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Equal Housing
Opportunity
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Did You
Know? |
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A move for job
purposes may be tax deductible?..consult your accountant.
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Finding the Mortgage That Fits You:
Shopping for the right mortgage is time well spent. Pre-qualifying puts you ahead of the pack. Shop for a loan like you would for a car. Hunt for the best
loan ie: interest rate, points, processing costs, etc.
To understand home loans, you should review the major kinds of mortgages that may be available to you. This list doesn't encompass all, but it does
contain those you will most encounter.
Fixed-Rate Mortgage (FRM)
The most common mortgage today. It is probably the most easily understood type of mortgage. Its primary feature is that the interest rate
and the amount of payment remain fixed for the life of the loan, and can be set up as either a 15 or 30 year term. The interest rate does not change
over the life of the contract and if rates fall, the only way to benefit from the new, lower rate is by refinancing.
Adjustable-Rate Mortgage (ARM)
An ARM has adjusting interest rates to coincide with whatever the current rates charged throughout the economy. You, the borrower,
have the risk of rising rates, and you also stand to benefit should rates fall. Typically an ARM has limits or "caps" on how much the rate can accelerate
at each review and over the life of the loan. With out those caps there is no way to know how much risk you have should rates sharply escalate. Make sure
your contract contains caps that are comfortable for you. Otherwise you may want to opt for the conventional loans available.
Convertible Option
The convertible mortgage is something of a combination of the two previously delineated mortgages,
the FRM and the ARM. It was created for those who want the advantages of the ARM, but also want to limit their risks of rising rates. Under this contract,
the borrower's contract begins with an ARM, but has the option of converting to a FRM at specified points during the contract term. You should be sure
certain points of this contract are clear:
- When can you convert?
- How often is the option to convert available?
- Are there any up-front or additional fees due to conversion?
- Will your costs for an ARM with the conversion feature than for an ARM without it going to be significantly higher?
- Know the lender's conversion rate.
Graduated Payment Mortgage (GPM)
Often confused with an ARM, a fixed-rate GPM starts out with lower payments, usually below rates of a fixed-rate and possibly the same as an ARM, but
rise at specific intervals over the course of the loan, usually over five to ten years, then remain the same for the remaining years of the loan.
Growing-Equity Mortgage (GEM)
A quick equity builder, the GEM was created for those who want to pay off their mortgage fast. This contract has the interest rate remaining fixed,
but the monthly payment increases according to a specific schedule, with the increase applied to reduce the principal balance. This mortgage is designed
for those borrowers expecting regular income growth.
Fifteen-Year Mortgage
Almost identical to the 30 year standard mortgage except for the shorter term life of the contract. It is similar to the GEM in that it is designed for
borrowers to repay their loan more quickly, over 15 years which means they build equity faster and pay less interest over the life of the mortgage.
Biweekly Mortgage
Another quick-pay option for people who want to repay their loans sooner is the biweekly mortgage.
The contract is set up to be made in equal biweekly payments instead of making one single mortgage payment each month.
Federal Housing Administration Insured Loans (FHA)
The FHA insures mortgage loans made by approved lending institutions. The FHA insures a variety of mortgages, but their usual feature is a low down payment.
Usually 5 percent or less. The risk is higher for the lender but is encouraged to make the loan because of the FHA insurance of it.
The FHA doesn't set the interest rate or terms on loans it insures, so you'll still need to do the legwork to find the right loan for you. The FHA limits
the insured amount of the loan to whichever is less: 95 percent of the local average home price or 75 percent of the loan limit set by the
Federal Home Loan Mortgage Corporation.
Veterans Administration Guaranteed Loans (VA)
VA loans are very similar to FHA loans, but they have distinct eligibility requirements. They are made only to veterans of
the armed services, those currently in the service and their spouses. VA loans can be (historically) half a percent or more below market rates, and they
can be "no money down" contracts.
Call me or email me and I will go over this information with you and give you some more options.
Rick Lockwood, Realtor®
(512) 635-2691
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