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Understand Your Mortgage Financing Options & Save Money

Purchasing a brand new house on the countryside, in suburbia or the center of the big city is a huge step to take - because, not only are you putting down roots somewhere entirely new, you are also determining where a large chunk of your income will be going for the near future.

Back in the day, many folks saved their money until they had enough to pay for a home outright without mortgage financing. But those days are over for most of us looking to buy a home, very few of us are settling on homes that we can afford to pay for up front.

So with that being the case, what kind of mortgage financing options are best for you and your family? Well, obviously, that depends upon your specific scenario.

mortgage financing

The Difference In Fixed vs. Adjustable Rate Mortgage Lending Options

It's very important to understand that mortgages are not "one size fits all." And to get the mortgage loan that is best for you and your family's financial situation, it is vital that you comprehend what makes them distinctly unique from each other. It can save you a lot of money and headache.

Take a look at this video from Bank of America explaining the difference between Fixed vs. Adjustable Rate Mortgages...

To keep things very simple, we are only going to concentrate on two different types of mortgages: a fixed-rate mortgage loan, and an adjustable-rate mortgage loan, or "ARM" as it's also known by. While there are lots of different types of mortgage loans within these loan classes selecting the one that best suits your financial needs is a critically important to your financial future.

Fixed-Rate Mortgage Loans Explained

A fixed-rate mortgage financing loan is just what you'd guess it to be from the name. It is a mortgage loan that keeps the same rate for the whole life of the loan, usually 15 or 30 year periods. So let us say you take out a 30-year fixed-rate mortgage with $2500 monthly payment. You will still be making that same payment of principal and interest 10, 15 and 30 years down the line. Plain and simple enough.

Adjustable-Rate Mortgages Explained

Then we have adjustable-rate mortgages, also called ARMs. These mortgage loan have interest rates that could change depending on market conditions, meaning your payment can go down or up, making this mortgage financing option a bit more complicated. But that doesn't mean it's better or worse, it depends on the deal.

mortgage lending rates

Choose Your Loans Wisely - It's a Financial Commitment

Typically the most popular form of adjustable-rate mortgage loans now taken out are fixed period ARMs, at times called a hybrid ARM. They are predicated on a 30-year period and generally start with an initial fixed interest rate for a specified time period, generally 5, 7 or 10 years. For instance, a five-year ARM will likely be called a 5/1 and its interest rate will remain the same for the first 5 years of your mortgage loan.

As the interest remains the same for five years, the monthly payment of interest and principal may also remain the same for this period of time. But after that 5th year, the rate of interest is subject to change per annum for the remaining 25 years. The rate will change based upon changes in the present financial market, and that means your actual monthly premiums will shift predicated on the interest rate applicable in the time of adjustment. Thus you'll need to prepare yourself to make higher monthly payments if interest rates increase.

Which Mortgage Financing Options Suit You Best?

Which of these mortgage financing loan types is best for your circumstance? Asking yourself some key questions can assist you in figuring it all out. Ask yourself these 3 questions when selecting the best mortgage lending option...

  1. Do you want or need the predictability of knowing the exact amount of interest and principal payments you'll be making to the bank year after year?
  2. Are you really intending to live at the prospect house for an extended time?
  3. Do you feel safer or actually need protection from increasing loan interest rates later on?

In the event you replied yes to any of these questions, a fixed-rate mortgage financing loan may offer the predictability and financial stability that you require, particularly if this new house is where you intend on retiring or raising your family.

And now, here are several pertinent questions to ask yourself to help see if an adjustable-rate mortgage loan is the best mortgage lending option for you.

  1. Will this house be a "starter home" for you which you are not intending to remain in for a long period of time?
  2. Do you think that loan interest rates might decrease down the road?
  3. Are you DEFINITELY going to have the ability to make your payments when your mortgage financing loan rate resets after your fixed rate period ends?

Now, in the event you replied "yes" to any of these questions, then an adjustable-rate mortgage might give you the greatest financial advantage over the short term. That is because many times the rate of interest during the given length of the loan will likely be lower than that which you would normally get with a fixed-rate mortgage loan.

So in regards to purchasing a house, whether now or later on, it is vital that you be aware of the ins-and-outs of finding the mortgage lending option that is best for you and your family's financial situation. What is more, before you begin work out a budget, you should get your fiscal house in order. Look up current rates of loan interest. Run some numbers using a web-based mortgage financing calculator. And make sure about just how much house you can definitely afford , you need to be honest with yourself so that you don't have big regrets and huge debt later. You are making a monetary obligation for a long time to come, learn everything you can before making the leap. You'll thank yourself later for making a wise financial decision and choosing the mortgage financing option that made the most sense.

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