Deciding on a home mortgage in today's market can be a daunting task. The borrower is faced with several options. Each lender presents their own home mortgage product with attractive features. They all declare to the borrower that their product is the best home mortgage available. This is not always the case. Terms for home mortgages can differ drastically from lender to lender, even for those with bad or below-average credit. There is also variance in interest rates for residential mortgages, depending again upon the lender and what terms the borrower is seeking.
There are a few concerns for borrowers seeking a home mortgage. A loan for just 80% of the assessed value or purchase price of the property, whichever is less, is a standard home mortgage. The residual 20% necessary for a purchase is referred to as the down payment and comes from your own reserves. If you have to borrow above 80% of the purchase price, you'll be applying for a high-ratio home mortgage. If you are self-employed or don't have provable earnings, most conventional lenders won't go above 75% on a residential mortgage.
With a fixed rate home mortgage, your interest rate will not fluctuate during the term of your mortgage. The advantage of this is that you'll always know how much your payments will be and how much of your mortgage will be paid off at the end of your term. With an adjustable rate home mortgage, your rate will be fixed with regard to the prime rate at the start of every month. The interest rate could fluctuate from month-to-month. In the past, adjustable rate home mortgages have tended to cost less than fixed rate home mortgages once interest rates are reasonably steady. You can potentially repay your loan faster with an adjustable rate home mortgage.
The terms of a home mortgage are the length of the present mortgage contract. A home mortgage usually has a tenure of six months to 30 years. As a rule, the shorter the term, the lower the interest rate, because the down payment is usually greater. Two years or less is termed as a short-term mortgage. Three years or more is generally a long-term mortgage. Short-term mortgages are suitable for consumers who believe interest rates will go down at renewal time. Long-term mortgages are finalized as soon as current rates are reasonable and borrowers decide to sign closing documents. The solution to deciding between short and long terms depends on your financial situation and needs.
If rates drop or terms change before the outstanding of the principal owing on the mortgage is paid off, you can refinance your loan, resulting in a new mortgage contract at the then-current interest rates and new terms. Open mortgages can be paid back at any time without penalty and are generally negotiated for a short term. Homeowners who want to sell in the near future or those who would like the flexibility to make large, lump sum payments earlier than loan maturity will find this kind of home mortgage attractive. Closed mortgages are for particular terms. If you pay back the mortgage ahead of the maturity date, you will have to pay a penalty for breach of the term. However, refinancing a home mortgage for a lower rate or terms that are more attractive can eliminate any penalty for breaching the terms.
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