Mortgage Rates Explained;
So you’re now ready to go looking for a mortgage that best suits your needs. With the huge amount of mortgages available, it can seem quite daunting but as long as you keep a few basic principles in mind, then things will be clear.
A mortgage is a long term loan secured against your property and is repaid over a fixed period. That period can be anything form 10 – 30 years. The vast majority of us need to acquire a mortgage from a lending institution to purchase our home. The most important decision that you need to make is whether to get a fixed rate or an adjustable rate mortgage (ARM). A fixed rate mortgage is one where the rate of interest is locked in for the length of the mortgage. Some people like the security of knowing exactly what their monthly payments will be. They will not be affected by any interest rates rise and conversely, they cannot take advantage of any interest rate falls.
An Adjustable Rate Mortgage (ARM) is one where the interest rate is not fixed. The interest rate is based on a variety of indexes such as treasury bills and the Federal Housing Finance Boards National Average rate. You will need to check with the lender exactly what the indexes are. Most ARMs will come with a teaser rate whereby the initial rate is generally lower than the current interest rate so your initial monthly payments will be lower. If you plan to stay in your home for a limited time then this type of loan can be very attractive as you can take advantage from the lower initial rates.
The teaser rate can be a good way of getting a larger mortgage as the monthly payments will be less. The bank will decide the amount of mortgage by looking at your gross monthly income and the monthly payments and make a call on whether you can afford the payments or not. Before taking out an ARM you will need to understand the following:
Lifetime Cap - the maximum rate that your ARM may increase by.
Floor Rate - the minimum rate that your ARM may decrease to.
Adjustment Interval – This is the time between changes of your interest rate or monthly payment. So if the interval is 2 years then your monthly payments will not change during this time.
Interest Rate Cap - A rate cap is the maximum percent increase that can occur at each interval of adjustment. A payment cap is the maximum amount that your payment can go up at each adjustment interval.
Payment Cap - . A payment cap is the maximum amount that your payment can go up at each adjustment interval.
Amortization – Paying off a loan by making regular monthly payments which include the principal and interest.
Negative Amortization – this happens when the interest rate associated with a payment cap on an ARM is less than the fully indexed rate.
So, the minimum payment allowed by the lender is less than the payment which is due. This difference is added to the loan balance.
Another type of mortgage is an Interest only rate where your monthly payments go towards the interest of your loan only and not the principal.
There are advantages to all kinds of mortgages and you will need to decide which is best suited to you. With a fixed rate mortgage, you know exactly how much your monthly payments are. With an ARM, your monthly payments will fluctuate but you could take advantage of more competitive rates and also teaser rates.
Don’t be daunted by the choice, just do your homework and you will find a loan which is best for you.
Mortgage & Equity Rates By State;
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
|
