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Common Mortgage Options Explained


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For the most affordable mortgage rates in Halifax, trust the team at Yhard Mortgages Fall River, NS‎ (902) 860-1200.

For the most affordable mortgage rates in Halifax, trust the team at Yhard Mortgages Fall River, NS‎ (902) 860-1200.

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  • 2. Introduction • According to the Mortgage Bankers Association, new residential mortgages are expected to drop in volume by about one quarter compared to last year. • As interest rates stay low, more people are getting ready to purchase a first home. Homeowners who take time to understand their mortgage options are bound to enjoy the best long-term deals when it's time to buy. • Here's a look at the workings of the most common mortgages on the market.
  • 3. Fixed-Rate Mortgages • Homebuyers with credit scores over 620 and a down payment ready are eligible for a fixed-rate mortgage, which can be anywhere from eight to 30 years in length. • Most of these mortgages are sold to Fannie Mae or Freddie Mac because banks prefer to avoid holding onto these loans for so long. As credit scores go up, fixed-rate mortgage terms improve.
  • 4. Fixed-Rate Mortgages • At minimum, homebuyers choosing fixed-rate mortgages can expect to pay 3 percent of a home's value in cash, but 20 percent is necessary in order to avoid paying mortgage insurance. • Many homebuyers prefer these mortgages because after signing, a home can be enjoyed for decades without worries about rates increasing. • In some cases, a fixed-rate loan term can be halved simply by choosing bi-weekly payments rather than monthly ones.
  • 5. Adjustable-Rate Mortgages • Compared to similarly sized fixed-rate mortgages, adjustable-rate mortgages often start with an interest rate about 1 to 2 percent lower. • For many homeowners, this means that higher-priced homes become options because they can put a larger proportion of savings toward a down payment instead of interest.
  • 6. Adjustable-Rate Mortgages • However, these advantages come with potential drawbacks. Adjustable-rate mortgage interest rates are dependent on the state of the market, so they can change annually. • Although some homeowners ultimately pay less interest by choosing an adjustable-rate mortgage, most end up paying more in the long term.
  • 7. Subprime Mortgages • Homebuyers with credit scores that are less than optimal can opt for subprime mortgages. • This lower credit score, normally below 600, is viewed as risky by lenders, prompting them to charge interest rates higher than those used for prime lending. Down payments over 30 percent are common for homebuyers who opt for these loans.
  • 8. FHA Loans • Federal Housing Authority loans, usually called FHA loans, require a minimum down payment of 3.5 percent of purchase price. • Mortgage insurance is always required, but its rates are locked in upon closing. • FHA mortgages are especially popular among homebuyers have a smaller down payment, a credit score of at least 640 and few opportunities for other types of mortgages.
  • 9. VA Loans • Veteran's Administration loans are, as the name suggests, intended only for veterans. Veterans can get a certificate of eligibility online, in the mail or from a lender and enjoy a loan with excellent terms. • For example, mortgage insurance is not required even for VA homebuyers who lack a down payment.
  • 10. Conclusion • These are some of the most common types of mortgages, but they are not the only options available to homebuyers. • To learn more, prospective homebuyers should speak with a mortgage broker. • In addition to providing information about loan options, mortgage brokers can help consumers determine which terms best match their lifestyle, expectations and credit score.