If you have been thinking of buying a home, now is the time to do it because the interest rates mortgage companies are offering are at an all time low. If you should pass by the lower rates mortgage companies are offering and you get locked into a higher rate you could be paying back thousands of dollars more than if you had taken advantage of the lower rates. Considering that in the first several years most of what you are repaying is interest, a decrease in one or two percent could make a huge difference in what the loan costs and what your payments will be.
When considering the mortgage, and how much it will cost you, your monthly mortgage payment should not exceed one week’s salary, which equates to ¼ of your monthly income. You never know when some unforeseen expense will arise, so keeping your monthly mortgage payment at ¼ of your monthly income is a good rule of thumb to follow.
When trying to decide what kind of mortgage you should take out, speak to a financial advisor at your lending institution. An adjustable rates mortgage (ARM) is different from a fixed rate mortgage in that, as the name implies, the adjustable mortgage rate can cause your monthly payment go up or down as the interest rate fluctuates. If you get an adjustable mortgage rate loan, it is best have an ARM is when you expect the interest rates to fall, rather than rise. The adjustable rates mortgage is based on the prime lending rate and the credit market as it changes.
Most homebuyers contract with a 15, 20, or 30, and sometimes even a 40 year mortgage. With a longer loan period the payments will be smaller, but the total amount paid will be much more, which means the bank makes a bigger profit. With the shorter mortgage terms the payments will be higher, but the total amount paid is lower, and you save thousands of dollars in interest.
Because interest rates mortgage companies offer very according to the changes in our economy, it would behoove the borrowers to shop around for the best interest rates mortgage companies can offer them. Go to different banks and lending companies and let them compete for your business. They want to loan money and you want to borrow money, so if you prequalify at different lending institutions you may be able to get a much better deal. Even if a lender offers you a fraction of a percent lower than your lowest offer, you could save a significant amount of money over the term of a long term contract. The interest rates mortgage companies can vary, because they have a little leeway to negotiate a loan contract. They want to make a profit, but they also want your business and can give up a little to gain a lot from your business.
Homebuyers should know what kind of mortgage they need and what kind of mortgage rates they are going to be paying. The difference between a 30 year fixed mortgage and an adjustable rate mortgage (ARM) could be thousands of dollars. If you have an ARM and the rate goes up at the next rate adjustment, that could make your monthly payment go up and you may be paying back a lot more money than if you went with a 30 year fixed mortgage.
Often, homeowners that have been paying on their mortgage for a number of years decide that they want to refinance their home to lower their payments. Essentially, a re-fi loan is a new loan taken out to pay off the existing loan. Because you are borrowing money to pay off the balance of your mortgage loan, the amount borrowed is smaller and the mortgage rates may also be lower. Besides knowing what your mortgage rate will be, borrowers need to get an estimate on the total amount you will need to borrow, because there are closing costs to refinancing, just like with the first mortgage loan. There has to be an appraisal of the home, and numerous other fees, including state and federal taxes. With all the costs involved, homeowners have to decide if it is the right time to refinance; the mortgage rate may be the appealing factor.
As mortgage rates drop, refinancing becomes more affordable. To be sure of what your monthly payment will be, you can get an idea by using an online free mortgage rates calculator, or you can ask your lender to figure it out for you. To find out how long it will take you to break even with the closing costs, divide the costs of refinancing by the amount of money you will be saving in your monthly mortgage payments.
Mortgages and mortgage rates vary. The reasons that people refinance their mortgage loans vary too; most people refinance to lower their rates. You lender will help you decide which rates are the best option for you. An ARM may or may not be the best option. If your loan is a short one that will be paid in full in about 5 years, an ARM may be the best option. However, if your loan is much longer than 5 years the mortgage rates could go up and that would cost you a lot of money. Fixed mortgage rates are probably going to be your best option if you plan to have a longer loan contract.
You may want to refinance so that you can flip the house and make a profit on it. If you can stay in your house a couple of years to pay the mortgage off, and then sell it, you will have made a very good investment by borrowing with adjustable mortgage rates. For whatever reason you want to refinance, choose the rates that work for you, rather than against you. The money that you save in interest payments could be used on other things, such as paying off credit cards or taking a vacation with your family.
Often people with fixed mortgage rates on 30 year mortgages want to build up their equity in a shorter length of time. They can do this by refinancing and making higher payments over a 15 year mortgage. The principal will be paid down much faster, and the amount of interest paid will also be much less. To build up equity in your home is like saving money in a bank.
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