Monday, 18 June 2018
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This Old House - Do-it-Yourself

Much More to Mortgages Than Interest Rates

Written by Posted On Monday, 26 February 2018 21:00

There's a significant consumer misconception that mortgages are all about interest rates. Find the lowest rate and you've got a great mortgage.

Wrong.

Yes, the sign-up interest rate can be important, but there is a lot more to consider. The many factors and decisions involved in mortgages determine what the mortgage loan will be like to live with now and in the years of home ownership ahead. Will you be house rich and cash poor? Will you have manageable monthly payments and low mortgage costs?

The difference between these two extremes lies in how effectively borrowers select the type, features, and interest rate pattern when they arrange the mortgage loan.

Question: Are you prepared to invest time to locate real estate and mortgage professionals with knowledge and track records that match your needs and financial situation?

Real estate and mortgage professionals understand that details matter. Learn mortgage jargon and mechanics and you'll catch on more quickly when your mortgage broker talks specifics about your mortgage fit. Accurately answer financial questions to enable professionals to zero in on relevant details that gain you the best advantage.

Mortgage decisions are best made with thought to your cash flow, pay days, employment security, other debt, credit pressures, and long-term financial goals. Check your credit score and determine how it can be improved to allow you to successfully launch into home buying and a mortgage loan application. Look beyond your credit score to clarify exactly how hard or easy it will be to make the required mortgage payments each month.

Question: What, if anything, will you and your family have to give up to free-up cash for the mortgage payment each month?

A mortgage loan involves a legal agreement between a lender and a borrower[—]either a home buyer or the existing homeowner, depending on whether the property is changing hands or the existing mortgage is being renewed or replaced. Each mortgage is specific to the unique owner and property it's created for.

Mortgages are always spoken of in generalities until the specific financial situation of the borrower is blended with the lender's security requirements regarding the specific property involved. Keep this in mind when you read mortgage blogs or articles and listen to podcasts. You're looking for facts or features to apply to your needs, but you'll rarely read about situations that exactly mirror yours.

Question: Who will help you understand the complexities and opportunities that could appear while arranging your mortgage loan?

Mortgage Decisions Lie Ahead

Here are two of the key decisions borrowers face:

#1. Interest Rate Reflected in Monthly Payments

When the interest rate stays the same during the mortgage, even if it runs for 30 years, that's a fixed-rate mortgage. Since the mortgage interest rate is fixed, even when the market interest rate is rising, monthly payments stay the same.

When the interest rate charged varies during the loan, the mortgage is known as an adjustable-rate mortgage. The benefit here is that, when the market interest rate declines,  the mortgage interest rate decreases in accordance with mortgage terms, and, therefore, monthly payments decline. When interest rates are on the rise, holders of these mortgages face increasing monthly payments. A mortgage can combine both a fixed and an adjustable period in a variety of combinations.

Question: What do you think interest rates are going to do over the next few years?

#2. Amount of Down Payment Plus Assistance Programs

The larger the down payment, the smaller the mortgage loan. Government-insured home loan programs reduce down-payment requirements, but costs may increase monthly payments. These programs offer lenders government guarantees against loss should borrowers default, for instance, for non-payment. The Federal Housing Administration (FHA) mortgage insurance program allows borrowers to make down

payments as low as 3.5%. The cost of mortgage insurance may increase monthly payments, so weigh your options carefully. The US Department of Veterans Affairs (VA) program enables eligible service members, veterans, and certain surviving spouses to buy without a down payment.

In 2018, more than three thousand counties will see FHA loan-limits increase. The FHA is not a government department, but a private agency that provides ortgage

insurance to FHA-approved lenders and education for consumers. For instance, FHA researchers compiled a state-based list of many of the Down Payment Assistance Programs for Homebuyers. The wide range of FHA content on topics relevant to property owners, buyers, and borrowers includes:

Question: Where do your greatest real estate and mortgage advantages lie considering the down payment you have in hand and the programs you qualify for?

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Futurist and Achievement Strategist PJ WADE is “The Catalyst”—intent on Challenging The Best to Become Even Better. A dynamic speaker and author of 8 books and more than 1800 published articles, PJ concentrates on the knowledge, insight, communication prowess, and special decision-making skills essential for professionals and their clients who are determined to thrive in the 21st-Century vortex of change.

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