Finance Articles

House Mortgage: Are They All the Same?

Choosing the right house mortgage that perfectly fits your budget and need is very crucial. This will decide whether you will be able to pay your mortgage for the next years. Thus, knowing first the different types of house mortgage should be the first step to take for a successful house ownership. Having said this, you now know that not all types of house mortgage are the same. They may sound similar or may look similar, but each has its own nature and modes of rate computation. Let us take a close look on the 2 types of house mortgage.

Fixed-rate mortgage.

Fixed-rate mortgage is still the more popular type of house mortgage among the two. This is because the fixed-rate mortgage fee does not change throughout the life of the loan regardless of the changes in the national interest rate. It has become more attractive to future home owners since they do not have to worry of the possibility that the mortgage rate will go up in the future, which can suddenly become unaffordable. Also, future home owners can easily budget their payment more easily with the fixed-rate mortgage making is more convenient in any year.

However, to be able to qualify for the fixed-rate mortgage, higher income is required. Also, if the interest rate suddenly goes down during the course of the loan, the borrower has to refinance their house in order get a lower rate as compared to adjustable rate mortgage where the borrower can automatically compensate with lower rate.

Another important thing to take note of with fixed-rate loan is the promotional rate mortgage companies are offering. Often, they give low initial payment the will run for several months and will shoot up after the promo expires. Moreover, during the first years of loan, your payment will go mostly to the interest rate and not to the payment of the principal which means that the mortgage company still owns most of your house for a while.

Generally, the fixed-rate mortgage is offered either in 15-year loan and 30-year term. The 15-year loan has higher monthly payment at a lower rate. The 30-year loan on the other hand has lower monthly payment but has a slightly higher interest rate. Choosing between the two relies on your capacity to pay.

Adjustable Rate Mortgage.

The adjustable rate mortgage (ARM), also know as variable rate mortgage is a short-term fixed-rate mortgage. Meaning, a fixed-rate is set from the first year of the loan and runs for the next 3, 5, or 10 years. After the fixed-rate expires, an adjustment will be made annually depending on the current interest rate condition. For example, the 30-year 10 to 1 adjustable rate mortgage has a 10-year fixed-rate mortgage, say, at 6.03%. On the 11th year, the rate will adjust on the current national interest rate and will change every year for the next 20 years.

The good thing about the ARM is that you can compensate on possible future lower rate. Also, compared to fixed-rate mortgage, the interest rate for the ARM is lower. Applying for the ARM is also easier too since the rate is lower and affordable.

The main drawback for this type of loan, however is that the rate can suddenly shoot up during the course of your loan, which can make the mortgage payment becomes unaffordable.

Based on this information, base your choice in the following criteria:

1. How much you can afford? 2. How long are you planning to stay at your house? 3. What is the interest rate?s current trend? 4. How much are you willing to gamble?

In general:

1. The type of loan approval depends on how much you can afford together with other factors such as your credit score, money at hand, assets, information about your purchase, and debts. 2. If you are planning to stay at the same house for years, a fixed-rate mortgage is a good choice. 3. If the interest rate?s current market trend is going up, the fixed-rate mortgage is a safer choice but if it is going down, then ARM can be a good choice. 4. If you do not want to worry about the fluctuation of the interest rate, fixed-rate mortgage is perfect for you; if, however, you do not care about the future changes on the interest rate, then ARM is a fine choice.

For more information on mortgage and home financing please go to: http://www.homefinancingalert.com/Financing-Home-NY.html http://www.homefinancingalert.com http://www.drnathaliefiset.com

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