Getting a Mortgage - Weighing Your Options
- Date: 2007-05-23 - Word Count: 611
Share This!
When you are ready to buy your own home, you will probably be quite excited. Owning a home is part of the American Dream. On the down side, the home will come with a variety of new responsibilities; in fact, the mortgage you get for your home is likely to be the largest debt you'll ever have. Since most people can't afford to pay cash for a house, they take on a mortgage. Before getting a mortgage, you should know about some of the choices you will have. Your individual finances will determine which loan is right for you. Here are a few of the common options for you to consider:
What length or term of mortgage do you want? Thirty years is the most common term, but other options are available, some as short as 10 to 15 years. In general, the longer the term, the lower your monthly payments will be. The total payoff amount will increase accordingly. An extreme example is an Interest Only Mortgage, which would never be paid off. Interest only mortgages were common before the Great Depression of the 1930's, but a record number of foreclosures led to a change in policy. Today, these loans remain "interest only" for a specified period, commonly five to ten years.
Fixed Rate Mortgages - A fixed mortgage will lock you into one interest rate for the life of the loan. Your mortgage payment will not fluctuate over time, so the best time to lock in a fixed rate is while interest rates are low. On the flip side, because you are locked in at a certain interest rate, you may miss further declines in rates unless you refinance your mortgage.
Adjustable Rate Mortgages - Often referred to as ARMs, they are the opposite of fixed rate mortgages. As interest rates fluctuate, your interest rate and monthly payments will vary accordingly. Commonly, adjustable rate mortgages have an initial period where your rates are fixed. This period can be as short as ten months or as long as ten years, during which you'll have a set monthly payment and stable rate of interest. Adjustable rate mortgages which remain fixed for five years or more may also be referred to as hybrid ARMs.
Most ARMs have a cap on the interest rate. There are several options, including a periodic rate cap, which limits how much your interest rates can change at a given time, a lifetime rate cap, which puts a ceiling on your interest rates, specifying the amount that your rate can increase over the life of your mortgage, and a payment cap. Payment caps are not as common, but they allow you to place a limit on the amount your monthly payment can rise over the length of your mortgage loan.
Sub Prime Mortgages - Sub prime mortgages are intended for people with past credit problems. If you have made a number of late payments, or have had other credit issues which caused your credit score to drop below 620, you may need to look for a lender that specializes in sub prime mortgages. This kind of mortgage loan tends to carry higher interest rates than a conventional mortgage; however, since different lenders use different risk criteria to determine eligibility, you should be able shop a variety of lenders and find some bargains.
Be sure to compare several mortgage companies. You can get free mortgage quotes online and choose the lender who offers you the best rate and terms. You will also begin to get a picture of your credit. If necessary, you can find ways to increase your credit score. A little effort now will pay off later when it's time to make that first mortgage payment.
What length or term of mortgage do you want? Thirty years is the most common term, but other options are available, some as short as 10 to 15 years. In general, the longer the term, the lower your monthly payments will be. The total payoff amount will increase accordingly. An extreme example is an Interest Only Mortgage, which would never be paid off. Interest only mortgages were common before the Great Depression of the 1930's, but a record number of foreclosures led to a change in policy. Today, these loans remain "interest only" for a specified period, commonly five to ten years.
Fixed Rate Mortgages - A fixed mortgage will lock you into one interest rate for the life of the loan. Your mortgage payment will not fluctuate over time, so the best time to lock in a fixed rate is while interest rates are low. On the flip side, because you are locked in at a certain interest rate, you may miss further declines in rates unless you refinance your mortgage.
Adjustable Rate Mortgages - Often referred to as ARMs, they are the opposite of fixed rate mortgages. As interest rates fluctuate, your interest rate and monthly payments will vary accordingly. Commonly, adjustable rate mortgages have an initial period where your rates are fixed. This period can be as short as ten months or as long as ten years, during which you'll have a set monthly payment and stable rate of interest. Adjustable rate mortgages which remain fixed for five years or more may also be referred to as hybrid ARMs.
Most ARMs have a cap on the interest rate. There are several options, including a periodic rate cap, which limits how much your interest rates can change at a given time, a lifetime rate cap, which puts a ceiling on your interest rates, specifying the amount that your rate can increase over the life of your mortgage, and a payment cap. Payment caps are not as common, but they allow you to place a limit on the amount your monthly payment can rise over the length of your mortgage loan.
Sub Prime Mortgages - Sub prime mortgages are intended for people with past credit problems. If you have made a number of late payments, or have had other credit issues which caused your credit score to drop below 620, you may need to look for a lender that specializes in sub prime mortgages. This kind of mortgage loan tends to carry higher interest rates than a conventional mortgage; however, since different lenders use different risk criteria to determine eligibility, you should be able shop a variety of lenders and find some bargains.
Be sure to compare several mortgage companies. You can get free mortgage quotes online and choose the lender who offers you the best rate and terms. You will also begin to get a picture of your credit. If necessary, you can find ways to increase your credit score. A little effort now will pay off later when it's time to make that first mortgage payment.
Related Tags: home mortgage, adjustable rate mortgages, sub prime mortgages, fixed rate mortgages, types of mortgages, getting a mortgage
Gregg Pennington writes articles on a number of topics including mortgages, loan consolidation, and home equity loans. For more mortgage information visit http://www.onlinemoneysources.net/mortgage.html . Your Article Search Directory : Find in Articles
Recent articles in this category:
- The Secrets to Getting Low Down Payment Car Insurance
Upon purchase of a new car, there is almost always a requirement to buy an auto insurance policy as - The Wisdom Behind Auto Insurance Comparison Quotes
No one in his right mind would not go for a good deal. In fact, everyone is out on their feet and ru - The Benefits of Auto Insurance Comparisons Florida
Insurance can be expensive. This is something everyone knows about especially in the sunny state of - Auto Insurance Florida: The No-Fault Policy
There are different kinds of car insurance offered by a wide range of providers today. Different sta - Finding the Cheapest Auto Insurance Companies
Everyone is asking and searching for the cheapest auto insurance companies available today. Consider - How do You Compare Private Health Insurance Cover in Australia?
Deciding what is the best and most affordable private health insurance cover can be easy if you take - How Payment Protection Insurance Was Mis-Sold
For over six years the issue of Payment Protection Insurance (PPI) and how it was mis-sold to custom - Finding Quotes For Auto Insurance Online
One of the many concerns when you are shopping for auto insurance is being able to get access to quo - How You Can Find the Best Auto Insurance Online
When it comes to renewing your car insurance you are going to quickly discover that there are a numb - Guidelines For Searching For Auto Insurance Online
The internet can be a great source of discounts and values related to auto insurance. However, many
Most viewed articles in this category:
- Trading Forex With Pivot Points
Forex Pivot Point Trading are used today by Forex Traders and are calculated on the previous days mo - Where To Search For Free Grants
Where do you look for free grants? The search must be thorough or it could be an exercise in futilit - The Connection Between High Blood Pressure and Salt
We are a society of Salt Addicts. It cannot be denied. When you look at the things we do and the pla - Tips For Avoiding HYIP Scams
Before knowing about HYIP Scams, refer to the functioning of HYIP or "High Yield Investment Programs - Getting Credit After Bankruptcy
Consumers do not have to live sans credit following a bankruptcy. By following certain steps consume - Tips For Choosing A Credit Card
Are you looking for that perfect credit card? If so, you may be confused about what exactly to look - Cheap Car Insurance For Teens Online
Many elements determine a car insurance policy. Car insurance companies look at the person's age, hi - What Exactly Is Free Grant Money?
You can apply for free grant money from various government agencies. But where exactly does this mon - Small Business Owners Marketing and Customer Service
Marketing can be time-consuming, but it doesn't have to be hugely expensive now, thanks to the Inter - Apply Online For A Credit Card - How To Choose A Card?
The best type of credit card for you will be dependant on how you intend to use the credit card. Are