year, plus the lender charges for extra payment handling.

Crunching the numbers for this is regular calculator, not mortgage calculator, work. Even if it was a true bi-weekly, if they charge an additional setup and other monthly fees, it may not be worth it.

One way of avoiding this is to just pay the mortgage monthly, and prepay an additional month at the beginning of each year. This time a mortgage calculator can show you the difference this will make to your overall mortgage.

Alternatively, use a mortgage calculator to figure how much per month extra you need to pay in order to make up the same savings as making one full additional payment annually. This could be as simple as dividing your monthly payment by 12 and adding that much to your mortgage each month.

Either way, be sure it gets credited to your principal, not as an advance payment of regular payment. Reducing the principal reduces the length of your mortgage, which reduces the amount you owe. Applying it to your regular payment just pushes your due date into the future with no savings at all.

For example: Take my mortgage payment and divide by 12: $70.04. Add it to my regular mortgage payment for a total of $910.56. Then start with the mortgage calculator to check on the savings. Whoo, it cut eight years of payment off my note, saving me $80,689.92. Now where can I find another $70 a month?

All done without any set up charges or additional "administrative fees" or electronic transfers. Bless my little mortgage calculator's heart.

One big advantage of this method is that you can increase the monthly additional payments when you need to. Or, drop them completely if your circumstances change; you are only committed to paying the original monthly payment. Check it out with a mortgage calculator. We call this fun math!