If you can place yourself in the enviable position of applying for a mortgage for your own home, count your blessings. Credit is tight right now and current homeowners can typically only refinance their mortgage loan. They certainly don’t have any chance of selling their home at a profit.
Banks Are in Hot Water
A few bad apples can certainly ruin a harvest. For many years, the banking community pushed adjustable rate mortgages on applicants that could ill afford any mortgage at all. These shenanigans set off the housing market meltdown that is responsible for starting the global economic chaos.
Take care and due your homework to accept the best situation possible. A source you can trust should explain the differences between adjustable and fixed rate mortgages.
The Adjustable Rate Loan
If short term occupancy is in your plans, an adjustable loan might work well for you. However, if you are planning to occupy the property for many years, a fixed rate mortgage is the way to go. Adjustable rate mortgages tend to wreak havoc with household budgets.
Variations on adjustable rate loans are now available. Among them are 3/1, 5/1 and – recently – the 7/1. These two numbers notated together is an indicator that the mortgage loan is adjustable. The first number tells you how many years your interest remains fixed. The second number, explains how often your rate adjusts after the fixed rate ends. Term describes how many years the mortgage payments last, which could be 10 years or as much as 40 years.
The Fixed Rate Loan
A fixed rate mortgage is the safest loan to have when you will be living with a mortgage for a long time. Your budget will love you for rejecting adjustable rate mortgage payments over the length of the loan.
Fixed rate loans are usually more difficult to obtain. Many years ago. they were considered the crème d la crème of the loan world. When the housing market was soaring and fixed rates were higher, lenders saw the adjustable rates as a boon to those who could not qualify for fixed rate mortgages.
Banks knew they could sell the lower up-front payments to these marginal borrowers. Adjustable rates are affordable initially, but if a negative life event strikes, the homeowners without emergency money will be first to lose their home to foreclosure.