Fixed-Rate Mortgages: Part 1 If you want to become a homeowner you will probably need a mortgage. An alternative to a mortgage is to work for years to make a full payment on the house you want to buy. That is why the mortgage is a solution. There are two types of mortgages available: the fixed-rate mortgage and the variable-rate mortgage. When people speak about mortgage they usually mean fixedrate mortgage. We are going to talk about this mortgage type. The feature of a fixed-rate mortgage that makes it so attractive for the borrower is its less complex payment schedules and stipulations compared with other loan types. It is easy to understand that is why people like it. This loan consists of a principal component and an interest component; just choose the loan size and its term with an interest rate you can handle. Fixed-rate mortgage interest rates are slightly higher than the interest rates available on other types of loans, so some more expensive houses are unavailable for thehomebuyer as they are limited in the size of the loan. In order to become a homeowner you can choose between a longer-term loan and a shorter-term loan. The longer-term loan means that the monthly mortgage payment will be lower, but the interest rate cost during the loan lifetime will be higher. While the shorter-terms loan means that the loan lifetime will be shorter and interest rate cost will be lower, but your monthly budget burden will increase because of higher monthly mortgage payment. So remember that with the longer loan term, the higher total price you have to pay. Usually borrowers can make extra payments in order to shorten the term of the loan to help with paying down their mortgage more quickly.
Fixed-Rate Mortgages: Part 2 Apparently, the main reason why people choose a fixed-rate mortgage is the stable monthly mortgage payments. This means that the loan interest rate doesn’t change with time. It is very convenient for the homebuyer as he can cover home price value by making the smaller payments during a determined period of time. There are predictable payments, so homebuyer is able to plan his budget. Stable monthly mortgage payments may be both the pro and con of a fixed-rate mortgage. This is because the interest rates float. For example, if you get a fixed-rate mortgage with some interest rate that suits you and after this the interest rate rises, your monthly payments won’t rise. But the opposite is true as well; when interest rates fall, your monthly mortgage payments stay stable, so you have to pay more than the people who got a mortgage after you. In the latter case you have a solution- you can refinance the loan. But be careful. Loan refinancing may make your cost even greater as it can be an expensive endeavor. Thus, total refinancing may cost more than it will save you in the long run. To make sure it is a good idea to refinance the loan, you just have to make a few calculations. For this you have to calculate the amount of money you save from every monthly mortgage payments due to refinancing into a new mortgage at a lower interest rate and compare it with the loan refinancing cost needed for this. Doing so you will understand if it makes sense for you to refinance the loan or not.
Fixed-Rate Mortgages: Part 3 There are fixed-rate mortgages that are non-traditional. These non-traditional versions of loans appeared not too long ago. The point of non-traditional loans is that the borrower deals with the interest-only portion of the loan for a set period of time. The homeowner’s monthly payment is much lower. After this period of time is over, the borrower payment schedule changes in order to incorporate the interest payments as well as repayment of the loan principal. At first glance, the non-traditional versions of the fixed-rate mortgages go against the main principle of the fixed-rate mortgages for which people like them – stable monthly payments. For the initial time period the borrower pays only the interest cost and then the one-time change happens and the borrower starts to cover the repayment of the loan principle in addition to the interest payment. How can such a payment increase be good for a budget? However, it makes sense, especially for the young homebuyers. Think about it – a young couple decides to start a family. The first problem they will have to deal with is homeownership. Where do they get money for this if they still don’t get paid well? In this case they can become homeownersthanks to non-traditional versions of the fixed-rate mortgage – their budget will handle the interest-only payment while such homebuyers advance in employment and get a moredecent salary. The fixed-rate mortgage is a perfect solution for those who have a steady source of predictable income and intend to own their homes for an extended period of time. It is convenient and easy to handle. If you want stability in your financial situation, these fixed-rate loans are for you. For borrowers that have small budget but are expecting the career advancement the non-traditional versions of the loan are the best option.
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