4 Fast Facts About Home Mortgages
While it is exciting to begin the search for a new home, getting a home mortgage can be daunting. When you know that you’ve got a community banker on your side, helping you navigate the home loan process, you can rest at ease and enjoy the process. At TriStar, we are honored to come alongside people in our community, offering our knowledge and expertise as we help them get approved for home loans.
Fixed-Rate Mortgages vs. Adjustable-Rate Mortgages
There are many options for home mortgages. While the traditional mortgage is known as a fixed-rate mortgage, it isn’t your only option. Fixed-rate mortgages are home loans with a set interest rate for the life of the loan. So, the principal and interest payments are the same every month. People tend to prefer fixed-rate home mortgages because they offer stability and a predictable payment every month.
However, when interest rates are high, some home buyers may be reluctant to lock in a fixed-rate mortgage at a high-interest rate. Therefore, an Adjustable Rate Mortgage (ARM) is another home mortgage option. With this type of home loan, the interest rate remains fixed for a certain period (usually three to seven years) and then changes over time.
An ARM can be attractive, as the initial interest rate is lower than a comparable fixed-rate mortgage. So, for the first several years, the mortgage payments will be less expensive than they would have been under a fixed-rate home loan.
After the initial period, the rate will rise incrementally to align with prevailing mortgage rates, and home mortgage payments will increase. If interest rates rise considerably, borrowers could face significant increases in their monthly payment amount, which can be difficult when attempting to budget or plan. However, there’s also the possibility that prevailing interest rates could adjust down, making your payment even less.
Home Mortgage Terms
Your loan term refers to how long you have to repay the loan. The most common home mortgage terms are 15 years and 30 years, with 30 years being the longest term available. With a 30-year fixed-rate mortgage, payments will be lower, but you will pay more interest over time. With a 15-year fixed-rate mortgage, monthly payments will be higher, but you may be able to secure a lower interest rate and pay less interest over the life of the loan.
There are also 10, 20, and 25-year terms available on many loans, and your TriStar banker can help guide you to the home loan that works best for your circumstances.
Some leaders impose a prepayment penalty, or fee, for early pay-off. This policy incentivizes borrowers to repay the loan slowly, maximizing the amount of interest paid.
Home Mortgage Down Payment Options & PMI
A mortgage down payment is a percentage of the purchase price paid upfront by the borrower to secure the loan.
Ranging from 3% to 20% or more, the down payment amount may depend on the type of loan and how much cash the borrower has available to put down. Borrowers who put down a larger down payment may obtain a lower interest rate since the money down indicates that the loan is less risky.
Conventional loans with down payments that are less than 20% are considered to be riskier. So, the lender will require you to pay Private Mortgage Insurance (PMI). PMI is a fee that you’ll pay monthly on top of your principal and interest payments. Putting down 20% allows a borrower to avoid having to pay PMI.
Credit Scores and Home Loans
Your credit score matters when applying for a home loan. Buyers with higher credit scores will enjoy lower mortgage interest rates. So, they will pay less for their home over the life of the loan. Conversely, low credit scores lead to higher interest rates and a chance that you may not get approved for a loan at all.
To improve your credit score, work to improve your debt-to-income ratio by paying off outstanding loan balances, including paying off credit card debt in full. Wait to take on any additional debt, including car payments, new credit cards, or other loans until after your mortgage has been approved and you have closed on your new property.
Speak with your TriStar banker about the best ways to set yourself up for success as you consider applying for a home loan.
Home Mortgages from TriStar
At TriStar Bank, we start by understanding your financial situation, goals, and desires. We then help tailor a loan or mortgage to suit your needs. Reach our to your TriStar banker today and begin the process of securing a home loan!