Can The Home Loan That is Best For Your Bank Also Be Best Mortgage For You?
By: Kevin Carden | Posted: 05th July 2007
A Bank is a Business and they make their money on Markup just like any other business. In the Case of a Bank Loan the Markup is really the Spread (Difference) in the interest rate the bank pays and the interest rate the bank receives. So the loans with the biggest Spreads are best for your bank. Doesn't it stand to reason the more money the bank makes the less money you keep.
The Cost of Funds Index for July 2005 was 2.75 percent. The Most popular loan is a 30 year fixed rate loam. This loan also has the highest interest rate traditional of any loan available to an 'A Rated' Borrower According to Freddie Mac the Average rate on 30 Year Fixed mortgage was 5.71 percent. This represents a spread of almost 3 percent. On a $200,000 mortgage the bank is earning over $6,000.
If the loan with the highest Spread is best for the bank wouldn't a loan with a lower spread be best for the borrower. Loans with the lowest spreads tend to be Adjustable rate loans. With Adjustable rate loans your interest rate adjust usually yearly based on an Index and a Margin. The Index can be any published interest rate such as 30 Year Treasury, Prime Rate, London Interbank Rate (Libor) or 11th district Cost of Funds. Many Adjustable rate mortgage will start with a low teaser rate with payments fixed for up to 10 years (much like a retail store will advertise a loss leader to lure in the shoppers).
A Smart consumer will take advantage of these low teaser rates and lock in those low payments for up to 10 years. An even smarter consumer will invest some or all of the mortgage savings to act as a hedge against the uncertainty of these loans. With a proper conservative investment strategy using equity indexed annuities the homeowner will almost always come out way ahead using this method.
Kevin Carden is a publisher of several stock house plan websites and informational resources, the most famous being www.houseplancentral.com. House Plan Central has a large collection of home plans and unique house plans in many different architectural styles, from the nation's top house designers and architects.
About the Author
Kevin Carden is a publisher of several stock house plan websites and informational resources, the most famous being www.houseplancentral.com. House Plan Central has a large collection of home plans and unique house plans in many different architectural styles, from the nation's top house designers and architects.
This article is free for republishing
Printed From: http://www.articlealley.com/article_183044_19.html
Back to the original article
Tags: adjustable rate mortgage, prime rate, highest interest rate, adjustable rate loans, 30 year fixed rate, teaser rate, smart consumer, year fixed mortgage, teaser rates, loss leader