What You Should Know When You Shop for a Home Mortgage
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by: marciafreeman
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Right now is an excellent time to take out a first home mortgage. The cost of housing has plummeted and mortgage rates are in the neighborhood of 5%, a recent low. Here are some of the basic choices youll need to make to determine the kind of mortgage youll need:
* Variable vs. fixed interest rates: A variable interest rate rises and falls as the prevailing interest rates rise and fall, while fixed interest rates stay the same regardless and are based on the prevailing interest rates at the time the homeowner got the home mortgage. If you compare a variable rate home mortgage and a fixed rate home mortgage with identical terms that were written at the same time, the variable rate mortgage is likely to have a slightly lower interest rate. However, you are likely to find that the apparent savings of the variable rate loan are wiped out by interest rate fluctuations. As a broad rule, fixed rate loans are best when the prevailing rates are low, so you can keep the benefits of the low rate when rates rise. Variable rate loans are best when interest rates are high, because rates are likely to drop in the future and reduce theamount you pay in your mortgage. As of August 2009, fixed rate mortgages are available at extremely low interest rates, and are almost certainly your best option.
* Non amortizing vs. amortizing mortgages: An amortizing loan is repaid slowly over the course of the loan, with payments that cover both the accrued interest and part of the principal. By contrast, non amortizing loan payments cover only the interest, and may not cover the entirety of the accrued interest. After a grace period (which may be most of the term of the loan), the size of the payments increase, and the person who took out the loan pays off the rest of the mortgage at a rapid pace or in a single "balloon" payment. Amortizing loans are the traditional type of home mortgage, and are the best option for homeowners who want to keep their homes for a long period without refinancing. Non amortizing loans are the home mortgage of choice for people who plan to own their home for only a short period of time, then sell it off before the grace period ends and the monthly payments become more costly.
* Unethical vs. legitimate lenders: Widespread desperation has brought predatory lenders out of the woodwork. Look out for lenders who advertise aggressively, use advertising techniques like door to door selling, attempt the hard sell, or offer you a home mortgage with a high interest rate or a yield spread premium. These are some of the most obvious (but not the only) signs of a predatory lender. Legitimate lenders will be less eager to take your money, which makes it slightly harder but far safer to take out a home mortgage with them. Related sites Home loan rates . Home equity loans . Mortgage loan . Mortgage loan . Home mortgage .
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