When going for that first mortgage, it is essential to know about the options that are out there. While this may make the final decision more easy or difficult, you may just end up with the best possible deal.
Let’s begin with the down payment options. In most mortgage deals, you have to make the 20 per cent down payment in the initial stage in order to repay the loan at lower interest rates in the future. However, if you don’t have enough money for this down payment, you can explore other options. For example, if you can meet monthly payment needs and have a good credit rating, lenders can give you the 5 to 15 per cent down payment option. However, this would mean that you will be paying more interest compared to some who has opted for the 20 per cent option.
Loans can extend anywhere from 15 to 30 years. It must be understood that you will be paying more than your principal in interest. In the initial years you will be paying only the interest, while in the closing years, the principal amount will be repaid. This fact can be attributed to the structuring of the loans by lenders. Thus generally the period of repayment is also important, as longer time means more payment, sometimes up to 3 to 4 times more than the principal amount.
Some lenders may also ask you for private mortgage insurance or a second mortgage. A typical private mortgage insurance policy is designed to compensate the lender in case you are not able to repay the loan and the sale of your property does not fetch the amount expected. This mortgage insurance means that you will be paying a monthly premium which may become an additional burden. Some lenders may forego the insurance option once you have repaired up to 30 per cent of the loan amount on time.
There is also the option of a fixed rate mortgage. This is a repayment option in which the rate of interest remains fixed till the end of the mortgage term. This also means that your rate of interest will not be changed even if the economy grows or there is recession. This is the best option if you are considering repayment in the long term. In order to derive the full benefit of this, you should take out a mortgage when the interest rates are, or wait for such a time. There are some variants of this also in the market through which, you can repay at a fixed rate for up to 7 years and then pay at floating rates.
However if you want to repay the loan in a short period of time, it is best to go for the floating rate or adjustable rate mortgage. The rates charged under these options are decided by market forces, the state of the economy, the strength of the currency etc. The benefit of this option is that initially, lower interest rates are charged when compared to fixed rate loans. This means that the entry load is quite low and this may be attractive for people who want to borrow in the short-term. However, with the passage of time, these initial low rates are replaced by higher or lower rates depending on the market. In the long run, when you count inflation, it becomes clear that the interest rates will go up in the future. Many lenders have put a ceiling on the amount the interest rates may vary, both up and down, so that the final figure remains in a reasonable territory.
Then there’s the balloon mortgage loan, in which you can make the monthly payment for the scheduled loan term, say 5 years. After that, the borrower should pay off the remaining balance in a lump sum in a single payment. This loan can also be converted to a fixed loan at the end of the mortgage period or the borrower can go for refinance.
Some mortgage options come with a blend of the above mentioned options. In such a case, you can chose to repay at a fixed rate or a floating rate every month or regularly at fixed periods.
First Mortgage provides detailed information about first mortgage, first mortgage loans, first mortgage options, first mortgage rates and more. First Mortgage is the sister site of Home Owners Insurance Policies.
