Looking for a home, either brand new or pre-owned is daunting, looking for a mortgage can be even more so. Everyone you talk to seems to have a different opinion on what is right and what is wrong, different mortgage providers seem to offer totally different packages and the list goes on. The truth is; a mortgage loan program, no matter how it’s packaged and promoted usually boils down to two things, the length of the mortgage and the way it is structured.
Normally a first mortgage is offered as either a 15 year or 30 year option. Because the time frame is double, one might think that the payment on a 15 year mortgage would be twice that of a 30 years mortgage, this is not the case. Certainly the monthly payments for a 15 year mortgage are higher but the interest that needs to be paid over the duration of the loan is considerably less therefore the monthly payments don’t have to be as much.
The other issue with a Mortgage Loan Program is the interest rate. Just as there are two terms when it comes to the length of the mortgage, there are two basic choices of loan interest, fixed and variable, although some lenders will arrange a hybrid using some of both. As it suggests, a fixed interest rate mortgage never changes during the loan period, this is not so with a variable rate mortgage, it will change periodically as the conditions in the financial markets change.
In some cases the mortgage can be structured in such a fashion that for the first period, perhaps five or six years the interest rate is fixed and then for the remaining years, switch to a variable rate. In situations like this the initial fixed rate is often quite attractive as it entices the individual to purchase the home.
There are some people who believe they can comfortably deal with a 15 year mortgage but don’t. They are wise enough to realize that there may be unforeseen circumstances arise over time so they assume a 30 year mortgage but treat the payments as if the mortgage was for 15 years, in this way should something go wrong they can revert to a smaller payment. This is thought to be a good way to treat a mortgage if possible because any monies paid over the minimum go directly to paying down the principle not the interest.
