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Things to consider when choosing a home loan


Loan Officer Spotlight: Things to Consider When Choosing a Home Loan

Are you shopping for your first mortgage but confused by all the terms and various loan products that are available today? A few of the more common loans that you probably hear about on the news are Fixed Rate Loans, Adjustable Rate loans, and Interest only Loans. I know all this mortgage-terminology is enough to make your head spin! But what’s the difference and how do I know which loan is best for me?

Here is a brief explanation of these various types of mortgages to choose from and more importantly how will each mortgage impact your budget.

Fixed Rate mortgages

There are two main terms of fixed rate mortgages. The 30 year and the 15 year. With the 30 year loan being the most popular. The main advantage of a fixed-rate loan is that the borrower is protected from sudden and potentially significant increases in the monthly mortgage payments if interest rates were to rise.

Many homeowners who lost their home during the great recession was due to the fact that many people did not have a fixed rate loan and interest rates climbed beyond a level in which they could no longer afford their payments.

Adjustable Rate Loans

Adjustable Rate Mortgages (ARM) do not come with fixed interest rates. Instead, the rate changes based on current market conditions. How often the rate changes and how much you pay each month depends on the type of ARM you get. There are various types of adjustable mortgages with the most common type being the variable rate ARM. In a variable rate loan the rate adjusts at a set schedule depending on the terms of the loan. Some change every six months while others keep the same rate for a year or longer.

Keep in mind that your interest rate on an adjustable rate mortgage is at the mercy of the market and that you are taking a chance that rates stay low. This could backfire on you and you end up with a higher monthly payment.

Interest Only Loans

Interest only Loans are designed for buyers whose income fluctuates. For example, if one borrower is unemployed but looking for work this type of loan can give a period of time where the payments are lower. Instead of making a payment on both the loans principal balance and interest, you only pay the interest for a set amount of time. However, after the interest only period expires you are responsible for making higher payments in order to pay back the loan.

In conclusion, the mortgage you choose really depends on your personal situation. Generally speaking fixed rate mortgages are considered to be the best, they are easy to understand and since you can lock your rate for the life of the loan you don’t have to worry about rising interest rates!

Dennis.Delaney.pngDennis Delaney

NMLS #199820

Website: Click here

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