Debt Be Gone Today

No longer do we have the plain vanilla days of traditional mortgages; today’s mortgages have more flavors than Baskin Robbins.

One of the first decisions you will have to make is whether you prefer a fixed rate mortgage or an adjustable rate mortgage. Usually, a fixed rate loan will be at a higher rate than an adjustable rate loan. The reason for this is the banks have to make up for the fact that interest rates may move against them. To compensate for this risk, they will ask for more money in the form of an increased interest rate.

In many cases, a fixed rate home loan is the better choice because of the interest rate protection it gives the borrower. However, if you do not plan on owning your home for a very long period, they may not be the best choice. If the house will only be owned for five or so years, the higher rate will not amortize during the loan.

To keep your mortgage payments down, and if you feel you will sell the house in a few years, the best route is to secure an adjustable rate mortgage. Adjustable rate loan payments are lower and future increased rates are not an issue, since when the loan is paid down, this situation would be the same.

In addition to deciding on an ARM (adjustable rate mortgage), today you have to decide upon the index that will be the basis for the rate adjustment mechanism, and understand the rate adjustment cap (how many times and at what top percentage the rate can move) as well as the maximum interest rate.

Another choicethe borrower will be offered is a lock in period. The lock in period is a device that allows you to lock in for a rate and maintain it at that level for a certain period. The longer the lock in period, the higher the interest rate will be.

Another choice in the mortgage process is how much down payment to make. In a lot of cases, there is not much to decide upon, since the buyer will put down as much as he can afford. If you are one of the lucky ones with cash to spare, however, you must make the comparison between how much the additional funds would earn in comparison with the benefit they gain for the mortgage interest rate.

Another choice facing home buyers is how many points to pay. Paying up front points will not be worth while if the loan is not going to be outstanding for a very long time.

Today’s mortgage borrower has a lot of things to think about. With all of these kinds of loans, and new ones being introduced on the market almost every day, such as interest only loans and options based loans, it is no wonder today’s borrower is confused.

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