Low interest mortgage loans appear to be incredibly beneficial for borrowers at the moment, but they may have a lot more value in the short term than they actually do in the long term. After a few years it is normal for many homeowners to look back and realize that their low interest rate is no longer that pleasingly low.
In order to avoid that surprise down the road, there are a number of things you should look for and look out for when shopping around and comparing low interest mortgages. Understand all the minor details will help you enjoy stability over the years to come, rather than a downward spiral as time ticks along.
The Longer the Term the More Interest Paid
The average term for mortgage loans is 30 years, but always remember that the longer the term the more you are going to end up paying for your loan and your home. This is true even if you can negotiate smaller amortization payments because of the higher interest rate that is attached. The longer you take to pay, the more money that ends up coming out of your pocket.
Fall in Love with Fixed
While low interest mortgages get a lot of attention, there is a lot that can be said for opting for a fixed rate mortgage instead. A fixed rate may not end up being the best deal in the long run, but it does protect you should the market undergo inflation forcing interest rates to go through the roof.
The Role of your Credit Rating
Your credit score is one of the most important aspects to consider when you are shopping around for low interest rate loans. If you have a score higher than 720 you should be given special treatment and be rushed into the department of speedy approval. If your score hovers around 600 then you need to improve it before you will be considered for a low interest mortgage. Start paying off all of your debt, make payments on time, and get your balance lower than 25% of your limit.
Finding Help to Improve Terms
Mortgage brokers can offer quite a bit of help when you are trying to improve your loan offers and understand all of the terms and definitions you are dealing with. An adviser can help you make sure you get the best rate possible and find a mortgage that suits your finances. Even if you are offered a loan that comes with a very low interest rate, you may want to seek out guidance in order to ensure that there are no hidden clauses or catches you are unaware of.
Play it Safe and Opt for Fixed Rate
A fixed rate mortgage comes with a number of advantages even though it does not seem as beneficial right from the get go. However, you will benefit from the fact that it is easier to budget as your monthly payment always remains the same and the terms will allow you to avoid re-calculating or re-computing the numbers each time interest rates change.
Smart homeowners make informed decisions and make sure they have all their facts straight before signing on the dotted line for any loan, no matter the proposed rates. Weigh the pros and cons of any loan package, seek out guidance from professionals, and make sure you make a decision that is right for your future as well as the present.
Considering an ARM for your New Mortgage?
If you are in the market for mortgage refinancing then you should understand that there has never been a better time to consider an ARM or a 15 year fixed rate. According to Freddie Mac, the spread between 15 year fixed rates and 30 year rates is nearly as close together as it has ever been in history. But how do you compare mortgage rates and decide which term is the best for you?
According to a new survey done by Freddie Mac, 30 year fixed rate mortgages are coming with an average interest rate of 4.97 while 15 year fixed rate loans are being charged at an average of 4.34. Even more surprising is the fact that 5 year terms are being negotiated at an average of 4.19%. This basically means that anyone looking to borrow for a home should seriously consider all of their options. The rates for a 15 year fixed loan are creeping around historic lows, and have been running lower than 30 month rates for the past 6 months.
The Big Advantage of 15-Year Refinancing Term
Homeowners who have been dealing with a 30 year mortgage and are looking to refinance stand to benefit the most from a 15 year term. While every situation is different and each mortgage is unique, there is a chance that you will be able to negotiate a 15 year refinancing arrangement that offers the same payments that you are currently paying.
If you settled on a mortgage 10 years ago for $250,000 with an interest rate of 7% then your monthly payments would have been around $1,700. Now, if you were to refinance and agree to a 15 year term at 4.35% then your monthly payments would remain the same but allow you to pay off your loans faster.
Thus, the major advantage for refinancing is the fact that you could be making similar payments compared to what you pay now, but finish paying off your debt a few years earlier than expected.
Even if you signed into a mortgage earlier, you still have the option to refinance and pay off your loan a lot quicker by making payments that are just a few hundred dollars more per month. An increase in payments now can save thousands of dollars in interest in the long term.
Adjustable Rate Mortgages for Short Term Owners
Adjustable rate mortgages always need to be discussed and negotiated very carefully, but they do offer some benefits to a number of homeowners. An ARM will give you a fixed rate of interest for your mortgage for a range of 3 to 7 years (depending on the ARM structure), and then reset to a new rate that is based on the market at the time. If you are only planning on being in the home for a few years then this is a great strategy to use, considering you will be selling the home before a new, usually higher, rate comes into effect.
Other borrowers opt to take an even more sophisticated approach to the matter and use ARMs to get a low rate, and then simply refinance every time a new rate is about to be set. The principal payments are usually lower than any other term even though at present there is not much different in terms of the rates offered by ARMs and 15 year fixed rate terms.
A Word of Warning
Only those investing in a stable housing market should consider an adjustable rate mortgage, as it allows you to be sure that you will have at least a little home equity when you refinance or sell. If you determine that a 15 year refinance is a better choice, then you need to make sure that you can afford the higher payments in comparison to a 30 year fixed rate.
Also be sure to understand that you are going to need strong credit and a high credit score in order to qualify for either of these refinancing options, especially considering the current conditions of the housing market. If you have worked hard to make all of your payments, and kept your credit in tact then you should be able to find a number of loan options that make sense and meet your refinancing needs.