What are the types of mortgages?
Let’s talk about mortgages. When starting the home purchase process, start first by talking to a lender about getting pre-approved. A lender can discuss mortgage options that fit your specific personal needs, they will assist you in verifying what price range of home to look at in your specific budget, and take away the anxiety of “can I purchase my dream home when I find it?”
Sellers want to know: Can the buyer making an offer on our home actually fulfil the terms of this purchase agreement and finalize the sale?
Here are the different types of mortgage loans available:
• A fixed rate mortgage means the initial mortgage rate on your home loan is constant throughout the full term of the mortgage and it never changes. Your principal and interest payment stays steady from beginning to end. The fixed rate mortgage is ideal for budgeting because you know what your payment will be every month.
• An adjustable rate mortgage means the interest rate will adjust either yearly, monthly, etc. and it is adjusted based on an index set forth by the lender. There is usually a cap on how high the mortgage interest rate can go up or down yearly and over the term of the mortgage. When mortgage interest rates were 21 percent in previous years — yes folks they were — adjustable rate mortgages were the financing choice as the rates were initially lower.
• A balloon mortgage is one that is fixed generally for a specific term, then the remaining balance becomes due and payable. For example, the interest rate is normally fixed and the payment fixed for 10 years and then the remaining balance of the mortgage is due and payable at the end of the 10 years. The mortgage payment is typically based on a 30-year payment and typically the initial interest rate is lower than a fixed rate mortgage.
In closing, talk to a lender about what works best for you. If you may get transferred in the future, or you may be retiring and moving in a few years, or just buying your first home and want to move up in five years to a larger home, then what type of mortgage works best for you and your family? By getting pre-approved, you have confidence to move forward on the right path to purchase your home that fits within your budget and avoids future disappointment in the home purchasing process.
Marlin Palich is the 2019 president of the Warren Area Board of Realtors.