Mortgages: What Are My Options?
Mortgages can be the cause unnecessary stress
for many people, especially to the first-time home buyer.
It is important that you know ahead of time what all of your
options will be when it comes to financing your house. Arm
yourself with information and break out that calculator!
Types of Mortgages
Fixed Rate Mortgages
You've probably heard this term plenty of
times in your home-shopping endeavors. Its name means what
it says: the rate that you lock in at the time of the mortgage
is your fixed rate. It will never increase, decrease, and
it will remain the same fixed rate for the duration of your
loan unless, at some point, you decide to refinance. Within
the fixed rate mortgage realm, there are two possibilities
for financing: 15 year, and 30 year mortgages.
30 Year Fixed Rate Mortgages
The 30 year fixed rate mortgage is the most
traditional choice. Because the length of the loan spans many
years, it offers homeowners lower monthly payments. It can
be the best option for buyers who don't have a lot of cash
to put toward a monthly loan amount. When you don't have to
put most of your paycheck towards a huge payment, this option
leaves you extra cash for such things as home repairs and
improvements. There are lenders that even offer 20, 25, or
even 40 year terms. Keep in mind, however, that the longer
the loan, the more interest you will end up paying in the
long run.
15 Year Fixed Rate Mortgages
A 15 year fixed rate mortgage allows owners
to do just that: own your home outright in half the time of
the traditional 30 year mortgage. While this sounds like a
great option, keep in mind that while the duration of your
loan is cut in half, this also means higher monthly payments
because you have a shorter time period to pay it off. If you're
looking for the most economical way to secure a loan while
living on a fixed budget, this may not be the best mortgage
for you.
Adjustable Rate Mortgages
Another option comes in the form of the
adjustable rate mortgage. Also commonly referred to as ARM's,
these mortgages have become increasingly popular over the
last decade. They can be a great choice if you plan on short
home ownership, an expected rise in your household income,
or when interest rates skyrocket at the time of your purchase.
Your initial interest rate will be a few points less than
that of a traditional mortgage, making it easier to qualify
for this type of loan. But it is just that: an initial rate.
This is sometimes known as a "teaser" rate because
it generally falls below the current market percentage. The
interest rate will then increase, usually a month or so after
you lock in the loan. There are safeguards in place to assure
that you won't be paying unreasonable amounts when the market
fluctuates. Monthly payment caps, or upward limits, is the
percentage that your current rate is not allowed to exceed.
For example, if you locked in at four percent and you have
a five point cap, then your loan amount will not be higher
than nine percent that month.
Finding the right mortgage is one of the
most important decisions that you will make during the home
buying process. There are several options when it comes to
shopping for the right loan. No longer are banks considered
the primary source when it comes to financing. There are several
companies out there today that deal strictly with mortgages
and refinancing. You have several choices and with a little
research, you'll find the right lender.
Don't be afraid to interview your potential
mortgage broker. Shopping around for the best rate will yield
the best outcome, both mentally and financially. You can always
turn to your agent for advice, but remember that this is not
their primary area of expertise. Mortgages aren't as tricky
as they seem - and with a little research and knowledge, you'll
be a satisfied borrower in the end.
###
Ready to take the guided tour of Warren County,
NJ?
Email
Rich to schedule an appointment to discuss your home buying
needs and explore the area.
Return to homepage |
