If you are dreaming about owning your own home, then you are most likely going to have to borrow some of the money you will need to buy that home. Banks and other financial institutions help many people fund the purchase of their homes by lending them money for an extended period. Throughout this period, borrowers make monthly repayments.
The property to be purchased becomes the security for the money that has been advanced. If you fall behind with your repayments, the lender can repossess the home. If this happens, you will lose all the repayments you have made up to that point in time. The lender will try to recoup the outstanding debt by selling your home. If the amount received from the sale is not enough to pay off the balance, you will still have a debt to the lender.
It is important to fully understand that taking a mortgage is a major financial undertaking. It will mean having to make monthly payments, often for decades. Because of this, it is vital that you take the type of mortgage that best suits your circumstances when you want to apply for a home loan. While nobody can be certain of what the future holds, we can protect ourselves from financial hiccups by making the right choices before committing to major debts like home loans.
You will need to decide on what type of mortgage you intend to apply for. Fixed rate mortgages have a specific rate of interest attached for a specified duration. For example, you may find a fixed rate mortgage set at 4.5% for five years. At the end of that period, you can change to an adjustable rate mortgage, or agree another fixed rate period with your lender.
Fixed rate mortgages give new borrowers the best stability, since borrowers know exactly how much they will have to repay each month for the next few years. The downside is that the interest rate for fixed rate mortgages is higher than for adjustable rate mortgages.
Adjustable rate mortgages
As the name suggests, the interest rate on these type of mortgages is not fixed. The rates are often based on an underlying index. They can go up or down as the index goes up or down. That means repayment amounts can fluctuate.
If you need help making a decision, contact a mortgage expert. Pinnacle Capital Mortgage, with branches in Glendale AZ and throughout the west, have helped thousands of people buy their dream home. Contact one of their mortgage advisors today.