Mortgage Loans

Mortgage Loans – How to Find the Right Mortgage for You

The majority of home buyers use mortgage loans to finance their investment. Unless you can pay the sales price of the property in full, you will need to go for this option as well. At present, mortgages are more affordable than they were before the recession but with the improvement in the financial and real estate markets the interest is starting to climb up slowly. Given this, now is a great time to get financing for buying a home. Use some advice to help you with this.

Options

The most important thing to do before you go shopping for mortgage loans is to familiarize yourself with the available options. The main ones are fixed rate and adjustable rate loans. Then there are types of loans based on their term. Let’s take a closer look at each of the opportunities available to you as a home buyer.

What is a fixed rate mortgage? This is a home loan whose interest rate does not change throughout its entire term. It is fixed in the beginning and stays the same. The main advantage of this option is that the monthly payment never changes. It is predictable and this makes the loan easy to manage. The drawback is that the interest can be set at a slightly higher rate which will naturally push the cost up.

What is an adjustable rate mortgage? This home loan has a variable interest rate. It is adjusted in line with the movement of an index which it is pegged to. The adjustment is made in line with strict rules. The interest and consequently the monthly payment which is based on it cannot rise or fall uncontrollably.

The main advantage of the adjustable rate mortgage is that it is usually less expensive compared to its fixed rate counterpart. The downside is that there is uncertainty. You assume a higher risk. There is a possibility that the monthly payment can increase beyond your affordability threshold.

The main mortgage term options include 15 years and 30 years with most lenders being fairly flexible on this particular feature. The term of the loan is directly related to its cost and monthly payment. The longer the term is the greater the cost is and the lower the monthly payment is.

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Loan Type

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Mortgage Analysis

The second important step to take before the actual comparison shopping is the analysis of your current standing and future financial plan. For this analysis, you will need to get your credit score and a credit report. The better these are the better terms and conditions you will get including lower interest rate.

You should check your savings and determine how much you can afford to pay in the form of down payment. Currently, most lenders require that the home buyer pays 10 per cent of the price of the property out of their pocket. Individuals with lower credit score may have to pay up to 20 per cent. You need to obtain the current 15 year mortgage rates and 30 year mortgage rates as well.

Once you have all the numbers at hand, you can use a free loan calculator to find out where you stand. Enter the principal (the house sales price minus the down payment), the interest rates and the terms of different loans. This will give you an idea about the different monthly payments that you can expect. Financial experts recommend that the mortgage installment is no greater than a third of your monthly income.

Mortgage Comparison

Comparison shopping is undoubtedly the best method for finding a mortgage loan which matches your requirements. You should request quotes from as many lenders as possible. Keep in mind that requesting quotes will not affect your credit score in any way.

In order to make a detailed comparison, you should base it on all important loan features. These include principal, interest rate, term and payment size. You need to take into account additional fees and charges and extra benefits such as flexible terms, lower interest for a fixed period of time, early mortgage loan payoff without penalty fee and so on. Use the loan calculator to get an idea about the amortization schedule of each loan. This schedule shows you how much equity you will gain in your house as time passes.

With effective comparison of mortgage loans, you are guaranteed to find the best deal for you.

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