An Essential Guide to Mortgages and How to Choose the Right One for You
Mortgages are loans that enable homeowners to borrow against the value of their home. As long as you make timely payments on time, the loan can be repaid over a number of years without needing foreclosure.
Mortgages work similarly to other loans, but the main distinction is that a mortgage is secured by real estate (such as your home). This makes them much safer for lenders to offer than other types of loans which could potentially pose greater risks for you.
Your mortgage is a major financial commitment, so it’s essential that you select one that works for your lifestyle and situation. Take into account your interest rate and loan term (the length of time the payment will remain active) when selecting a plan that works best for you.
Mortgages come in many different forms, such as fixed-rate and adjustable-rate options. Selecting the right type of mortgage can save time and money in the long run.
Fixed rate mortgages are the most popular, offering 15 and 30-year options, but you may also find 10-, 20-, and even 40 year plans available. If you plan to stay in your home for an extended period of time, make sure that the term of your loan matches up with how long you plan to live there.
Your credit score and debt-to-income ratio can provide lenders with evidence of being a low risk borrower, potentially enabling you to receive a lower interest rate. Furthermore, lenders take into account your assets – such as savings/checking accounts and stock investments – as an indication of financial stability.
Repayment plans, forbearance agreements and deferred payment options are all ways you can stay on track with your mortgage payments if temporary difficulties prevent you from making regular payments. However, these solutions are only suitable for those who have a permanent issue; thus, consult your lender before deciding whether or not to utilize them.
A repayment plan is an option to temporarily reduce your monthly payments if you experience a short-term financial setback, such as loss of income or employment. The benefit of this option is that it keeps you current on your mortgage while working out a solution to the issues at hand.
Deferred payment options such as fixed-rate and adjustable rate mortgages are the two primary deferred payment types. However, hybrid products exist which combine features of both. Typically, a fixed-rate mortgage would last five, seven, or 10 years before converting into an adjustable-rate mortgage that changes with market fluctuations.
If you’re worried your interest rates will rise in the future, a variable-rate mortgage could be your ideal solution. These typically offer better deals than fixed rate mortgages as they allow you to lock in your rate for the entire term – which could save significant money over its course.
However, it’s essential to remember that mortgage rates can change at any time and you should always be prepared. While you cannot control these factors, you do have control of your own finances and the steps taken to save for a down payment and other expenses which will enable you to pay off your mortgage sooner.