Financing Basics For First Time Homebuyers In Texas Part 3
Fixed Vs Floating Rate Mortgages
Another consideration to make is whether to go for a fixed-rate or floating-rate (variable rate) mortgage. For fixed-rate mortgages, rates don’t change throughout the loan period. The benefit of getting this loan is that you know the monthly costs of the loan for the whole period beforehand. Whenever the prevailing interest rates are low, you’re guaranteed a good rate for a considerable duration.
Floating-rate mortgages, like interest-only mortgages or adjustable-rate mortgages (ARM), are meant to assist first-time homebuyers or people who speculate an income rise along with the loan duration. Floating-rate loans normally enable one to get lower introductory rates in the initial years of the loan, enabling you to qualify for more money compared to opting for a more costly fixed-rate loan. This option can, undoubtedly, pose a risk if your income doesn’t grow at the same rate as the increase in interest rate. Another disadvantage is that the market interest rates may fluctuate: Whenever they rise drastically, the terms of your loan will shoot up with them.
How ARMs Work
The commonest types of ARMs are usually of one, five, or seven-year periods. The opening interest rate is usually fixed for a particular period of time and is then reset with time, often every month. Whenever an ARM changes, it adapts to the prevailing market rate, which is often done by adding a predetermined percentage (spread) to the usual U.S Treasury rate. Though an upper limit is imposed on the increase, and ARM adjustment may be more costly than the usual fixed-rate mortgage loan to compensate the financier for giving a lower rate in the introductory period.
Interest-only loans are a kind of ARM in which one only pays the mortgage interest and not principal in the introductory period until the loan returns to a fixed and principal-paying loan. These types of loans can be beneficial for first-time borrowers since paying interest only reduces the monthly cost of borrowing significantly and will help you qualify for a bigger loan. However, since you don’t pay the principal during the initial period, the amount due on the loan remains unchanged until you commence repaying the principal.
The Texas Mortgage Pros
The Texas Mortgage Pros team consists of mortgage professionals all over Texas. We are committed to providing our clients with the highest quality service for your mortgage needs. Combined with the lowest rate and multiple loan programs available in your area – Spring, San Antonio, Tomball, The Woodlands, Dallas, Austin, and Houston, Texas. Our outstanding mortgage professionals with years of experience will work with you one-on-one to ensure that you get the home loan that is tailored specifically to meet your situation and expectation. Whether you are purchasing your dream home, first home, refinancing an existing loan, or consolidating debt, our highly experienced team of loan officers can help you find the right loan program at the lowest rate possible.
Before making a decision, let one of the experts at The Texas Mortgage Pros help you find out exactly what loan is best for you. Feel free to contact us or call us today! Click here to go to the first article in this series.