You have done everything by the book: you got a pre approved guaranteed rate, you found a home that is able to be financed and is fitting your needs and your budget. Just when you thought the interest rate was the only thing you needed to be concerned with your lender starts talking about terms.
Fixed or variable, amortization length of term, open or closed. What is the lender talking about? These are all alien words to you, but don't worry the terms are easy to understand and if you read on you will be prepared for what the lender throws at you. Mortgage terms only begin with the interest rate and the listed rate for the day is a basic number and can be affected by other terms of the mortgage.
Another concern beyond the monthly mortgage payment is the total you have paid before you can burn the mortgage. Did you also know that the crummy rate you started with can be renegotiated after a certain period of time? All of these are part of what are the mortgage terms.
If you have a lower credit score you are probably aware of the ARM or Adjustable Rate Mortgage usually given a lower rate than a fixed rate, but it is the riskiest term available. The environment of the housing market and the lending markets have a profound affect on the interest rate and the ARM can change with the market and cause a serious rise in the monthly payment.
The ARM is responsible for many next door in the US losing their homes through foreclosure not being able to afford the increased payment. The amount of the mortgage in the long term could amount to thousands of dollars more paid. This term is best to be limited to a few years for the buyer to improve their Credit Score and renegotiate once expired. The length of the term is variable and can allow for the lender to require the mortgage to be paid immediately; most will not want to lose that tens of thousands of potential dollars paid in future interest and will negotiate to keep you as a client.
Opposite the ARM is the fixed rate mortgage. It comes with a higher basic rate, but in return you get the comfort of a stable monthly payment. If you want to be allowed to pay lump sums per year (often a $100.00 minimum). There may be restriction on the amount of lumpsum payment per year you can make, normally twenty percent.
The higher interest rate seems like it may be costly, but a few dollars each month can turn in to tens of thousands is savings by early payoff, and possibly open the door to wealth building The Closed Mortgage is very restrictive and has penalties for early pay off and while the basic interest rate is lower, you may pay more for the length of the term or the amortization period abiding with the terms.
The terms of the mortgage contract should be understood and be planned in advance of any negotiation with the lender. It is imperative that all the necessary documents and information be made available to the broker or bank lender to ensure plenty of time to get the terms that best fit your financial future. Bad credit can be fixed but if you fix it before you start to shop for the home and mortgage you will be able to get the best deal.
| Gurmit Singh Toor, MBA
M08009905
Dominion Lending Centres Mortgage Villa (11574)
Article Source: http://EzineArticles.com/expert=Gurmit_Singh_Toor | |
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