The most popular choice when it comes to financing the purchase of any home is using a mortgage. Mortgages are loans that are secured by the property itself. There are many different methods to obtain a mortgage loan; because of this it pays to do your homework and shop around before selecting a mortgage lender. For most people, their home represents the largest purchase of a lifetime; however, many homeowners forget this when it comes to a mortgage. When shopping for a mortgage keep in mind that interest rates and loan terms can very a great deal from one lender to the next. Even slight differences in interest rates or terms could mean saving thousands of dollars, or being stuck with a loan that doesn’t suit your situation. The most important thing when it comes to a mortgage is doing your homework.
Fixed interest rate or variable?
When shopping for the best mortgage, you need to learn the lingo. For instance, mortgages come with either fixed interest rates or variable rates. Fixed rate loans hold their interest rates for the duration of the loan. This is true for traditional 30 year and even 40 year mortgage loans. Adjustable Rate Mortgages, also called ARMs, have a fixed rate during a specified introductory period. After this period ends the interest rate will change to the adjustable rate; this rate changes with prevailing interest rates.
Adjustable rate mortgage loans have much more risk than fixed rate mortgages. They are popular however, because payments are typically much lower when interest rates are low. When interest rates begin to climb, as they have for the past year, these adjustable rate mortgages become much less popular. For many homeowners the risk is outweighed by the monthly savings; this is especially true for those who are planning on staying in their property for five years or less.
Mortgage lenders charge a fee for processing a mortgage loan. Typically they charge many different kinds of fees. These fees include entry, exit, administration, and insurance expenses. There may also be attorney’s fees, and settlement charges at closing. If you are financing your mortgage with a Bank, they may require a survey of your property in addition to the appraisal you would normally be required to provide.
To learn more about the terminology and industry lingo, sign up for our free guide: “Five Things You Need to Know About Your Mortgage.”