Navigating Home Mortgage Features For Homebuyers
Peak home buying season is now upon us. New mortgage loan programs are arising. As such, it’s important to learn about navigating home mortgage features for homebuyers. Many people don’t realize that there are also some designer options available that they will need to determine whether or not they’re right for them. In particular, there are 6 home loan options that you’ll want to keep an eye on.
Pre-Payment Penalties
This is a tricky mortgage clause that can actually shock you. Herein it’s stated that you’ll have to pay a penalty for paying your mortgage off early. While this should be properly disclosed prior to your signing an application for a mortgage or any real estate closing documents, oftentimes it’s conveniently glossed over instead.
Just as important as knowing of its existence, you’ll also want to know how much it’s going to be. There are no standard rates. In fact, they can range from a small penalty to one of over 6 figures. Some even require you to pay half of your home equity appreciation.
Pre-payment penalties are bad regardless of their cost. Nevertheless, lenders use this as a tool to guarantee a minimum return. Oftentimes you can negotiate them down or choose a one or two year penalty term, after which you won’t be penalized. You may have to pay a higher interest rate though. For this reason, if you’re certain that you won’t sell the property for a long time in the future, you may be better off taking the pre-payment penalty in exchange for lower interest rates.
Points vs. Interest Rates
A lot of home buyers don’t understand what the difference is between the advertised interest rate and what the true APR (the real yearly annual percentage rate with fees included) of a loan quote is. They also don’t seem to understand that this is negotiable most of the time and this is important because these things will typically affect the loan’s true cost and how much cash you’ll need for both closing and monthly fees too. You should inquire about modifying these things to best suit your personal needs. For instance, it’s possible to get a loan without any closing fees but then you’ll have to pay a higher interest rate. Sometimes you can even drive down both your interest rates and your monthly payments if you pay more points at the time of closing but these can either be financed or paid by the seller.
Interest Only Loans
These are sometimes considered an exotic mortgage, which means they’re a poor choice for salaried workers who want to pay off their home’s mortgages free and clear. However, if you have an uneven income, this may be a great tool that allows you to pay off your mortgage sooner. They can also be used as a speculative tool wherein the property is held with the least debt service while you gamble upon appreciation and profitable re-sales.
Adjustable Rate Mortgages
An ARM is similar to an interest only loan. You need to be cautious here. Make sure to understand the risks and the worst case scenarios.
Stated Income Loans
In 2014 stated income loans are making a comeback. They can be very helpful in helping qualified borrowers purchase homes while maintaining their privacy or streamlining the paperwork. However, you may wish to consider the risk that’s attached to them.
10, 15 and 20 Year Loans
A lot of home buyers are given lower interest rates on their mortgages simply because they’re willing to accept a shorter loan term. This often means a higher mortgage payment each month, along with less flexibility. However, it also means that there’s more structure and you’ll be able to pay off your home faster. The same is also true for balloon mortgages, which also have serious advantages and disadvantages too.