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Deciding on a loan program
The first step in getting a mortgage or refinancing your home is to decide what type of loan program you want and what is best for you. A loan program is a term that describes whether the interest rate on your loan stays the same (fixed) or can change of time (adjustable), and how long the loan lasts.
A common loan is the "30-year fixed" which means the loan lasts for 30 years and the interest rate stays the same during the entire 30-year period. Adjustable rate mortgages, commonly known as "ARM", have interest rates that can change depending on the terms of the loan. A "1-year ARM" is a loan that has an interest rate that can change every year while a "3-year ARM" has an interest rate that can change only every 3-years.
When interest rates are low, you may be better off with a fixed rate loan as your monthly payments will not be affected by the changes in the prime interest rate. However, if available funds are an issue, ARM's do have lower interest rates than fixed rate loans which may allow you to qualify for a larger amount of money. The general anticipation is (hopefully) that your income will increase as the interest rates (and monthly loan payments) increase. Without doubt, ARM's are riskier than fixed rate mortgages, but they do have their advantages. Feel free to Contact us to discuss the differences between fixed and adjustable mortgages and which one might be best for your particular circumstances and needs.
If you enjoy playing with calculators and numbers, there are several calculators available that can help guide you in the right direction; however, keep in mind that these calculators are only guides and you should obtain professional consultation before making any definite or final decisions.
The last decision to make in this step is how long do you want the loan for, i.e., the amount of time you want to spread your payments over. Most mortgages are written for 30-years, but if your finances permit it, you can save a great deal of money if the payments are spread out over 15-years. You can play with our monthly payment calculator and other available calculators to see if that is possible in your situation.
A few additional terms you should know, that will undoubtedly come up, include:
- Conforming loans - loans that "conform" to the guidelines, limits, and criteria set forth by the largest buyers of loans, FNMA (Fannie Mae) and FHLMC (Freddie Mac).
- Fixed rate loans - have interest rates that never change
- Adjustable rate loans - have interest rates that can change in the future depending on changes in general rates.
- Loan-to-Value - a common jargon term which relates to the value of the home in relation to the amount you want to borrow. For instance, a $100,000 home with an $80,000.00 loan would be referred to as a "80% loan-to-value".
If you have any questions related to Step #1 or any other aspect of the loan process, please contact us. Our loan consultants are here to answer your questions, whether they be general, specific, or because your confused. Because at Sue Baxter that's what we do best: we add a personal touch to the impersonal electronic age.
Continue on to Step #2
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