Which Mortgage is Best for You?
A mortgage is actually a loan from a lender or bank to help you fund the purchase of an asset. When you take out a mortgage loan, you make an agreement-to pay back the money you lent, plus a pre-determined interest rate. The house is used as collateral. So when you break the agreement to pay back the loan, the bank has the legal right to foreclose on the property. However, there are different types of mortgage loans and their own unique features that you should be aware of before signing on the dotted line.
You have two basic types of mortgage loans: the adjustable-rate mortgage (ARM) and the fixed-rate mortgage (FRM). With an ARM, the lender sets the initial interest rate, but you can adjust it up or down along with the introductory rate. With a fixed-rate mortgage, which lasts the life of the loan, it’s set at the lowest monthly payment amount for the duration of the loan. If the initial rate is cut in half, mortgage payments will decrease accordingly. Both types of mortgages are offered at the local, national, or online Mortgage Companies San Diego.
These types of mortgage loans are offered in two flavors: the option mortgage life insurance loan. With the option mortgage, you are given the opportunity to purchase more than one piece of property with a mortgage. But with this option, you are not able to get variable-rate mortgages, which allow you to change the rates according to current market rates. With the option of mortgage life insurance loans, you get the mortgage payment structure that provides you with the lowest monthly payments over the shortest period of time.
In order to start looking for a mortgage loan, it’s a good idea to get a list of your financial goals. Your immediate needs include: home repair, tuition funding or college tuition, and medical bills. You may also need to take care of debt such as credit cards, student loans, and tax debts. Your long-term goals include buying a house, starting a business or retirement funds.
Once you have determined your needs and budgeted how much you have available for a down payment, mortgage loans can be found through a mortgage broker or an Internet search. A mortgage broker is someone who helps you shop for mortgage loans. They will collect your application and all of your financial information, and then they will call or visit your place of employment to discuss your financing options. An Internet search allows you to search for mortgage loans and compare lenders. When comparing lenders, be sure to look at closing costs. Some lenders waive closing costs if you complete your loan application in their office.
The interest rates on mortgage loans vary depending on the lender and your current credit status. Even if you are considered a risky borrower, there are mortgage loans that offer competitive interest rates to people with bad credit. These mortgages are usually called “sub-prime” mortgages. They differ from traditional mortgages in that they are typically offered by higher end or “investment grade” lenders. They carry a higher interest rate than average mortgages but, if you pay your mortgage on time, your mortgage interest rate will not increase.
Many homeowners choose fixed-rate mortgages over adjustable-rate mortgages (ARM) for many reasons. A fixed-rate mortgage has a predictable interest rate and payment amount. With an ARM, your mortgage payments may fluctuate because interest rates can change and your mortgage interest rate could end up being lower than what you originally applied for. With fixed-rate mortgages, you know your payment will be the same each month. Plus, with fixed-rate mortgages, if interest rates go up, your mortgage interest rate is also going up. You don’t have to worry about rising mortgage rates affecting your daily expenses.
On the other hand, there are many disadvantages to choosing a fixed-rate mortgage over an adjustable-rate mortgage. Adjustable-rate mortgages come with variable interest rates; the more volatile the interest rates, the less money you will save. There is also the risk of losing your home if interest rates go up too much. Also, if rates go down in a very short time, you could lose your home even if the interest rates were reset to your previous level.