When it comes to mortgages there are
many options available to you. But how do you choose the right mortgage payment
options and terms for it? You should know the risks involved with each one of
them and carefully consider the loan offers that you receive. Before agree or
settling on any mortgage term and payment you should evaluate how much you can
afford a month and include taxes and insurance in that number as well. Here is
a breakdown of different mortgage options that currently exist along with a
little explanation about each to give you an idea of what may be best for you.
1.
Fixed Rate Mortgage
A fixed rate mortgage is an option
that actually locks in a set interest rate. This is by far the best option due
to the fact that your rate cannot increase. If rates happen to drop, you are at
liberty to refinance without the worry of increasing rates. With this option
you are protecting yourself from unexpected rate increases.
2.
Adjustable Rate Mortgage
With Adjustable Rate Mortgages
(ARM), initially you are offered a low rate resulting in lower payments, initially.
However, after the initial payment option is completed the ARM will then
adjust. If there is a rate increase, then so will your rate and your payment.
Essentially, you will have to understand that with this option you will need to
make sure that you budget will allow for payment increases.
3.
Interest Only Payments
Interest only payments is another
payment route that you could go. With this option you will have lower payments
and more flexibility to your payment options, however, no equity is built with
choosing this option. Once the payment option is completed you may find
yourself in a difficult situation, so be VERY careful when it comes to interest
only mortgage loans.
Normally, if you choose not to put
down twenty percent of your home’s value you will be required to use a private
mortgage insurance company. These companies protect the lender in the event you
default on your loan. There is a way to avoid the private mortgage insurance
through “creative” financing. You can opt to take out a second loan to cover
the amount of the twenty percent down payment, but the interest rate on the
second loan usually tends to be higher.
I hope that the four mortgage
options that I discussed gave you a good idea of what to expect when choosing
your options. It is best to do your research to make sure you that you are
getting the best rates and payment options possible.
Additional Resources:
What I don't like about insurances is the interest. But if it's tax deductible, it would be much better.
ReplyDeleteHomebuying can be a stressful experience because of all the options available. If you're unsure about the soundness of your decision when it comes to mortgage matters, it is always advisable to get proper advice from mortgage advisors. They will explain things in terms you can understand and help you strike the best deal.
ReplyDelete