What Is The Best Mortgage For You?
When buying a home the obvious question is: What are the best mortgage deals?
Our home is the most important, and usually the most expensive purchase we ever make. We take the time to search for just the right home for our family, looking for as many of the features from our dream home wish list as we can get. Yet, when it comes to financing the biggest purchase of our lives, we often just go to our bank and take what is offered. Some home buyers are not even aware that there are other options.
Here is an interesting fact:
With this in mind, taking the time to learn a bit about home mortgages before you look to finance your home makes a lot of sense. Getting the best mortgage deal can actually save you tens of thousands of dollars over the 20 years or more that you will have your mortgage loan.
The first thing to consider is:
TIP! Understand the different types of mortgages, and make sure you make an informed decision as to what mortgage vehicle you want and for what term. There are variable rate mortgages and traditional fixed rate mortgages. Within these two types are a variety of other options.
Mortgage deals come in a variety of packages, each offering their own distinct features. Learning about the different kinds of mortgages can help you determine which is the best deal for a mortgage for your specific needs.
There are a few basic categories of mortgages. Lenders will have their own variations of these basic categories but they will all be similar. Being aware of these differences before you approach a home mortgage lender can help you sort through the choices available to find just the right home financing option.
Fixed Rate Mortgages
A fixed rate mortgage has an interest rate that is established at the time the mortgage is arranged and that specific rate remains the same for the entire term of the loan. This rate would not apply for the whole 20 to 30 years that you may have your mortgage loan, but it would remain in place for the term of your mortgage you are negotiating, usually 3 to 5 years.
TIP! Figure out how much you can afford by using an mortgage calculator. It is fast and easy.
Approximately 75% of home mortgage loans are fixed rate mortgages.
Adjustable Rate Mortgages (ARM's) or Variable Rate Mortgages
An adjustable rate has an interest rate that does just that - it adjusts or varies with the prevailing interest rates. In the US rates vary with changes in interest rates paid on Treasury Bills or bank Certificates of Deposit. In Canada, the rates vary according to the Bank of Canada rates posted weekly. If these rates go up, your mortgage rate will go up as well, usually by about the same amount.
Obviously there is a bit more risk to an ARM mortgage if rates go up. To offset this risk some lenders will offer options to cap or limit the maximum level that your interest rate can rise. This limit may be capped for a year, or sometimes for the life of the mortgage loan.
The rates offered for adjustable rate mortgages are usually lower than for fixed rate mortgages, a feature that is vary attractive to many borrowers.
Variable Rate Mortgages
TIP! In today's real estate market where interest rates on mortgages are very low, remember that the interest you pay on the money you borrow is only one consideration of whether you should buy a piece of real estate. A mortgage is still a debt.
Variable rate mortgages can be an excellent home financing vehicle for borrowers who:
So if you are one of those people who likes to pay attention to money markets and interest rates, an ARM could be the best mortgage deal for you.
Modern man drives a mortgaged car over a bond-financed highway on credit card gas.
~ Earl Wilson
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