Finding the Best Mortgage Program
Unlike in the past, today’s homebuyers have a variety of mortgage programs from which they can select the best program for their particular circumstances. Lenders are barraging the media with promises of competitive interest rates, specials on second-mortgage programs, down-payment assistance, no closing costs and a variety of other special features. The problem that consumers face is not a lack of information, but rather quite the opposite. The media blitz by mortgage lenders often confuses even the most financially savvy homebuyer.
Any good realtor will advise you to become an educated consumer. Your realtor can help you learn to ask the right questions and to move on when the answers are not what you need to hear.
The following text is an overview of the three most common types of mortgage programs available to homebuyers. Some are aimed specifically at first-time homebuyers; others are open to any buyers who meet the eligibility criteria. Review this information carefully, ask your realtor about recommended loan programs, and consider every aspect of a program before deciding which one is your best option.
1. Fixed-Rate Mortgage
Without question, the fixed-rate mortgage is the most common type of mortgage loan. The interest rate is fixed at a set percentage when you receive your approval, and it does not change during the lifetime of your loan. Therefore, there is a set number of identical payments. For example, if you borrow a 15-year fixed-rate mortgage, you will have 180 equal payments. If you elect to spread your loan over 30 years, you will have 360 equal payments.
Some lenders are beginning to offer 40-year extended fixed-rate mortgages and even 20-year loan programs. The benefit of a longer repayment term is that your payments will be substantially lower. However, keep in mind that with a shorter repayment period you will build equity in your home much more quickly.
Fixed-rate mortgages generally require a lower down payment than do other loan programs. The current average down-payment percentage is between three and five percent.
When you borrow a 30-year fixed-rate mortgage, you are eligible for a better tax advantage due to the higher amount of interest that can be deducted when you file your income taxes.
The 15-year fixed-rate mortgage is a great program for those who want to reduce the amount of interest they will pay over the life of their loan. As the name of the program suggests, buyers who opt for a 15-year mortgage will pay off their home in half of the time that it takes a buyer who opts for a 30-year loan.
The advantage of a 15-year mortgage is not only the early pay-off, but also that borrowers can use the equity in their home sooner to pay for educational costs, remodeling projects, and other expenses. This is a good option for those who plan to stay in their starter home for only a few years before moving on to a bigger or newer home.