Right now,with mortgage rates being at record lows , you may think it is great time to get a mortgage for a home. However, you shouldn’t necessarily go out and buy a home just to take advantage of these low rates. Make sure that it makes financial sense first, and then look for the mortgage. If you are ready to buy, here is what you need to know about mortgage loans right now.
The Type of Mortgage
The first thing to consider is the type of mortgage you want to get. The two basic types are fixed rate mortgages and adjustable rate mortgages. Just like it sounds, a fixed rate mortgage never changes, while an adjustable rate mortgage will have its interest rate change after a specific period of time.
The great thing about getting a fixed rate mortgage is that your rate will be locked in for the entire term at the current historical lows. However, if the rates go lower, you will have to refinances to take advantage of them, and it may not be cost effective. With an adjustable rate, you rate can go down as well as up, so you could actually get a better rate in the future.
The next thing to consider is the term. Most fixed rate loans are 15 year or 30 year loans. Typically, the shorter the term, the lower your interest rate will be on your loan. You can also get 10 year, 20 year, or even 40 year loans.
For adjustable rate mortgages, the term length usually refers to when it can first adjust. For example, a 5/1 mortgage is a loan where the rate is locked for 5 years, and then can adjust every one year after that.
What are Points?
Finally, you have to take into consideration points. Points are prepaid interest, which can help buy down your rate, or you can take a higher rate and get negative points, which is basically a rebate paid back to you. Depending on how much cash you have on hand, consider the best option for you.
Photo by 401(K) 2012