Can The Home Loan That Is Best For Your Bank Also Be Best Mortgage For You? By Kevin Carden At Isnare.com Ezine Articles

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.

Published At: Isnare Free Articles Directory http://www.isnare.com
Permanent Link: http://www.isnare.com/?aid=165737&ca=Finances

Important Notice DISCLAIMER: All information, content, and data in this article are sole opinions and/or findings of the individual user or organization that registered and submitted this article at Isnare.com without any fee. The article is strictly for educational or entertainment purposes only and should not be used in any way, implemented or applied without consultation from a professional. We at Isnare.com do not, in anyway, contribute or include our own findings, facts and opinions in any articles presented in this site. Publishing this article does not constitute Isnare.com's support or sponsorship for this article. Isnare.com is an article publishing service. Please read our Terms of Service for more information.