Mortgages: Really Big Debt
No matter how you try to avoid it, you're probably going to need a mortgage. You will want
to secure your financing situation regarding a mortgage first - well before you start looking
at property. This will let sellers know that you are a serious buyer and
they should give you due consideration when discussing property.
By now, you should have carefully investigated your
personal finances
and understand your spending limits. Also, it would be wise to check your
credit
prior to shopping for mortgages.
When shopping for a mortgage there are many things to consider, but paying
close attention to a
few main points
will help you find one that
is suitable to your needs and the most cost effective for the long term.
Trying to detail everything necessary regarding a mortgage, is too much for one
page of a tutorial. So, consider this a primer for what is out there and what
you may want to research. We encourage you to visit our
mortgage center
and mortgage forum
for more information regarding mortgages.
Types of Mortgages
Basically, there are primarily two types of loans available, fixed rate and adjustable rate
mortgages (ARM). A fixed rate mortgage is when the interest rate stays the same for the entire
duration of the loan. Fixed rate loans typically come in one of two varieties, 15-years or
30-years - the length of the term.
ARMs are a bit more involved, but basically, over the life
of the loan, the interest rate will fluctuate in conjunction with the market. If interest rates
go up, so too will your ARM, and the same is true if interest rates drop. ARMs come in many
different flavors, and should carefully be investigated. They may seem more attractive initially
given that their rates are typically less than a fixed, but they can quickly go higher than a fixed
if the rates increase.
Points
Points are basically interest paid up-front. The benefit to paying points is that they lower
the interest rate for the loan. If a loan has two points associated with it, you are going to
be paying two percent of the loan up-front, that's $4,000 on a $200,000 loan. These points are
of great benefit if you intend to have the property for many years, and pay for themselves in the
long run. Conversely, if you intend to hold on to the property for a short period of time, the
less points you have to pay, the better off you are.
Many times, sellers will pay points on a buyer's loan to help seal the deal. The advantage
here is very big for you as a buyer. When the seller pays your points, your interest rate is
lower. You have to pay less up-front cash towards fees, and you still get the tax write off
as a buyer for the points that were paid - bonus. You may want to consider this when
negotiating
your terms and conditions of the purchase.
These are just some basics. Make sure you discuss your options with your
mortgage broker or lender before
signing any loan agreement.
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