Are you considering buying a home? As you research your options for a home loan, you will certainly come across fixed rate mortgage programs. This is a mortgage where the interest rate remains the same for the life of the loan. These mortgages usually are for 30 years, but many lenders also offer fixed rate mortgages for 15 and 20 years. If you opt for this type of loan, your house payment will remain the same unless your property taxes increase or decrease. This can help as you plan your monthly budget.
When you are looking for a home loan, it is a good idea to shop around. You may be surprised at the differences you see between various lenders and mortgage brokers. In addition to the interest rate, it is also important to consider points and closing costs. If your credit is excellent, you may be able to negotiate with the lender on these two items as well as a lower interest rate.
It is also important when you are considering a fixed rate mortgage to ensure you are allowed to pay the loan off early. Most lenders are fine with this because they are getting their money back sooner, but some want you to pay the full interest and will penalize you if you pay off early.
As you shop for a home loan, you will discover there are also loans with variable interest rates. These are called adjustable rate mortgages and can be a good choice if you know you will be selling your home in the next three to five years. These loans start out with a very low interest rate that then increases after a set period of time, usually three to five years.
If you are planning to live in your home for a long period of time, it is generally better to choose a fixed rate mortgage. You can always pay ahead on your mortgage so that you aren’t paying on the loan for 30 years.
One of the best strategies for paying off a fixed rate mortgage early is to pay one additional payment every year. If you do this, you can cut ten years or so from the term of your loan.
You can also pay a little extra every month and indicate to your lender that you want this extra money to go to the principle of the loan, not the interest. This will help you pay down the principle on your loan faster so you end up paying less interest.
When you get your fixed rate mortgage home loan, you will be provided a payment schedule. You may adjust this payment schedule, usually bi-monthly and end up paying more frequent payments.
If you can afford a higher payment, you can change the term of your loan. For example, if your current home loan is for 30 years, shortening the loan to a 15-year term will save you almost half of the total interest.
Choosing the right home loan can be confusing. Going with a fixed rate mortgage is a good choice if you plan on remaining in your home for several years