Discover Your Mortgage Rate Options
When most homeowners or home buyers decide it is time to shop around for a mortgage rate
, often the primary thing they look for is a low interest rate. But while it is true that low interest rates can offer significant savings over time, the interest rate is only one part of a mortgages terms and conditions. Smart shoppers look at the overall loan its interest rate, terms, and other repayment conditions, before committing to the loan.
A mortgage is a complicated financial document, and reviewing all of the terms and conditions of one mortgage can seem daunting, let alone comparing the offerings of several mortgages to determine which loan is best for you. Fortunately, there are many websites available that have done a lot of the work for you. Comparison sites allow side-by-side comparisons of mortgages from a wide variety of lenders, so that you can compare at a glance interest rates and other terms and conditions, helping you make an informed and educated decision with regard to the loan thats best for you and your needs and financial situation.
Most loans you will be considering involve three types of rate option: fixed-rate, adjustable-rate, and interest-only mortgages.
Years ago, the only mortgage option for homeowners was the fixed-rate mortgage. With a fixed-rate mortgage, you pay the same interest rate through the duration of your loan, allowing you to budget and make long-term financial plans based on a predictable monthly figure. However, fixed-rates also require a specific income level, as well as low debt and very good to excellent credit, making it difficult for some individuals to qualify,
Depending on the value of the home, even those with little or no debt and very good credit could be precluded from a fixed-rate mortgage, if they had a relatively low income even if they had an excellent history of debt repayment. To meet the needs of these individuals, as well as those with less than ideal credit and those with higher levels of debt, the mortgage industry created adjustable-rate mortgages, or ARMs. Typically, these mortgages are available to a much wider range of lenders than fixed-rate mortgages. Adjustable-rate mortgages usually offer a low initial rate for the first one to three years of the loan, followed by incremental rate hikes over the life of the loan.
An interest-only mortgage is just what it sounds like it is a payment that consists only of the interest associated with the mortgage. Usually, the interest-only period last for a specific period of time, such as the first five or ten years of the life of the loan. During the interest-only period, the principal is not paid down. In some cases, the interest rate will fluctuate during the loan period.
Both the adjustable-rate mortgage and the interest-only mortgage may also offer low introductory teaser rates, making them especially attractive to mortgage seekers. These mortgages can be ideal for individuals who currently have low incomes or poor credit scores, and who may therefore not be eligible for fixed-rate mortgages. Many times, a borrowers income or credit score may improve during the initial period of the loan, when only interest is being paid or when teaser rates are in effect. Once the borrowers income or credit rating improves, the loan can be refinanced as a fixed-rate mortgage with a competitive interest rate.
Adjustable-rate mortgages and interest-only mortgages may also be good options if you plan on leaving your home within a few years. Because these loans may offer low initial interest rates, they can be more lucrative than fixed-rate mortgages with higher interest rates.
In addition to the interest rate associated with a mortgage, borrowers should also consider any additional fees, as well as late payment or prepayment penalties that may be included in the mortgage. The overall value or cost of a mortgage comprises all of these factors, in addition to the interest rate.
Many mortgage rates that offer unusually low rates may involve penalties and other hidden fees and terms which make it cost more, over the long run, than a mortgage with a higher interest rate. Be sure, for example, that the repayment term and any adjustable interest periods suit your budget to avoid late payments and possible foreclosure.
When you are considering any mortgage, it is essential that you carefully review any document before signing it. The mortgage documents are a legally binding contract and agreement to repay according to any and all terms that are included in the document. If there are any terms you do not understand, be sure to ask your lender to explain the terms or clauses to you clearly, and make sure you understand them before you sign.
As a smart consumer, you need to take your time to ensure you understand your mortgage rate options, reviewing your agreements and making sure you understand them fully before committing yourself. With a little time spent reviewing your options, you can find the mortgage that is best for your needs and your financial situation.
by: mor123
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