An adjustable rate mortgage has an interest rate that changes with a predetermined index. This means that the interest rate will most likely change over the life of the loan, and that monthly payments will not remain the same from one period to the next. These periods between rate adjustments can be as long as five years or as short as one year. The disadvantage with an adjustable rate is obvious: you can not predict how the index with fluctuate and rates could rise, but adjustable rate loans come along with a rate cap to keep your rate from going too high.
Also, adjustable rates usually come with an low introductory rate, and if rates were to drop, someone with an adjustable rate could end up paying less than someone with a fixed rate. An adjustable rate is also good if you plan on moving five to seven years after buying the house.
Finding a mortgage loan can be more daunting than find a home. You want to be careful in both decisions since you will have to live with both for at least the next five to 30 years. Having realistic understanding of exactly what mortgage loans entail and exactly what you are looking for will help you through this process.
- A construction loan covers the cost of the materials, labor and land needed to build a new home, giving you the opportunity customize your new home.
- An FHA loan is insured by the Federal Housing Administration which is a part of the Department of Housing and Urban Development in effort to provide families with low income mortgages that require only very low down payments. The FHA also has special low interest, low down payment loans available for teachers and police officers.
- A VA loan is insured by the Veterans Administration and provides a low interest low with no required down payment. A VA insured loan is available if you have served in the military.
If you are concerned that you will not automatically qualify for a low interest rate, you may want to either save more of a down payment or look into a government insured loans, such as an FHA insured loan or a VA insured loan, which encourages lenders to provide lower rates.
Refinancing for a larger amount than your original loan The time you Refinance may be a good time for you to take out some additional money for home improvements. In so doing, you can add to the vaue of you home. An important factor in this decision is the tax status of the interest you will pay on your new loan. This status depends on how the money is used. If your cash is used for home improvements, the money is considered acquisition indebtedness and you can make a tax deduction. If the money is used for other purposes, you may not qualify for a tax deduction. Refinancing is typically a great option if you intend to stay in your house for at least a few more years; however, make careful considerations of the tax issues involved with taking out a larger loan in the process. A quaified mortgage broker can help work out these figures with you. Often times, because rates are so low today, regardless of how the money acquired through the loan is spent, you stand to make great savings.
Finding a loan can be nerve-racking, but finding the right one can help you settle into you new home with confidence and security. One of the best ways to find the right loan for you is to understand what the different types entail and what certain mortgage terms mean.
Your mortgage is going to be a part of your life for the next 15 to 30 years. It is important that you find one that you will still be comfortable with in ten years. No matter what you credit background there is a mortgage for and finding one that suits your needs will help you hold on to the initial good feeling that comes along with buying your own home.