Mortgage Tips from Me to You
There are many different types of mortgage loans available to
the consumer. The most common amortized loan types are
fixed-rate mortgages (FRM) and adjustable-rate mortgages (ARM).
Fixed rate mortgages are loans in which the interest rate is
locked at a specific and agreed upon rate. Many first time
homebuyers opt for this type of loan, as it allows them the
ability to know exactly what their loan payment will be each
month. The payment stays fixed for the entire term of the loan.
Typical terms are 5, 10, 15, 20, or 30 years.
Adjustable rate mortgages are loans in which the interest rate
is fixed for a short period of time only, and the variation in
the rate is determined by the market. Many homebuyers,
especially those not concerned with adhering to a strict budget
each month, prefer these types of loans. Although different
lenders use different indices to determine the market rate, some
of the more common are Prime Rate, LIBOR, and the Treasury Index.
Fixed rate loans often end up costing more than adjustable rate
loans, but they do not provide the stability of a known and
consistent monthly payment. Adjustable rate loans work by
transferring part of the interest rate risk from the lender to
the borrower, and are widely used when there is instability in
the market and fixed rates are difficult to obtain.
There are also other types of mortgage loans available, although
the aforementioned are the most common. Other types include
blanket loans, bridge loans, budget loans, deeds of trust,
equity loans, and wraparound mortgages. When you are considering
your first mortgage, you are likely to end up choosing a FRM or
an ARM. These are by far the most common mortgage types. Consult
your local mortgage broker for more information on these types
of loans.
Interest rates have been relatively stable in recent years, and
many government agencies and financial institutions offer tax
and financial incentives for new homeowners. The Department of
Housing and Urban Development oversees a program called the
Federal Housing Administration in which the government will
insure the lender against a loss (in case you default on your
mortgage). Veterans Affairs also administers a program for
military veterans, which provides assistance and guarantees to
veterans interested in entering the market for a new home.
Whether you are new to the housing market or you have been
involved for decades, it pays to stay informed about recent
developments. New housing starts are at an all time high, and
interest rates are very reasonable. This creates an excellent
climate for prospective homeowners. The time just might be right
for you to buy your first home!