Industry Tips
Mortgage Choices
You've found the home of your dreams and now all you need is a loan. With dozens of competing mortgage lenders to choose from, choosing one may be confusing.
There are many mortgage rate options available, both fixed and adjustable. In a fixed mortgage, the interest rate and payments do not vary, and in an adjustable or variable rate mortgage, the rates do vary. There are also a number of creative financing alternatives that can be combined with either fixed or adjustable rate mortgages, including shared appreciation, wraparounds, assumable loans, seller financing, convertible mortgages, and/or buy-downs.
For years the fixed rate mortgage (FRM) was the most popular choice among home buyers and sellers. The advantage is that neither the interest rate nor the monthly payment changes. FRM's are no longer limited to 30 years. Other variations include 10, 15, and 20 year maturity periods, which can save you a substantial amount of money.
An adjustable rate mortgage (ARM) is popular because of the lower initial interest rate, as compared to an often higher interest rate for fixed-rate financing. The lower interest rate makes it easier to qualify for a loan because less income is needed. In addition, the lower interest rate may allow you to borrow more money and purchase a larger or nicer home. If you only expect to own your home for three to five years, an ARM may be the best choice for you because the initial rates are lower. However, an ARM does not allow the borrower to anticipate precisely what mortgage costs will be over the life of the loan. At each adjustment period, your interest rate and monthly payment may change. As a result, it may be difficult to plan your finances, or you may need to refinance in the future.
