The most common type of mortgage is a 30-year, fixed-rate loan. It offers a lower required monthly payment, but you can pay more each month to speed up your payoff date without being penalized.
Adjustable-rate mortgages are an option for some first-time buyers, because they allow you to start with a lower rate and build up equity over time. Of course, you’ll have to account for higher payments later in the life of the loan.
When choosing a rate, you have the option to pay “points” to get a lower rate (points are added to the loan’s closing costs). For example, with a 4 percent rate, you might be able to pay points in the amount of $1,250 to get a rate of 3.875 percent. You would need to determine whether the additional closing costs are worth the lower interest rate and monthly payment – and how long it will take to recoup that additional out-of-pocket expense.
Another option is to take a slightly higher interest rate and get a lender credit to help pay for some of your closing costs. In this scenario, with a rate of 4 percent, you could take a rate of 4.125 percent and get a lender credit of $1,250.
Almost all home loans are sold to Fannie Mae or Freddie Mac, the federal entities created to stabilize the mortgage market. Instead of asking, “Are you going to sell my loan?” ask your lender or mortgage broker, “Do you service your loans?”
The answer will tell you which company you’ll be dealing with once the deal is done. Rather than being able to call your original lender with questions, you could be directed to another servicing company, and levels of service can vary greatly.
Check out all of our posts in our home buying and selling series!
The blog and its opinions are expressly those of its author and do not convey the opinions or strategies of the Credit Union and should not be considered financial advice. CommunityAmerica’s Mortgage offers are subject to credit approval and terms may vary based on conditions.