As interest rates begin to creep forward, many people will not buy that next home or investment property because they can no longer afford the loan. Below are three methods that are quite common and can get a borrower a lower interest rate than the brand-new 30 year fixed mortgage loan. Of course, many negative side effects can crawl out of the wood work with these methods, so one should prepare themselves and be careful.
1.) ARMs - ARMs are adjustable rate mortgages, meaning that the interest rate on the loan periodically adjusts, usually every six or twelve months. Initially, these types of loans will get one a lower interest rate than the compared 30 year fixed mortgage, but be very careful. Detail will not be delved into, but be careful because if interest rates are rising and most likely will be in the future, the interest rate on the ARM will surely rise every time it is evaluated; thus making the monthly payments in the long run considerably higher than those of the compared 30 year fixed mortgage.
2.) Loan Assumptions - One can sometimes assume an ARM loan form the home seller, thus giving them the interest rate of the older loan. This is a crafty way to get an ARM that has a lower interest rate than the new ARM loans being offered. Of course, 30 year fixed loans are rarely assumable, so with assuming an ARM loan, the dangers mentioned above in method one may also apply to this method.
3.) Seller Financing - Some home owners actually own their home. Often, these people will offer attractive financing with lower-than-average interest rates. Seller financed property may initially cost more than comparable property. But, with the lower-than-average interest rate, the buyer can easily afford to pay more for the property because the low interest rate balances the cost out.
In addition to the above three loan types, there are additional methods that can be used to get lower interest rates, such as, raising the points on the loan, excellent credit, or a large down payment.
The author is the founder and owner of ManageYourRentals.com and LandLordDocuments.com
