Shopping for the home loan can be just as cumbersome as shopping for the home itself. It is important for you to get the best possible as you are taking such a large amount of money.
The Key Elements of a Home Loan
The principle, interest, taxes, and insurance are the four key elements of your home mortgage payment.
- The amount of money borrowed, less any down payment made is called principle amount.
- The cost of borrowing, expressed as a percentage of the total amount that is borrowed is called interest.
- Until it is the time to pay comes, the money for your property taxes is put into an escrow account.
- Home insurance is necessary by most lenders. You will also be responsible for paying private mortgage insurance when your down payment was less than 20%.
Types of Loans
There are many types of home mortgages are available from which you can select. The time duration for which you are planning to stay in your home is the major factor in deciding the type of home mortgage you need to borrow. For instance, fixed mortgage will be the best mortgage to select if you are planning to remain in your home for a long time.
Fixed-rate Mortgage
Fixed-rate and adjustable-rate are the two major kinds of home mortgages available. Fixed-rate mortgage, which is also known in short as FRM, as the name suggests, has an interest rate that remains same throughout the loan period. Your monthly mortgage payments will remain same. FRMs are typically available for 15, 20, or 30 years.
Adjustable-rate mortgage
Where as, in case of adjustable-rate mortgage, which is also known in short as ARM the interest rate varies depending on current market rates. Most often, the initial interest rate for an ARM is lower than that of the FRM. ARM is a good choice for you, if you are interested in lower monthly payments for the first few years of your loan.
Balloon mortgage
Another type of home mortgage available for you to obtain is balloon mortgage. With balloon mortgage loan, for five to seven years has a lower initial interest rate. After that time, the total balance of the loan is due, hence the term "balloon" mortgage. Balloon mortgages are best if you are planning to sell your home, refinance it, or pay it off prior to the balloon payment due date.
Choosing a Loan
After knowing about the key components of your home mortgage and the types of home mortgages available for you to choose, then how exactly will you make a final decision? This will depend completely upon your personal situation.
As mentioned earlier, the time period for which you plan to live in the home is a key factor in determining the type of home mortgage to choose. You should also consider your career and salary for the time period you will have your home mortgage.
During the loan period, do you expect your salary to remain the same or increase? Are you comfortable with the uncertainty an ARM can present as far as monthly home mortgage payments?
You also need to consider loan cost. It is also important for you to consider interest rate for the loan and the fees charged by the lender. You may be able to negotiate a waiver of some of the fees. In the end, for a home mortgage loan, you want to pay the least possible amount.
Related Articles:
|
