The Right Mortgage Option for Buying a Home
Things that can affect which kind of mortgage option is right depends greatly on the home buyer. There are different types of low down payment and no down payment mortgages. Some homes loans are best suited for specific types of homes. Distressed homes, for example are best equaled with an FHA 203k renovation loan. This kind of home loan has funds for repairs structured into it.
Of all the mortgage options obtainable, fixed rate loans are the safest. Back in the days of subprime lending by predatory lenders, many borrowers fell prey to overwhelming debt. A fixed rate home loan is more obtain for many home buyers; there’s no confusion about monthly payments and interest.
Compared to an ARM, it’s much easier to calculate a fixed rate mortgage too. The most familiar of these is the 30-year traditional. Home buyers usually make a 10% – 20% down payment with a fixed interest rate. FHA loan products have a 3.5% place.
traditional loans have a lender insurance premium when less than 20% is deposited. This premium called PMI, or private mortgage insurance, protects lenders in case of borrower default. If the loan-to-value reaches 80%, PMI can be dismissed. Buying at lower rates enables buyers to make additional principal payments. This method PMI can be dismissed sooner instead of later.
For some home-buyers a 15-year or bi-weekly fixed rate loan is more attractive. These debts are paid off much faster than 30-year traditional mortgages.
An ARM, or adjustable rate mortgage, can be a useful product for some home buyers. This kind of loan is best for buyers when interest rates are low. What borrowers must consider is the length of time they intend to stay in the home. Borrowers assistance if they are going to stay only a few years, sell the character and move before rates rise. If a borrower can pay the mortgage off before rates rise, that’s already better.
ARM’s also have fixed rates, but harder to understand. There is a specific rate which, as interest rates rise and fall, remains the same. As rates go up and down, a percent is additional or subtracted but unprotected to caps. These caps dictate the maximum and lowest rates you can expect. Make sure you understand the loan terms on an ARM.
Buyers should use time calculating mortgage options with different down payments and interest rates. This helps them to see how the expense of carrying a mortgage will impact their finances.