The Home-Loan Dilemma: Which Package is Right for You

If you go online, there seems to be hundreds of lenders vying for your attention. They want to lend you money for a home. This marketing strategy is lucrative, and also creates a streamlined process for the borrower. However, there are many home-loan choices to choose from today. Get to know the different types of mortgages on the market. Theres a perfect package for your situation.

Fixed Rates

One of the simplest loans to understand is the fixed rate. You agree upon a loan amount, such as $100,000, and a particular rate attaches to that balance. Currently, rates tend to hover around 3 to 4 percent. The fixed part of the rate refers to the fluctuations, or lack thereof, within the financial sector.

Once you lock in the fixed rate this month, it won’t ever change. The financial world can change dramatically, but your rate remains firm. For many borrowers, these home loans are particularly attractive. You’ll always know what your monthly payment will be across a 30-year timespan.

Adjustable Choices

When you want a slightly better interest rate, an adjustable mortgage might be an option. Adjustable rates move with the financial sector’s changes through the months. The mortgage starts with a fixed rate for about one year. After the 12-month period, the rate adjusts to the current values.

Some borrowers can actually lower their monthly payments with this strategy. An adjustment can certain lower the rate, depending on the financial conditions.

A situation that borrowers must be aware of, however, is the possibility for a higher interest rate. The adjustment might lean to a higher number, which creates some problems for borrowers with limited budgets. If you can afford some fluctuations in your monthly payment, taking a chance with an adjustable rate isn’t a bad idea.

Deposit Requirements

Purchasing a home usually requires some deposit on your part. The bank wants to know that you’re committed to the investment. Your commitment is in the form of a cash, down payment.

Before you pick a particular loan, get to know the deposits required on each one. These deposits can vary from 5 to 20 percent of the home’s asking price. If you’re short on a deposit, the bank may have other options for you. Economy or government loans can extend some terms to new buyers or individuals with less-than-stellar credit. Simply discuss your financial situation with the bank to find a good, loan fit.

Short Terms

There are loans that are shorter than the standard, 30 years. Ask about 10-, 15- or 20-yearlong loans. Your monthly payments will be certainly higher than a 30-year term, but you’ll save money on the interest. Ultimately, the loan will cost less as a bundle compared to a longer term length.

The bank usually extends a better interest rate with short terms as well. In essence, you’re being rewarded for borrowing money for a shorter amount of time. If you can afford this monthly charge, take advantage of the savings.

Monthly Charges

Any loan can have fees and other charges associated with it. Ask about the fee structures associated with your mortgage. Aside from closing costs on the loan, strive for few or no charges each month.

Certain banks charge these fees for processing purposes. Although it’s a legitimate reason, there are loans without monthly fees. Do your research so that fees don’t add up on your loan. Over a 30-year term, a $5 or $10 monthly charge adds up to a lot of spare change.

Always read the fine print when it comes to mortgage contracts. These documents are long and bind you for decades at a time. Don’t hesitate to take your time and understand the information in front of you. As you sign for the property, you’ll know what to expect with the payback period.