Mortgage rate 101: getting down to basics – Tips from Coldwell Banker® Mortgage
Looking for and buying a house is an exciting time in your life. The excitement can be dulled, though, when you start looking for a mortgage and the right interest rate. There is no argument: the financial considerations of your purchase can be confusing and stressful – that is, when you don’t have someone you trust, like your Coldwell Banker agent, guiding you along the way. You can turn to your agent for the insight and resources you need to make informed decisions at every step of your home-buying journey.
That’s why we have put together this helpful “mortgage rate primer” on some of the most common types of mortgage products you will encounter. Remember that just as you turn to your Coldwell Banker agent for his or her expertise, you should also consider speaking with an experienced, trusted mortgage lender before making a loan choice.
Mortgage rates – the basics
Generally speaking, mortgages can be broken down into two main types: fixed-rate and adjustable rate. The difference between the two is surprisingly simple and is in their names:
Fixed-rate: Offers a mortgage rate that remains the same throughout the life of the loan
Adjustable rate: Offers an interest rate that changes based on market conditions
Which loan type you choose – just like your house – will be based upon your needs, specifically short and long term. Fixed-rate loans are typically recommended for people intending to stay in their homes for a long period of time, while adjustable rate loans are better suited for those looking to the short-term. But let’s look at this a little more closely.
Why are these best for people looking at the “long picture”? Primarily because nothing changes throughout the life of the loan – the rate will remain the same, regardless of changing marking conditions, and so will the monthly payment. Over the standard 15- or 30-year mortgage that kind of predictable stability can be very attractive.
As with an adjustable rate mortgage, whether you choose a 30- or 15-year fixed-rate mortgage comes down to time. If you are looking for a shorter payoff period or don’t think you will be in the house in 30 years, a 15-year loan may be a good choice. However, it is important to understand the tradeoffs for the shortened timeframe: 15-year fixed-rate loans typically have lower interest rates than 30-years and you will build equity more quickly; however, you will have a higher monthly payment due to the compressed schedule.
Adjustable rate loans
Adjustable rate loans, or ARMs, are attractive for short-term homebuyers – or those willing to accept a level of risk – because they do just that: adjust. Depending upon the term and terms of the loan, the initial rate – often considerably lower than that on a fixed-rate loan – will remain constant for a set period of time, after which it will continue to adjust to the current rate. This adjustment can occur periodically – say once or twice a year – or every month, depending upon the loan.
The initial low rate is what makes this kind of loan attractive because it allows a consumer to purchase “more house” than if they went with a higher-rate fixed loan. The lower monthly payments – at least during the fixed period – will also allow for more “in pocket” or investment money each month. The drawback, of course, comes once the fixed period ends, because you are at the mercy of fluctuating rates that could be considerably higher and volatile than when you locked in at the start. As a cautionary note, many of the people most severely impacted by the housing crisis held adjustable rate loans and were helpless when their fixed periods ended and rates skyrocketed.
Speak with a trusted mortgage professional
Buying a home is one of life’s most important decisions – and how you buy it is even more critical. The mortgage world can be complex and a little confusing, especially when you start to consider all of your options. A good place to start is with a Coldwell Banker Mortgage professional, who can help you examine your current and future needs and goals, and guide you throughout the entire mortgage process, from selection to close.
Disclaimer – PHH Mortgage Corporation D/B/A Coldwell Banker Mortgage, 1 Mortgage Way, Mt. Laurel, NJ 08054. NMLS ID #2726 (www.nmlsconsumeraccess.org). Alaska Licensed Mortgage Lender #AK2726-3, 800-446-0964; Arizona Residential Mortgage Licensee #BK 0903210; Licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act; Licensed by the Delaware State Bank Commissioner #2784; Georgia Residential Mortgage Licensee #6266; Illinois Residential Mortgage Licensee #MB.0005752, 100 W. Randolph, 9th floor, Chicago, IL 60601, 800-532-8785; Kansas Licensed Mortgage Company #SL0000792; Massachusetts Licensed Lender #ML2726; Minnesota – This is not an offer to enter an interest rate lock-in agreement; Licensed by the Mississippi Department of Banking and Consumer Finance; Montana Licensed Mortgage Lender #2726; Licensed by the New Hampshire Banking Department; Licensed by the New Jersey Department of Banking and Insurance; Licensed Mortgage Banker – NYS Banking Department; Ohio Certificate of Registration MB.804016; Oregon Mortgage Lender #ML-355; Rhode Island Licensed Lender. Coldwell Banker® and the Coldwell Banker Logo are registered trademarks licensed to Coldwell Banker Real Estate LLC and used with permission. Equal Housing Lender.