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Finance Articles
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Home Mortgages: How About Those 1.75% Loans?
By Douglas Hanna
Unsecured Loans Another large garage bill makes you wonder if it`s really worth spending any more money on the car. It has reached the time in its life when it`s started to cost you in upkeep and a newer model might prove to be less bothersome. With no savings to speak of you might be considering one of the Unsecured Loans that a price comparison site has pinpointed for your needs. You looked at the Unsecured Loans a few months ago but haven`t done anything about it since. Using the website that searches for low cost loans is easy as you simply enter the loan amount that you are interested in, the time period that you need it for and the purpose of the loan. The company will also need your employment status and some information about you. An initial assessment will take place for the best quote available and once the loan comparison sitee has found the best quote, they`ll be in touch with you. Think about the type of car that you could get with one of the Unsecured Loans and how much cheaper it would be to run. You could even combine a few of your other smaller loans into the new one to cut down on your monthly outgoings. Article01.html Many people in the UK, in fact as many as one in three UK taxpayers have paid too much tax! The Taxation People, are a forward thinking online accountancy service that specialise in helping people who might be eligible for a tax refund. They offer a online service, with a simple and easy to follow process that will get you the refund you are entitled to. I would urge you to check out The Taxation People, where if you have been or are currently employed The Taxation People can help you get a Tax Refund. The Taxation People are a trading name of Greer & Taylor LLP a respected and trusted accountancy service provider who offers a number of online services. Initially they are only offering the Tax Refund service that can be found at www.thetaxationpeople.com, but Greer & Taylor LLP are about to lauch a cost effective Self Assesment Service, keep an eye on www.greer-taylor.com for more information.
Maybe this mortgage would be a good deal for you. But before you leap to the phone or fill out an application, make sure you understand how these mortgages work. They are called option ARMs. This is because they offer four options from which you must choose: minimum monthly payment, interest-only payment, full principle and interest amortized over 30 years, and full principle and interest amortized over 15 years. If you choose the minimum payment option, which is at the advertised 1.75% interest rate, you pay nothing towards the principle and less interest than what accrues on the loan. The unpaid interest is added to the loan balance, and you become subject to what?s known as negative amortization. In other words, as you make the minimum payment, your loan balance will continue to grow. And, if interest rates go up, which they are most likely to do, your loan balance will grow even faster, to a point. For example, depending on your loan, when your balance reaches a level, such as 110%, 115% or 125% of the original balance, the loan is ?recast,? and your minimum payment goes up. There are two dangers to the minimum payment option. The first is that the lower the ?teaser? rate (usually 1.75%), the higher the potential increase in monthly payments if the interest rate goes up, as it most certainly will. The second danger is that you could literally end up owing more than your house is worth, In fact, one economist recently said ?They are a lot more dangerous (than an interest only loan) because the borrower is giving away part of his equity, sometimes unknowingly.? For example, on a $250,000 mortgage if the balance reached 115% due to negative amortization, the total mortgage would then be $230,000. It?s difficult to compare a minimum payment option ARM with a five-year fixed rate, interest only loan because pf the differences between the two. However, for the sake of the example, the payment on a $250,000 minimum payment option ARM the first year could be as low as $632. However, because of negative amortization, the balance owed on your mortgage could grow to $210,000 or more by the end of the second year. In comparison, a 5-year, fixed rate, interest only loan on that same $250,000 at 5.50%, would have a monthly payment of $1145.83. This payment would remain the same for all 60 months (five years) and the balance of your loan would still be $250,000. So, what lesson is to be learned here? It is that option ARMs can save you money but can be very complex. You need to fully understand what you are doing before you sign up for one. Your loan documents will disclose the risks, so read everything carefully. The documents may have to tell the truth, but marketing materials can be misleading. So read, read, read and if there is anything that isn?t clear, make your mortgage broker explain it until you are certain you understand all the details. 
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