It does not matter if you are looking to purchase your first home, or are looking to upgrade to a bigger, better home; right now is a buyers market. Because there are so many homes on the market right now you have a huge variety to choose from, and because of the huge selection, that starter or dream home is selling for a very reasonable price. Also, if you are a first time home-buyer, you often qualify for special incentives and tax breaks that make owning your first home much more attractive than renting.
Unless you can pay for your home in cash at the time of the sale, you will need to take out a mortgage on the home you are buying. You will usually need to pay up to 20 percent of the home's purchase price at the time of the sale sometimes less if you qualify for some of those first time home-buyers incentives but then you will need to borrow the rest of the purchase price from a bank, savings and loan, or other lending institution.
A mortgage will probably be the largest loan you ever take out, and one of the most important. For example, if you purchase a $100,000 home and pay a 20% down payment, you will need a mortgage in the amount of around $80,000, which is a lot of money for almost anybody. While making your monthly payments, a fraction will pay the principal amount you owe, and another fraction will go towards interest. If you are paying the minimum amount each month, your payments will basically be paying the interest rate instead of reducing the principal amount.
As such, you want to get the most favorable loan terms possible with the lowest interest rate so that the cost of using this money to purchase your home is as low as it can be and as much of the money you pay each month as possible can be applied to reduce the principal of the loan. A fixed rate home mortgage is a great option because it guarantees that the interest you will be charged on the principal loan amount will stay the same. So if you execute a fixed rate mortgage with a 30-year term with an interest rate of 5 percent in 2009, you will pay 5 percent annually on the unpaid principal every year until it is paid in full in 2039; even if the economy gets worse and interest rates rise to 10 or 15 percent. You are still guaranteed that 5 percent mortgage rate.
Another type that is not as favorable is the adjustable mortgage. As the name implies, the rates adjust to the national average every year or two. So if national interest rates rise, your home mortgage interest rate will increase. If your interest rate increases, so will your monthly payment because it reflects the entire loan and the interest terms that came with it.
With interest rates as low as they are right now, however, this is an excellent time to get a fixed rate home mortgage and a great way to get a little peace of mind, because you'll know exactly what your house payments will be every month now and up to 30 years from now (or whatever the term of your mortgage is).
Unless you can pay for your home in cash at the time of the sale, you will need to take out a mortgage on the home you are buying. You will usually need to pay up to 20 percent of the home's purchase price at the time of the sale sometimes less if you qualify for some of those first time home-buyers incentives but then you will need to borrow the rest of the purchase price from a bank, savings and loan, or other lending institution.
A mortgage will probably be the largest loan you ever take out, and one of the most important. For example, if you purchase a $100,000 home and pay a 20% down payment, you will need a mortgage in the amount of around $80,000, which is a lot of money for almost anybody. While making your monthly payments, a fraction will pay the principal amount you owe, and another fraction will go towards interest. If you are paying the minimum amount each month, your payments will basically be paying the interest rate instead of reducing the principal amount.
As such, you want to get the most favorable loan terms possible with the lowest interest rate so that the cost of using this money to purchase your home is as low as it can be and as much of the money you pay each month as possible can be applied to reduce the principal of the loan. A fixed rate home mortgage is a great option because it guarantees that the interest you will be charged on the principal loan amount will stay the same. So if you execute a fixed rate mortgage with a 30-year term with an interest rate of 5 percent in 2009, you will pay 5 percent annually on the unpaid principal every year until it is paid in full in 2039; even if the economy gets worse and interest rates rise to 10 or 15 percent. You are still guaranteed that 5 percent mortgage rate.
Another type that is not as favorable is the adjustable mortgage. As the name implies, the rates adjust to the national average every year or two. So if national interest rates rise, your home mortgage interest rate will increase. If your interest rate increases, so will your monthly payment because it reflects the entire loan and the interest terms that came with it.
With interest rates as low as they are right now, however, this is an excellent time to get a fixed rate home mortgage and a great way to get a little peace of mind, because you'll know exactly what your house payments will be every month now and up to 30 years from now (or whatever the term of your mortgage is).
About the Author:
Ben Olson is certified by the Minnesota Mortgage Association as a MMS (Minnesota Mortgage Specialist), and has received their national designation, CRMS (Certified Residential Mortgage Specialist), which puts him in the top one percent of his colleagues nationwide. Come learn about fixed rate mortgages and the opportunities for first time home-buyers from Ben.
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