The Millennial’s Guide To Mortgage:

Mortgage Loans

So you’re 20 something, you’ve been living in an apartment in the city for a few years, but now you find your life changing pace, you have been saving money (way to go!) and now it’s time to buy a house! You’ve selected your realtor and you’re looking at houses; and you should be considering your mortgage options also! There are a few different types of mortgage loans depending on your situation.

 

  1. The Fixed Rate Mortgage: the fixed rate mortgage interest does not fluctuate. Just as the name implies fixed rate mortgages are a great way to lock in your interest rate. While choosing this option allows the security of knowing exactly how much you’ll be paying each month, keep in mind that most of the payments you make in the first year will go directly to interest. Fixed Rate Mortgages are most commonly available in 10, 15, 20 and 30 year terms. Most people choose a 30 year fixed rate mortgage for the low payments.
  2. Adjustable Rate Mortgages: the adjustable rate mortgage, sometimes called a “floating mortgage” or “variable rate mortgage” usually has a fixed interest rate  at the start of the loan this is called the initial interest rate, after the initial rate period has expired the amount of interest paid on the outstanding balance varies according to a specific benchmark which is called the adjustment interval.
  3. VA Loans: Veterans Affairs Loans are a government sponsored program for active duty or retired members of the Army, Navy, Marines, or Air Force. The government covers 100% of the cost of financing and has no requirement to carry private mortgage insurance. These are also fixed rate loans that are available in 25 or 30 year terms.
  4. Interest Only (Jumbo Loans): Interest Only loans are typically for affluent people with irregular income. These types of loans are considered jumbo loans because the loans are typically over $625,000. This type of loan gives the buyer the option to pay the interest only for a set time, although the buyer may also pay towards the principal. After the initial period the payments can increase a great deal. I’d also like to note, this isn’t a very common type of mortgage for first time home-buyers.

 

Some Keywords you’ll want to remember:

  1. APR: is the Annual Percentage Rate, a lot goes into factoring a mortgage rate including the rates and fees that the lenders themselves collect from the buyer, all lenders apply the same rules when calculating the APR,so it is an good way to compare the cost of a loan.
  2. Amortization: the amortization of the loan is a schedule on how the loan is intended to be repaid. For example, a typical amortization schedule for a 15 year loan will include the amount borrowed, interest rate paid and term. The result will be a month breakdown of how much interest you pay and how much is paid on the amount borrowed.
  3. Adjustment Interval: In regards to Adjustable Rate Mortgages (ARM) this is the period of time between changes of the interest and or monthly payments, usually occurring every 3,5 or 7 years.

 

Having a mortgage lender that understands your needs is just as important as finding a realtor who does. Take time to communicate with lenders and discuss not only your purchase but your long term goals. Your lender should make you feel educated and empowered.

Pro Tip: Call around to mortgage lenders before you decide to buy to see what rates are available to you!