What Do You Need To Know About Fixed Rate Mortgages?

What Should You Be Asking?

First time home buyers often have a lot of questions concerning mortgages with fixed interest rates. These questions can include how much of a down payment is require and what the monthly payment will be on a specific loan. When calculating mortgage payment amounts, many people do not factor in the interest on the loan because it is difficult to calculate unless a fixed interest rate is chosen.

Many first time home buyers are on a strict budget. Therefore, they will choose a fixed interest rate so they will know how much their monthly payment will be over the lifetime of the loan. The payment on a variable interest rate home loan will change depending on the housing market. Variable interest rates may be less when interest rates are lower; however, these payments on a variable interest rate mortgage can change drastically over the length of the loan. Fixed interest rate loans do not change, which means your payments will not change.

What’s the Best Choice?

Most first time home buyers prefer to go with a fixed rate mortgage as their payments are generally lower. Additionally, the interest rate is dependent on your credit score and credit rating. Finally, if you purchase a more expensive home, your payments will cost more than a less expensive home.

Jumbo mortgages, for instances, generally have about a half a percent higher interest rate than other fixed mortgages. Additionally, these loans often require a higher down payment. Jumbo loans carry a significantly higher risk than more affordable home loans. As you can see, the size of your loan plays a role in the overall interest rate of the loan.

How do You Avoid Extra Costs?

Having a large down payment can lower your fixed interest rate. This is especially true for home buyers who are self-employed. Those who are self-employed or do not have verifiable income will need to take out a Low Doc or state income mortgage, which tend to have a higher interest rate. You can offset this by paying a larger down payment. Furthermore, if you pay 20 percent or more of the purchase price, you can avoid private mortgage insurance, which will lower your payments.

Those who are taking out a low doc or stated income mortgage may qualify for mortgage insurance. This is beneficial for those who are looking to lower their down payment. To be eligible for mortgage insurance, the buyer must have at least 5 percent of the purchase price for the down payment and have a good credit score.

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