Your Financing Questions—Answered!
Your Financing Questions—Answered!
What is a mortgage?
A loan obtained to purchase real estate in which is used as a lien secured in a promise to pay the debt. All have principal and interest.
What is a loan to value ratio (LTV) and how will it determine the loan size?
It is the amount of money you will borrow vs. the price or appraised value of the home you are purchasing. Each loan has a set LTV limit.
The LTV also reflects the amount of equity borrowers have acquired. The higher the LTV the less cash homebuyers are required to pay out of their own funds. If your LTV exceeds 80% or more, your lenders will usually require a mortgage insurance policy to cover all bases.
What types of loans are listed and what are the advantages?
There are numerous types of mortgages. The first one is a 15-year fixed or a 30-year fixed loan. The advantage to these is that they are predictable and the monthly payments on your home will never increase or decrease. Interest rates will be somewhat higher with fixed of loans however.
The second type is the adjustable rate mortgage. A great advantage to this type of loan is it usually comes with a lower interest rate to start. Also, if a borrower is not planning on staying in an area for very long, adjustable rates are great.
When does an adjustable rate mortgage work best?
An ARM may make more sense if you are certain your income will increase over the years, or if you foresee moving and are not concerned with the potential increases in interest rates.
What are the advantages of 15 and 30 Year Loans?
In the first 23 years of a 30-year loan more interest is being paid than principal, which means you will see larger tax deductions. As inflation and cost of living increases with a 30-year loan, mortgage payments become a smaller part of overall expenses.
In a 15-year loan lower interest rates are more common. Also, equity can be built more speedily because early payments pay more in principal.
Can I pay off my loan ahead of schedule?
The answer is yes you can! By sending in your extra money each month or once a year (whichever you prefer) you can accelerate the process of paying off your loan. When you send in payments make sure to note the extra money is going toward the principal!
At Connect Realty in Fair Oaks our real estate agents are bringing you all the information you need to make good judgments about what types of loans you need, and we want you to make that first step the right one! Contact us today for listings near you!
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