If you've been finding it hard to choose a mortgage, you're not alone. Home loans…
So you’ve decided to purchase your property. Congratulations! Whether you’re buying your first home or the property of your dreams, it takes a lot of time and effort to make a real estate investment. Before you go house hopping for your new property, you must sort out your finances. This means you need to determine your credit score. Why? It’ll help you figure out what kind of house you can afford with your current streams of income. The loan amount you’ll be receiving will also save you from the trouble of checking out homes that are not within your budget. In an ideal world, you’d be able to afford housing expenses from your savings, but in reality, ordinary people have to turn to home loans and are subject to mortgage rates to lock in property of their own.
What are home loans anyway?
Fundamentally, a home loan is the amount of money an individual borrows from a money lending entity or a bank with a particular interest rate. This is to be paid for by the said individual over an agreed amount of time with specific mortgage rates. People usually pay for their loan through monthly payments, the actual amount of which would depend on your finances, a.k.a your credit score, and the amount of money you shelled out for downpayment of the property. The property serves as the collateral for the loan, which means that consecutive failure to pay for mortgage payment may cost you the repossession of your property. It is essential to acquaint yourself with the mortgage and refinance rates before you sign the dotted line. These fees will play a massive role in how your finances will look in the long run.
Mortgages are available in different types: fixed-rate and adjustable-rate mortgages. The most common mortgage and refinance rates come in 30 year fixed rates and 15 year fixed rates. Meanwhile, some mortgage rates can run for as short as five years, while some can stretch up to 40 years. However, the interest rate for more extended loan periods increases over time. Essentially, the longer the loan term, the more money you can borrow, but at the same time, this also means having to shell out more money as interest rates tend to change without notice in a lot of cases. Here’s a quick guide for you to compare the two types of loan options:
- In the case of fixed-rate mortgages, which is also known as ‘traditional mortgage,’ there is a fixed annual percentage rate for interest, which means the interest rate stays the same throughout the payment process. This usually comes in the form of a monthly payment scheme that the homeowner can afford within his budget.
- Payment for this kind of mortgage rate can range between 10 to 30 years. This is a popular type of mortgage rate plan because it gives people an idea of how much they’d have to shell out every month.
- Many borrowers tend to favor 30 year fixed rate mortgages over the 15 years fixed-rate option because the monthly payment is lower than other mortgage arrangements. With this type of fixed-rate loan, you can borrow a more significant amount of money. This means you more financial freedom for business or personal expenses, such as business expansion, your children’s tuition fees, or your emergency funds.
- On the other hand, in an adjustable-rate mortgage arm, the initial rate is fixed for an agreed period. The interest rates change periodically based on the interest in the market. The initial rate for an adjustable-rate mortgage is usually lower than the market rate. This option is affordable for short-term loans and more costly for long-term loans because the mortgage interest would vary.
- Before the loan is approved, though, a cap on how much the interest can rise every time it adjusts and in total over the whole life of the loan as agreed upon. In the case of adjustable-rate mortgages, mortgage rates can decrease as well. It all depends on the market. There’s a massive chance for you to pay a lower interest rate if your loan period is longer.
- Adjustments for this type of mortgage rate usually happen every year or six months. In some cases, this even adjusts monthly. That’s the nature of adjustable-rate kinds of loans. Monthly payment is subject to change without prior notice. The adjustable-rate of this type of loan depends on the federal housing key index rate. Yes, Freddie Mac and Fannie Mae play a role in the mortgage rates borrowers have to pay.
Fixed-Rate Mortgage vs. Adjustable Mortgage (ARMs)
Now that you understand the difference between the two types of loans. How do you determine which type of loan is right for you? Both options have their risks. These risks usually revolve around the interest rate environment, so it would be wise for you to keep tabs on the current mortgage and refinance rates. You want to guard your investment, after all. When interest rates increase, a fixed-rate mortgage will lower the risk for the borrower or home buyer and a higher risk for the lender. The same principle applies when interest rates fall. The borrower will pay above the market rate, while the lender will gain more profit. Interest rates are subject to change without prior notice, so you need to bear this in mind before requesting a loan amount.
Shopping for the Best Home Loan Today
Now that you’re acquainted with different kinds of mortgages, the question is, where do you shop for your mortgage? Where do you get a loan? Gone are the days wherein borrowers are limited to banks and credit unions. In this day and age, there are a lot of lender options to choose from. A lot of non-bank lenders such as Home Lending Pal have risen to give borrowers more options and the best rates in the market today.
Why Non-bank Lenders?
- What’s excellent about non-bank lenders is that they usually have online payment calculators for interested borrowers to compare estimated monthly or average payments. This is computed based on the type of mortgage you’re eyeing, today’s mortgage rates, and how much you intend to shell out for the down payment. This will also help you with the feasible loan amount, which determines how expensive a property you can afford given your credit score.
- Non-bank lenders have a lot of options for you to choose from as well. From fixed-rate loans to different types of adjustable loans, they’re equipped to provide you loan options that give you flexibility. Much like traditional financial institutions, non-bank lenders can offer you 30 year fixed rate, 15 years fixed rate, 20 years fixed rate, and the like.
- Non-bank lenders will also help you with other aspects of home buying such as principal and interest, origination fees, closing costs, home equity, and the like. They will help you manage your monthly mortgage fees, as well as business and personal finances, for you to lead a comfortable life even while you lock in and purchase a new property.
- Non-bank lenders also offer mortgage insurance and even discount points, which is a great security blanket to have in emergencies. Whether you’re a single-family looking for a new home or a business owner looking for jumbo loans, non-bank lenders would offer you reasonable mortgage rates with a fair annual percentage rate. As interest rates change without notice, mortgage insurance can help you manage your finances at affordable rates.
- Non-bank lenders offer flexible payment terms as well. You don’t have to line up at their office to make your monthly mortgage payment. They offer a lot of online options for you to pay fees safely and conveniently. They’re also always up to date with today’s mortgage rates, so you don’t have to check the market constantly.