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Choosing a Term for your Mortgage

Monday, March 4, 2019 - Article by: Chris - 1st Nationwide Mortgage - Message

People who are buying a home for the very first time commonly go into the mortgage process not so knowledgeable about the type of home loan that is best for them. The terms for a mortgage can vary widely from one lender to the next. Many think they have a full plate when it comes to picking out a house yet they need to research their financing options as well to make it a successful experience. The following are some factors each home buyer needs to carefully consider prior to selecting a mortgage.

15 & 20-year loans compared to 30-year term loansThere are benefits for getting a loan term of 20 years or less- and 30-year loans based on the financial condition of the borrower. Logically, if you want to pay off your mortgage quick you should choose a loan with a shorter term. The reward is paying a lot less interest over the course of the loan. A 30-year term loan means you'll pay more interest since you're paying it for 30-years.

The most popular kind of mortgage for homeowners is the 30-year fixed-rate mortgage, and then you have the 15-year fixed home loan. The advantage of a 30-year loan term is the mortgage payments are a lot more affordable for many Americans versus a 15-year mortgage term. First-time home buyers typically choose this loan term because it helps them qualify easier for a home and they can afford more since the payment is amortized over 30 years.

When homeowners have been in their home a while, it is normal to look into a refinance in order to take out some equity, pay off other high-interest debt or they want to reduce their rate so the payment is lower. If they refinance and reduce the loan term, this will raise the monthly mortgage payments. A 15-year fixed-rate home loan interest rate is typically 0.50- to .75-percent lower compared to a 30-year fixed-rate mortgage.

Fixed rate versus variable ratesBesides the length of the mortgage, borrowers have two choices of mortgage types; adjustable- or fixed-rate mortgage. A fixed-rate mortgage provides the homeowner with the guarantee that their rates will not increase whenever the economy heats up and the Federal Reserve raises rates. Then again, their rate cannot decrease either if the Federal Reserve lower rates.

Adjustable-rate mortgages tend to come with a low introductory interest rate for a specific number of years at the start of the loan term. Once your loan has gone over that period of time, rates may rise based on the economic environment.

First-time home buyer loan programsNumerous first-time home buyer programs have been started dating back to the great recession in an effort to stimulate the real estate market. FHA mortgages permit borrowers to become home buyers with a low interest rate mortgage and a down payment as low as 35 percent on the home they will live in.

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