Interest's fixed performance

Relative performance in fixed interest is largely driven by two dimensions:

Bond maturity and credit quality . Bonds that mature farther in the future are subject to the risk of unexpected changes in interest rates. Bonds with lower credit quality are subject to the risk of default. Extending bond maturities and reducing credit quality increases potential returns.

Since it is impossible to predict what will happen with interest rates in the future, we diversify broadly and use a "variable maturity" approach in most of our portfolios. This approach, which was developed by Professor Eugene Fama, uses the current yield curve to determine optimal maturities and holding periods. To maximize expected returns, we choose shorter maturities in flat or inverted yield curve environments and longer maturities in upwardly sloped curves. Maturities are shifted in response to changes in the current yield curve.

I hope that in 2011, "many" loan officers are not lying . Even if that's the case, any borrower with opened eyes and an attentive lawyer at his side would be able to clearly see the promissory note that he's signing identifying the loan as a fixed or variable rate.

That aside, I think we need to discuss amortization.

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Guest, your interest payments will decline month by month as you make payments that reduce the principal balance. At the same time, your principal payments will increase every month. Just for the sake of using numbers to illustrate this, let's say your payment monthly is $500.

In the first month of your loan, we'll assume that you pay $445 in interest, leaving $55 principal, which reduces your balance. The next month your interest might only be $440, making the principal $60. This process happens every month until such time as your loan is paid in full.

If it is, indeed a fixed-rate loan, then the monthly payment ($500 in the example) cannot change. The interest costs will drop each month and the principal payment will increase each month.

I hope that's clear.

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For a fixed rate mortgage, the payments are amortized for the whole term of the loan. The lender cannot change the proportion of principal and interest payments as per his whims and fancies. But the interest rates will decline with time as George has suggested.

Fixed Interest Rate is an interest rate, which is fixed and does not change during the term of the loan. It is established at the beginning of the loan and remains the same till the last repayment. This rate does not fluctuate with general market conditions. It varies from 6 months to 7 years.

Fixed interest rate can work for you or against you. For example, if you take a 10 year fixed rate mortgage at 6% and if the standard rate falls down to 4% then you may suffer losses in case you have locked in at the previous rate. But if the rate increases to 8% then you may not have made a better decision in your life than this.

You can use a consolidation program either with the same company or with some other company at the same time or even at a later period. Prefer to keep the timeframe for short duration so that you complete it at the earliest.

Once the accounts are updated as paid in your credit report, you won't have problems with your credit while applying for new credit later. Consolidation program does not put any negative impact in the credit file. The accounts will be shown as paid through this program. It is better than leaving the debts in delinquent state.

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Remember, these are school loans, it will never run out of the SOL period. You will have to pay it either now or later. Talk with the companies if they can offer some arrangements because you are willing to pay the debts and improve your credit.

Credit score is 630 and I want to purchase a home for 130,000. I do not have any credit card debt or other debts except for a car payment (I bought the car in Dec. 2008). I have been employed with the same employer for 6 years. I keep reading that with a credit score of 630 I can't get the best rate, but what rate would it be?

Guest, there are a variety of interest rates available, all of which are "priced" with origination and/or discount points.

on a conventional loan, you'll find that the way the particular interest rate is priced will be affected by your score. for example, in your case, you can pay as much as 3 additional points compared to someone with a score over 700.
if, on the other hand, you seek an FHA loan, you'll still feel a penalty, but it's far less than with conventional loans. at 630, you'll get hit for an extra .25 point.

by all means, if you are purchasing a home for owner occupancy, go fha! Rates are quite comparable with conventional, and the costs of obtaining that rate will be far less. in fact, you'll find fewer closing costs with fha than with conventional.

You can still get "the best rate" but it's a matter of how much comes out of your pocket to get that rate.