One of the first steps of buying a house is determining what type of loan product best fits a buyer’s budget and financial goals. Potential homeowners have many choices to make besides home appearance and neighborhood. Choosing the correct mortgage product to match your financial needs can be a challenge, but with proper research it can be as simple as knowing where to sign your name.
Fixed Mortgage Loans
Consistent interest rates are the key identifier of fixed rate mortgages. They provide security that mortgage payments will adhere to budget for the life of the loan’s term. Fixed rates are ideal for prospective homebuyers that need to adhere to a budget and have only so many funds allocated for housing cost. A buyer hoping to secure a fixed rate mortgage will need to choose a repayment term, typically 15, 20 or 30 years. The only snag in having a fixed rate is that if interest drops on mortgages a refinance will be required to adjust the mortgage cost. Paying off a fixed rate mortgage before the end of a term can result in large penalty fees.
Variable Mortgage Loans
For homebuyers seeking flexibility, variable interest rate mortgages are easier to manage. Variable mortgages loans allow lump sum payments without penalties that would negate the windfall payment.
There is noted unpredictability in variable mortgages, and choosing this borrowing product will require that the borrower understands that rates will raise and lower based on bank rates.
Split Mortgage Loans
Split rate mortgages are great for investment properties. These loans can be customized to specification with a portion of the loan controlled by the rules of a traditional fixed rate plan and the remaining money attached to a variable plan. Any additional funds for lump sum payments can be applied toward the variable portion of the loan to avoid prepayment penalties.
Knowing which products to choose to fit your situation is a pivotal step when entering into the home buying process. Banks want to enter into agreements with buyers that can repay their loans. Knowing what you can afford and how you can afford to pay will only make the process that more simple.