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Three Important Parts of a Mortgage

It’s natural to initially feel overwhelmed when gearing up to purchase a home, especially if you’re a first-time buyer. We’re here to help you make sense of it all! While shopping around for your best home mortgage options, be sure you are paying close attention to these key areas:

1. Term - The time you have to pay off a mortgage is called the term. Mortgage terms range between 10 and 30 years. A mortgage is like any other loan; the longer the term, the lower your monthly payments will be. An important mortgage tip? In many cases, a shorter mortgage term will result in a lower interest rate.

2. Rate - Pay close attention to both the interest rate and the annual percentage rate, which is the broader measurement of how much it will cost to borrow money. Rate determinations are based on a variety of factors, including your credit rating, the amount of your down payment, and the value of the home.

3. Cost - When dealing with mortgages, "cost" typically refers to closing costs. Just about every mortgage has closing costs associated with it. They include things like recording fees, deeds, attorney or notary fees, and an appraisal. Make sure you understand everything that is included, so you know that you are getting what you paid for!

Mortgage Terms

Now that you have a better understanding of a mortgage term, let’s dive a little deeper. Longer-term mortgages are appealing to many, as they offer lower monthly payments. However, you’ll usually get hit with a higher interest rate. Many people prefer to make larger payments on their mortgage so that they can pay it off faster.

Don’t stress if consistently large monthly payments just aren't in your budget right now. You may be able to make an additional payment a few times throughout the year on your 30-year fixed mortgage to help reach the end goal sooner. Just make sure you’re aware of any mortgage prepayment penalties before doing so!

Mortgage Brokers

A mortgage broker is the middleman between home buyers and loan lenders. They can make your house-hunting process significantly more enjoyable because they do the rate quote legwork for you.

An experienced mortgage broker can help you make sense of all the facts and can break down the loan for you in its entirety. Many people find that it’s also helpful to use a mortgage calculator, which allows you to get a solid understanding of different scenarios.

You can take the knowledge you’ve gained from a broker and mortgage calculator and start comparing home loan quotes. Many mortgage websites are part of large lending partnerships, and you can often find a better interest rate or loan term than your local mortgage broker. The key takeaway? Utilize all the mortgage resources that are available to you before making any decisions.

Adjustable-Rate Mortgages - Risky or Rewarding?

Let’s first start with reviewing what an adjustable-rate mortgage, or ARM, is. It’s a type of mortgage in which the interest rate on the outstanding balance is fixed for a set number of years. After that set number has passed, the interest rate is then adjusted. There are caps as to how much the rate can increase per year or over the lifetime of the loan.

So what are the advantages of an adjustable-rate mortgage loan? It’s a great option for people who are only planning on living in their home for a few years before selling. An ARM is also helpful for those who want to get into their dream home with initially lower payments. If you’re confident that your income will see a significant increase in coming years, an ARM may be the best route for you.

This type of mortgage may be risky for those who are looking to stay in their home for many years and who are not sure as to their financial security. As you can see, your situation and future plans play a big role when determining if an ARM is the right move for you.

Prepaying Your Mortgage Loan

To some, 30 years can feel like an awfully long time to be paying for a home. However, there are many things you can consider doing when it comes to shortening that 30-year mortgage term, like:

  • Send a few extra dollars with your payment each month. This extra goes to the principal of the mortgage, rather than the interest. Remember, when it comes to paying off a house, every little bit counts. Even an extra $20/month is $240 towards your principal each year!
  • If you have the means to do so, consider making an additional full payment once a year
  • Use funds that might otherwise be spent on something less meaningful to invest back into your home. Increasing the value of your home may help you in the long run.

Prepayment Penalties

Don’t be shocked by prepayment penalties, choose your mortgage loan wisely! In many cases, companies are allowed to impose a prepayment penalty, which means there is a penalty fee for paying off your mortgage before the term ends.

Therefore, make sure you understand all the terms and conditions of your mortgage loan. Should you choose an option that doesn’t have penalty fees and you pay your mortgage off before the term stipulates, you've potentially saved thousands!

Reverse Mortgage

Thanks to the rising costs of living, reverse mortgages have become increasingly popular, particularly for the elderly. A reverse mortgage allows you to convert part of the equity in your home into a monthly stipend.

You may even be able to request that your mortgage broker takes out any closing costs from the money that your reverse mortgage has provided. This would mean no upfront costs for you!

Interest-Only Mortgages

Interest-only mortgages have a lot of initial appeal. Since you are only making payments towards the interest of the mortgage, you tend to see lower, easier to manage payments for the first few years of the term.

However, it’s important to keep in mind that once that fixed interest-only term has expired, you’ll then be required to make payments on both the interest and the principal. Do your due diligence before choosing an interest-only mortgage!

Mortgage Loans The Fast Way

Stumble upon your dream home and are now looking for a way to quickly secure a mortgage loan? You’re in luck, as, thanks to the internet, obtaining a loan has never been easier. Automated credit checks, online applications, the ability to easily compare a range of mortgage can almost complete the entire process online!

To be even more efficient, consider working with a mortgage broker, as, more often than not, they can process requests more quickly than traditional means.

Adjustable-Rate Mortgages

Interested in learning more about adjustable-rate mortgages? Here are some quick tips to keep in mind while you start your search:

  • Know when the rate adjustment will occur
  • Find out what index your rate is associated with so that you can keep an eye on interest rates on your own - this will help you be better prepared for the adjustment
  • Understand your refinancing options should an adjustable-rate mortgage prove unbeneficial for you

Flexible Interest-Only Mortgages

This type of mortgage provides a payment arrangement that is flexible when it comes to the amount. It’s important to note that there is a minimum amount that would need to be paid, but you can opt to pay an additional amount towards the principal.

The more you can apply towards the principal, the more you can bring the overall amount down and be one step closer to paying off your mortgage!