Tag Archives: Mortgage

Types of Adjustable Rate Mortgages

MortgageThere are various mortgages on the market for homebuyers. One of the popular options is an adjustable rate mortgage (ARM), which is also known as a floating rate or variable rate mortgage.

In an ARM, your interest rate varies over the life of your mortgage. The rate is reset periodically based on a scale known as an ARM margin. Depending on your mortgage lender in Lake Oswego, an ARM can take different forms.

Here are the most common types of adjustable rate mortgages:

Hybrid ARM

This is a mix of adjustable and fixed-rate period loans. Hybrid ARMs have a fixed interest rate for a specific period after which the rate varies. They are often advertised in two digits. The first figure indicates the period for a fixed interest rate while the second indicates how often the rate will change. A 5/1 loan, for instance, means a fixed interest rate term of 5 years and an annual adjustable rate after that.

Interest-Only ARM

The payment plan of an interest-only ARM allows the borrower to pay interest only for a specified term. The loan has small monthly payments initially, but these increase once you start repaying the principal and interest. The interest rates adjust throughout the loan term.

Payment-Option ARM

This option allows the borrowers to choose the best payment option for them. A conventional payment option means you pay the interest and principal over a set period. You can also opt for a limited payment. With this option, you may pay a lesser amount than the interest you owe. The balance is however added to your principal; therefore, increasing your loan amount and subsequently, your future monthly loan payments.

Depending on prevailing interest rates, you might end up with low-interest rates in an ARM. The initial interest rates are also lower than other mortgage rates. In addition, you can make higher loan payments during the fixed period to reduce your principal.

Understanding Your Credit Score and Mortgage Application

Credit Score ReportYour credit score is one important factor that can affect the interest rate of your mortgage and your eligibility to get a loan. You can improve your chances of getting a better mortgage by boosting your score, staying current on your payments, and paying some of your debts. Note that some portions of the score depend on how much debt you have and whether or not you pay your bills on time.

Where Should You Start?

Know your score by getting a free report and checking it for errors. If you find some, submit a request to the fix the mistakes. It is ideal to do this before you apply for a home loan, as investigating disputes can take up to 30 days or more. According to the Consumer Financial Protection Bureau, reporting agencies will notify you of the results five days after they finish the investigation.

Should You Apply Now?

Lenders offering mortgages in Utah note that if your score is 740 or more, you can qualify for the best interest rates. Good credit score means saving thousands on your home loan. If it is, however, below 700, you will have to pay more interest on your mortgage. Note that many lenders prefer borrowers with a stable history of on-time payments as well as low balances.

Is it Better to Apply in the Future?

If you have a low score, you can put off buying to save more money and improve your credit rating. Good credit habits include paying credit card debts, paying bills on time, and keeping balances low. If you keep up with these practices, you can see an improvement in your score. Note that improved credit can help you save up to $100 on a normal monthly loan payment.

Focus on improving your score to get better loans and rates. Be sure to avoid making large purchases on credit before you apply for a mortgage or close on a house, as this can negatively affect your chances of getting a loan.

Mortgages: To Pay or Not to Pay More Down Payment

Mortgage in WayzataMuch like the rest of America, it’s not uncommon to find mortgages with 90% to 97% LTV in Minnesota. As a matter of fact, many lenders these days would be happy to just accept a 3% down payment and finance your purchase to buy your desired property among the houses for sale in Wayzata, MN.

While it’s convenient that you no longer have to save that much to have your own home, putting down a minimal amount may be disadvantageous to you. Yes, you end up with more cash in your pocket, but paying little to no down payment has consequences:

Paying More Interest Down the Road

The smaller your down payment, the more money you have to borrow. Remember that the interest you’d pay over time would depend on your principal balance — the money the lender let you use. If you loan big, you also pay big interest.

Unless your lender allows you to make pre-payments without penalties, the only way to reduce your principal as much as possible is to put down a large amount.

Shouldering PMI

Generally, any borrower that can’t put down at least 20% of the sale price would incur the Private Mortgage Insurance. This one-off fee insures your lender in case you default; in short, it has no use for you.

The charge may vary, but you should do the math first to see how much you can pay. This way, you measure if it’s worth it to save enough for the 20% down payment and take the worthless charge just to complete the loan.

Sinking Underwater

Most importantly, a small down payment might put you in an upside down position someday. It happens when you owe more than what you own in your house. If you have not paid enough down payment to own a decent portion of your property and the housing market crashes, you’d end up with a home without much equity and a large debt.

Getting a mortgage requires prudence and discipline. As paying too large a down payment also has its downsides, you should calculate the risks and make an informed decision.