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What is a mortgage?
A mortgage by definition is a loan secured against a real property or real estate of any type (commercial and residential). The requirements for getting commercial and residential mortgages differ, but that doesn’t change the meaning of the word mortgage.
When you get a mortgage it means that you are using your property as collateral for the a loan. Basically, the home in case of a home mortgage is the collateral.
Is there a difference between a home loan and a mortgage?
No, a home loan is a mortgage. When you apply for a loan to buy a house, you are getting a home loan and putting up the home as a collateral to secure the home loan. Which means, you’ve mortgaged your home.
Different types of mortgages
There are two types of mortgages, fixed home loans and adjustable home loans. A fixed rate mortgage is fixed for the life of the mortgage and the interest rate will never change; usually fixed for 30 or 15 years. Sometimes lenders offer a 20 year fixed mortgage, but it’s not very popular.
An adjustable rate mortgage has a initial fixed rate for 1 year, 3 years, 5 years, 7 years or 10 years. Which means, the initial interest rate or the rate you have on the loan documents will remain fixed for that period. For example, a 7 year fixed rate mortgage will have a fixed interest rate for 7 years and after the 7th year the interest rate will change to an adjustable rate based on the market conditions on that day.
Adjustable rate mortgage pros and cons
The main advantage of an adjustable rate mortgage is the lower initial monthly payments. The interest rates for adjustable rate mortgages are lower because the initial fixed interest rate is locked for a shorter period and the lender has less exposure to market risks.
Basically, if the current mortgage interest rates are low and the lender offers a 7 year fixed rate mortgage, they’ll be able to charge a higher interest rate at the end of the 7 years if the rates are higher. But if the loan is a 30 year fixed mortgage, the lender will not be able change the low interest rate they committed to on day 1.
Are fixed rate mortgages better than adjustable rate mortgages?
A fixed rate mortgage is a better loan if you plan on living in the house for a long time and the current interest rates are low. If you plan on moving in the next 5 years, there is no point in getting a 30 year fixed loan. You are better off getting a 7 year fixed mortgage and reap the benefits of a lower interest rate.
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What to consider when buying a home
The most important thing to do when buying a house is budgeting accurately. Your monthly mortgage payments is not the only thing you must be concerned with. Other expenses such as property taxes, utilities, gardening, insurance and etc. have to be accounted for when making a smart decision. We suggest you complete a free no obligation loan request to see what mortgage options are available and plan everything else around the expected monthly mortgage payment which will be single biggest expenditure. Let’s Get Started
What are the requirements for 1st time home buyers
Buying a home for the first time is very stressful. The good news is that you don’t have to stress the mortgage side of it because you can buy a home with a minimal down payment.
First time home buyer programs only require a 3% down payment. These mortgages are offered by the FHA and various private lenders. As a current or past member of the United States armed forces, you can take advantage of the VA loan program offered by the department of veterans affairs. To see what your options are, click here and complete the form.
What is a conforming mortgage
A conforming Mortgage is a mortgage that meets the guidelines set by Fannie Mae and Freddie Mac. These guidelines limit the maximum mortgage to $453,100 and specify the standards a borrower must meet to qualify for a loan.
The advantages of these conforming loans include the ability to qualify for a low-interest rate mortgage with lower credit scores, and they could demand less documentation. The interest rates on conforming loans can be fixed, adjustable, or interest only.
To see your available low-interest mortgage options click here to complete the form.
What is a jumbo or non-conforming mortgage
Any residential mortgage that exceeds the $453,100 conforming limit is a jumbo mortgage. Jumbo mortgage loans normally have a lower loan to value ratio requirement because of the risks associated with higher loan amounts.
A jumbo loan can be a fixed or adjustable mortgage. Due to higher loan amounts, adjustable rate loans tend to be more popular (lower payments) than fixed rate loans.
How are mortgage interest rates determined
Mortgage rates are tied to the bond market. To determine the mortgage rates on any given day, a lender will add a margin to the 10 year bond yield index for that day.
Since the bond yields fluctuate daily and mortgage rates are tied to the bond yields, mortgage rates change every day, and they can change multiple times in one day if there are major fluctuations in the bond market.
Fixed rate mortgages have a higher interest rate than adjustable rate mortgages because they lock in the lender to today’s rates; which means less interest charged if the rates go up in the future.
There is no cookie cutter formula for selecting the right mortgage. The decision between a fixed rate mortgage and an adjustable rate mortgage has to be made on a case by case basis based on the current interest rates, borrowers credit score, and expected term of occupancy. To see what your best options are click here and submit a free request.