Scott Moize Jr.

First United Mortgage Group

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Understanding the Basic Interest Rates Difference Between Fixed and Variable

May 26, 2023 by Scott Moize Jr.

Understanding the Basic Interest Rates Difference Between Fixed and VariableHome loans are available in an assortment of lending packages, but the big difference that consumers need to pay attention to at a minimum is how the interest charge is calculated. Interest is the margin that represents the profit and risk offset for a lender financing a consumer’s home purchase.

With loans lasting over 30 to 40 years now, the amount of money that can be made can be two or three times the purchase value of the home involved. So it’s calculation method is important for the borrower.

A Fixed Rate

A fixed rated is one where the home loan interest rate does not change. So, if a person takes out a 30-year home loan with an interest rate of 5 percent, that interest rate charge per year will not change at any time during the 30 years of repayment. It provides stability for financial planning, especially for buyers who just want to pay the same payment monthly and not fuss about anything else.

A Variable Rate

A variable interest rate is one in which the interest on a home loan can change over time. The most frequent set up involves an introductory rate period where the interest rate on a 30 year loan is attractively low for the first one, three or five years. Then, if the loan is still in place, the interest rate may adjust up or down and starts to track an index, usually based on a stock or bond market. Then a “margin” is added to the index to determine the current mortgage interest rate.

The risk is whether that newly adjusted interest rate is higher than what was available previously as a fixed interest rate. The variable rate may work very well for those who only want to hold a home for a short period and then sell it for a profit. It can become a problem, however, if the loan is held longer than the change period when the variability kicks in with a market index.

Pros And Cons

The major advantage of a fixed loan is that is very straightforward, simple and can be refinanced years later if the market starts to offer much lower rates. That protects a consumer from fluctuating costs, especially when running a household on a set budget. However, the same formula is often more expensive in the first few years, especially if the home will only be owned for a few years.

The big advantage of the variable interest rate loan is realized by investors or those who only plan to stay in their home or home loan for a short period of time. Investors who think the real estate market will go up can make big profits with far less carrying costs in interest since variable rate loans often have a low introductory period. However, if they guess wrong or are forced to keep the loan longer than planned, the buyer could get stuck with a more expensive, fluctuating monthly loan payment.

Which one works best often depends on the buyer and his specific interests in a home purchase. Talk to your trusted mortgage professional today about interest rates to help you determine which option is best for you. 

Filed Under: Mortgage Tagged With: Fixed, Interest Rates, Mortgage

What is the Difference Between a Reverse Mortgage and a Home Equity Conversion Mortgage?

May 25, 2023 by Scott Moize Jr.

What is the Difference Between a Reverse Mortgage and a Home Equity Conversion Mortgage?A reverse mortgage and a home equity conversion mortgage (HECM) are both types of loan products that allow homeowners to tap into the equity they have built up in their homes. However, there are some important differences between the two.

A reverse mortgage is a type of loan available to homeowners who are 62 years of age or older. With a reverse mortgage, the lender makes payments to the borrower, which can be taken as a lump sum, line of credit, or regular payments. The loan is paid back when the borrower dies, sells the home, or permanently moves out of the property.

On the other hand, a home equity conversion mortgage (HECM) is a specific type of reverse mortgage that is insured by the Federal Housing Administration (FHA). To qualify for an HECM, the homeowner must be 62 years of age or older and own their home outright or have a low mortgage balance that can be paid off with the proceeds from the HECM.

One of the key differences between a reverse mortgage and an HECM is the way the loan is structured. With a reverse mortgage, the lender makes payments to the borrower, while with an HECM, the borrower can receive payments from the lender or choose to receive a line of credit that they can draw on as needed.

Another important difference is the cost. HECMs are insured by the FHA, which means that they come with certain fees, including an initial mortgage insurance premium, an annual mortgage insurance premium, and other closing costs. Reverse mortgages, on the other hand, may come with different fees depending on the lender.

Overall, while both a reverse mortgage and an HECM can provide homeowners with a way to access the equity in their homes, there are important differences to consider when deciding which option is right for you. It’s important to do your research and speak with a qualified financial professional to understand the pros and cons of each option and make an informed decision.

Filed Under: Mortgage Tagged With: Home Equity, Mortgage, Reverse Mortgage

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NMLS #595311
Servicing Texas
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CONSUMERS WISHING TO FILE A COMPLAINT AGAINST A COMPANY OR A RESIDENTIAL MORTGAGE LOAN ORIGINATOR SHOULD COMPLETE AND SEND A COMPLAINT FORM TO THE TEXAS DEPARTMENT OF SAVINGS AND MORTGAGE LENDING, 2601 NORTH LAMAR, SUITE 201, AUSTIN, TEXAS 78705. COMPLAINT FORMS AND INSTRUCTIONS MAY BE OBTAINED FROM THE DEPARTMENT’S WEBSITE AT WWW.SML.TEXAS.GOV. A TOLL-FREE CONSUMER HOTLINE IS AVAILABLE AT 1-877-276-5550.
THE DEPARTMENT MAINTAINS A RECOVERY FUND TO MAKE PAYMENTS OF CERTAIN ACTUAL OUT OF POCKET DAMAGES SUSTAINED BY BORROWERS CAUSED BY ACTS OF LICENSED RESIDENTIALMORTGAGE LOAN ORIGINATORS. A WRITTEN APPLICATION FOR REIMBURSEMENT FROM THE RECOVERY FUND MUST BE FILED WITH AND INVESTIGATED BY THE DEPARTMENT PRIOR TO THE PAYMENT OF A CLAIM. FOR MORE INFORMATION ABOUT THE RECOVERY FUND, PLEASE CONSULT THE DEPARTMENT’S WEBSITE AT WWW.SML.TEXAS.GOV.

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Scott Moize - NMLS# 595311
First United Mortgage Group
NMLS #400025
This is not a commitment to make a loan. Loans are subject to borrower and property qualifications. Contact loan officer listed for an accurate, personalized quote. Interest rates and program guidelines are subject to change without notice.
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