Sometimes the excitement and promise, or perhaps the expectations, of becoming a new home buyer create a rush to find a home, choose a mortgage and close on the deal. While there is nothing wrong with excitement and enthusiasm to get into a new home, not taking the time to consider the big picture of home ownership can result in financial challenges and issues that are complex and that may have long-term consequences.
Ideally, start shopping for a new house mortgage early in the processes. While you may be emotionally ready to own a home, you may not be in the right financial position to take on this long-term obligation. Going through the pre-qualification process and discussing your financial status with a trusted mortgage professional can help you to assess if this is the right choice and what new house mortgage products are the best match.
Fixed or Adjustable Rates
When you first discuss a new house mortgage, you will probably hear about fixed and adjustable rate mortgages. Fixed rate locks in the interest rate over the term of the loan, which is most commonly 30 years for new home buyers.
An adjustable rate mortgage or an ARM has a set rate for a period of time, and then the rate will periodically adjust to the market index the mortgage is based on. This means the rate can go up over time, increasing your payments, but it can also go down. Typically, adjustable rate mortgages offer a lower base rate than the fixed rate mortgages, but there is a risk this can increase to the capped amount as per the terms of the loan.
Length of the Loan
Most home loans will be 15- or 30-year terms. The 15-year loan requires larger monthly payments to pay off the loan amount than the 30-year, but there is also less overall interest. Home equity will build faster in the 15-year loan, but if a move isn’t planned in the future, this may not be an important consideration.
Knowing your options and using online mortgage calculators is a simple way to run the numbers and become familiar with the financial advantages or possible challenge of any mortgage option.
To learn more about the options for a new house mortgage as a first-time buyer or someone who has purchased homes before, visit Guaranteed Rate.