We all know owning a house is a dream and a great investment. It is the most valuable, tangible asset in our portfolio. The right mortgage information will smooth the path for you. Home Mortgage Interest rates are one of the single biggest factors when choosing a home mortgage. Generally, the lower the interest rate is, the better the home mortgage is, but it really depends on the type of mortgage you choose and such factors as the loan to value ratio, and the fees and points charged by the lender.
There are two basic types of mortgages: those with fixed rates and those with adjustable rates. A variation on both is a balloon/reset mortgage, which offers some features of each.
1. Fixed-rate mortgages are the most common mortgage for many homebuyers because the monthly payments are stable. The interest rate you lock-in will be the same interest rate you pay for the life of the loan - whether it's a 15-year or 30-year mortgage. The interest rate is generally higher than other types of mortgage loans; you may not be able to qualify for as large a loan with a fixed-rate mortgage.
Benefits of a fixed-rate mortgage:
- Inflation protection - If interest rates increase, your mortgage and your mortgage payment won't be significantly affected. Even if your taxes or insurance costs go up over time, your basic loan payment (principal and interest) will stay the same. This is especially helpful if you plan to own your home for five or more years.
- Long-term planning- You know what your monthly housing expense will be for the entire term of your mortgage. This can help you plan for other expenses and set long-term financial goals for yourself and your family.
- Low risk- You always know what your payment will be, regardless of what current interest rates are. This is why fixed-rate mortgages are so popular with first-time buyers. Your mortgage interest rate won't go down, even if interest rates drop, unless you refinance your mortgage.
2. Adjustable-rate mortgages (ARM) are popular because they usually start with a lower interest rate and a lower monthly payment. However, the interest rate can change during the life of the loan, which would mean that your monthly payment would increase (or decrease). Adjustable rate mortgages offer a variety of repayment terms: 10/1, 7/1, 7/23, 5/25, and 5/5. If you expect to move within the next four years, or you're confident your income will increase steadily over time and you want to start with a lower monthly payment, an adjustable-rate mortgage may make sense. But keep in mind that ARM interest rates can go up over time and so your payments.
3. Balloon/reset mortgages have monthly mortgage payments based on a 30-year amortization schedule, and you have a choice at the end of the 5- or 7-year term to either pay off the remaining balance or reset the mortgage. So you have the advantage of a low monthly payment, like someone with a 30-year loan, but you must pay off the loan at the end of the specified term.
This option is typically only available if:
- You're still the owner and occupant of the home.
- You've paid your mortgage on time for at least a year prior to the balloon note maturity date.
- You have no other liens against the property.
- If you do not qualify for a reset, you may qualify to refinance your balloon/reset mortgage.
It's important to shop around to find the mortgage and mortgage rate that's right for you. Contact lenders at banks and credit unions as well as mortgage brokers to find the best rate for you. Even a fraction of a percent can make a big difference in your mortgage payment, so you'll want to shop around and compare rates.