What’s the Right Mortgage For You?

April 10, 2012 by  Filed under: Loans 

Studies say the housing market is rebounding, slowly but surely, and North Carolina is being cited as a positive housing market. But choosing the right mortgage remains a tough decision for potential home buyers. Mortgage rate, number of payments and mortgage size combine to offer a wide variety of choices. Examining the common types of mortgages along with their benefits can help clarify the home buying process.

The Traditional Fixed Rate Mortgage

The traditional fixed rate mortgage is the most popular option in America making up over 70 percent of the home transactions in the U.S. The stability of the traditional fixed rate mortgage is something that appeals to most lenders-the interest rate is fixed over the life of the loan even if the market rate changes considerably. Borrowers know what the exact amount of each and every payment over the life of the loan will be as soon as the rate is locked in. This type of mortgage is often referred to as a “stable” and “safe” option for borrowers.

The Adjustable Rate Mortgage

The adjustable rate mortgage has become especially popular in the last 10 to 15 years. This type of mortgage has an interest rate tied to an index, changing with market rates after a predefined “fixed” period of time. Adjustable Rate Mortgages often offer a lower initial rate and can adjust up or down after time potentially increasing the borrower’s monthly payment. Borrowers sometimes prefer these types of loans because they offer lower payments over the initial few years of the loan.

Hybrid Mortgage Loan

These are loans containing components of both traditional fixed rate mortgages and adjustable rate mortgages. Here’s an example: With a convertible ARM, the borrower has the option of converting the loan to a fixed loan within five years, for instance, if the borrower notices mortgage rates are on the rise. Although less popular than other types of mortgages, in certain situations hybrid loans do offer the borrower options not found elsewhere.

Jumbo Loan

When buying a luxury home the price tag will probably exceed the loan limit set by Fannie May and Freddie Mac. This will require the borrower to take out a jumbo loan and will typically come with a higher interest rate.

Veteran’s Home Loan

The U.S. Department of Veterans Affairs offers interest free loans, with no down payments to all active and retired military. These loans offer significant savings to the borrower including no down payment and no insurance fees. More information about this program can be found on their website.

2-Step Mortgages

This sounds complicated but really, a step mortgage is an adjustable rate mortgage with the same interest rate for part of the mortgage followed by a one-time rate adjustment at a predetermined point in the future. Borrowers taking out 2-step mortgages typically plan to refinance the mortgage or move out of the property before the loan period ends.

With more than 10 years of industry experience, Pamela brings knowledge and enthusiasm to her role as Mortgage Consultant for McLean Mortgage. Pamela has helped many families in North Carolina and the surrounding region achieve home ownership by assisting them with finding the ideal home loan that fits their individual needs and lifestyles.

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