If you have a high house payment, that doesn’t mean your home is more valuable, it may indicate that your mortgage rate is higher than it has to be.
Although fixed rates are currently low, you might consider looking into an adjustable rate mortgage. Depending on how long you plan to own your home, an ARM may provide the lowest cost of ownership.
There are different types of ARMs. One type, an FHA ARM, features a maximum rate change of 1% during one period and the maximum lifetime cap of 5% over the initial rate.
The chart below shows an example of a 30 year mortgage with a five year fixed rate that can adjust every one year after that, based on independent indexes. The payment on the adjustable is $153.48 lower for the first five years/60 payments. The lower interest rate loans amortize faster than higher interest rate loans. The ARM in the example below has a lower unpaid balance of $4,239 at the end of the first five years.
At the end of the first period, the total savings on the ARM is $13,477. The breakeven point for this loan would be 8.5 years. If the borrow felt they would sell the home prior to this point, the housing cost for this ARM would be lower, even if the mortgage rate increased to the maximum level at each adjustment period.
Always consult with a trusted mortgage professional to learn more about the advantages and disadvantages of varying programs. You can also contact one of our agents to help guide you as well.
For more information, visit: www.freddiemac.com/pmms
Don’t think twice! Are you thinking about buying a home, but keep delaying your decision? You may want to reconsider based on the conditions of today’s market and the potential for the future market.
Today’s rental market has seen an increase to the point where it’s significantly less expensive to own than to rent. The monthly cost of housing can be lower, even after repairs are factored into the comparison, as interest rates are low, principal accumulation due to amortization, as well as appreciation and tax savings from owning your home.
The Federal Reserve recently announced that they intend to start increasing the rates. Experts are agreeing that an increase in interest rates is an inevitable conclusion. With that said, a $300,000 home today could be considerably more a year from now. If you have a down payment of 20%, prices increase by 3%, interest rates increase by .5%, the principal and interest payment at 3.625% would be $1,094.52 for 30 years compared to $1,198.05 at 4.125%.
Here’s something to ponder when thinking about postponing a long term decision to buy a home. If you wait too long and the rates go up, can you afford that increased amount in a monthly payment because you weren’t ready to make a decision? Do you want to continue paying rent when you could put that money towards the equity of your own home?
Homebuyers will endlessly search for the right home, but what about the right interest rate? Over 50% of buyers don’t do their homework when it comes to finding the best interest rate for their new mortgage. They will accept the rates and terms from the very first lender.
There are many factors that affect the interest rates and terms provided by a lender. The borrower, the property, credit score, home location, price and loan amount, down payment, loan terms, interest rate and loan type are all interpreted differently by each lender.
Researching several lenders to compare rates and terms for your mortgage could result in a lower payment and less cumulative interest paid over the life of the loan. You would be surprised to see the difference 0.5% can make on your mortgage loan.
If you’re worried about your credit score being affected by having multiple lenders check your credit, don’t be concerned. Credit bureaus will understand when several similar requests appear during a specific period of time.
Contact www.gayleharveyrealestate.com for a list of trusted mortgage professionals to consider.