Today, there are all kinds of mortgage refinancing available to meet the requirements of borrowers with different needs and backgrounds. After all, not every borrower and the home buyer is the same. With so many things to choose from, it can be hard to find the perfect mortgage for you and your family. In this article, we will help you understand the basics you should know so you can quickly look for the deals that are the right deal for you.
It is essential to choose the type of mortgage very carefully. You have to understand all of your options before selecting since the right kind of mortgage can help you in the future.
Also Read: What is the difference between a fixed-rate and adjustable-rate mortgage (ARM) loan?
To help you, here are all kinds of mortgages that you can choose from.
Loan To Values
Often, when you are looking for a mortgage, you will see the ‘LTV’ acronym mentioned a lot of times with a percentage just shown below. What LTV stands for is ‘loan-to-value.’ It refers to the amount of value of a property that you can borrow. The rest is the amount you should put down. This is how the average down payment on a house is computed.
Let’s have an example. A 90% LTV mortgage means that you can only borrow 90% of the property’s value. So you just have to put down 10% as a deposit. If a mortgage has around 60%, you will need to put in a 40% deposit to qualify for a mortgage. As such, the higher percentage of LTV that’s shown, the higher rate of mortgage it is.
Variable And Fixed-Rate Mortgages
When it comes to mortgages, you usually have two types to choose from – fixed or variable rate. A fixed-rate is one that will not move during the length of the deals so your monthly mortgage repayments will stay the same. As a result, this is one of the most popular arrangements for people who are on a strict budget and those who usually can’t afford a rise in the payments. Most often, this is availed by first-time buyers.
On the other hand, a variable rate mortgage has a varying rate. So your mortgage payments will rise if your interest rate increases.
Fixed-Rate mortgages are probably the most popular type of mortgage. After all, you can lock the interest rate, and throughout your mortgage, the price will not change.
Fixed-rate mortgages are very popular with first-time buyers since people like to know how much money they’ll be paying every month. You won’t even have to worry about any price fluctuations.
Conventional mortgages are also called conforming mortgages. The federal government doesn’t ensure a conventional mortgage. What does this mean? It means that there is no guarantee for the lender when the borrower defaults his or her mortgage payments. That is why the lenders who can take higher risks are considering this type of mortgage.
Because of this, borrowers should have a high credit score, low debt-to-income ratio, and healthy financial history, so there is a high chance of approval for this type of mortgage. Take note of that if you want to try getting a conventional mortgage.
Other times, borrowers only choose an interest-only mortgage to have the lowest possible payment. If a monthly mortgage only has the ‘interest,’ it is considered an interest online. However, this type only lasts for a period, mostly around 5 to 10 years. If they want, the borrowers can pay more than the indicated interest. There’s no principle portion so the only way equity can increase during the period is via appreciation.
Compared to fixed-rate mortgages, adjustable-rate mortgages have an interest that goes up and down depending on the market. It usually starts low and then adjusts as time passes by. Throughout the mortgage, the rate will change.
If you can’t meet the requirements for a conventional loan, there are FHA loans. These are government-backed and guaranteed by the Federal Housing Administration thus the FHA. It often gets the attention of borrowers and first-time buyers with a credit that is less than perfect. FHA loans have easier lending requirements and attractive features.
Home Equity Loans
Lastly, there’s the home equity loans or second mortgages. This type allows homeowners to borrow an amount that is against the equity that’s built up in the home. If you are in need of a loan to help cover an enormous expense, this can be for you. Homeowners usually can borrow around $100,000 of equity.
Additional Points to Ponder
How Do Discounted and Tracker Mortgages Work?
The rate of your mortgage usually tracks the bank’s base rate plus some percentage when it comes to tracker mortgage. As a variable rate deal, you should expect your price to go up and down depending on the base rate.
Discounted mortgages are also considered as a variable. Most often, you will find that this type of mortgage offers a discount odd the standard variable rate of the lender for a set period. As such, if a lender has a 4.99% variable rate, you can see a discounted deal to have a 0.5% up for some years.
How Long Should I Tie Myself If I Choose To Fix?
A lot of fixed mortgage refinancing deals mostly run from two to five years. However, some lenders can allow you a fix for a more extended period like ten years. These deals can be portable, so if you move somewhere else, you can take them with you. If you are going to borrow more money, then it will be at a different rate.
Ideally, you should tie yourself in a fix for as long as you can stay in your property since you will still effectively have to reapply for a mortgage if you move your mortgage. This can be tricky if you have changed circumstances.
You can choose from two types of home equity loans. There are lines of credit and fixed-rate loans. These variations both range around 5 to 15 years and should be repaid by the time the home is sold.
And that’s it when it comes to everything you need to know about mortgages. Did we miss anything? Let us know in the comments below.
Credits To The Contributor
Robert Viggiano is the co-founder and owner of Sunnyside Title Agency -a leading title agency. After getting a Bachelor of Science in Finance from Fordham University, Robert went on to become a licensed title agent in the state of New Jersey. He founded Sunnyside Title Agency with his wife, Angela, in 2018. Named after Robert’s hometown of Sunnyside, Queens, Robert prides himself on running an agency with a staff dedicated to exceptional and timely customer service, as well as those who share his optimistic and competitive mindset. A former basketball player, Robert has previously served as a volunteer coach for William Paterson University’s basketball team.
(This post is contributed by Guest Author Robert Viggiano)