A mortgage is by far the most common way to pay for a home purchase. This is a loan that uses the home as collateral. There are a lot of different places to buy it, so you'll have to look around to find the best deal. Since your home is likely to be the biggest purchase you make in your life, you should make sure to treat the transaction with the care and attention it deserves. Mortgage rates can be very different from one lender to the next, and how much your rate is set at can make a big difference in how much you pay each month. Even a small difference in rates could save you thousands of dollars or let you pay off your home years earlier. So do your homework.
Fixed or changeable?
When looking for the best loan, you need to know what certain terms mean. For example, mortgages usually come with either a fixed interest rate or an interest rate that changes over time. The interest rate and monthly payment on a fixed-rate loan will stay the same for the whole loan term. Most of the time, this will be for 10, 15, 20, or 30 years. An adjustable rate mortgage, or ARM, is one where the rate is fixed for a certain amount of time, like the first 2 or 5 years, but then goes back to being variable.
When an ARM rate becomes adjustable, it will go up or down based on a certain market index. Some of these are the Prime Rate, the LIBOR, and the Treasury Index.
With an adjustable rate, the borrower takes on some of the risk that would have been the bank's if interest rates changed. They are cheaper than a 30-year fixed-rate mortgage by an average of between 0.5 percent and 0.2 percent. If the rate changes a lot or is hard to predict, it may not be possible to get a fixed-rate mortgage.
Most of the time, the savings from an ARM are greater than the risks of an interest rate that goes up. Even more so if the loan is for less than ten years.
Fees
When they give a home loan or mortgage, lenders may charge different fees. Among these are entry fees, exit fees, administration fees, and mortgage insurance for lenders. The settlement company will also charge settlement fees, which are also called closing costs. If the loan is handled by a third party, it may also charge other fees.
Banks usually charge a valuation fee, which pays for a surveyor to visit the property and make sure it is worth enough to cover the mortgage amount. This isn't a full survey, so it might not find all the problems a buyer needs to know about. Also, it doesn't usually lead to a contract between the surveyor and the buyer, so the buyer can't sue if a major problem isn't found during the survey. Usually, the surveyor can do both a building survey and a (cheaper) "homebuyers survey" at the same time for an extra fee.
