There are a lot of factors to be aware of when searching for a home—the most glaring being how you plan to pay for it. Here are several factors to pay attention to when planning for your mortgage:
- Loan Term
The loan term is how long you have to repay the loan. This amount of time can vary depending on both the lender and your preference. The loan term impacts the interest rate, the size of monthly payments, and the total cost. A shorter term may mean higher monthly payments—but lower interest rates and lower total costs. A longer term generally leads to lower monthly payments—but higher interest rates and a higher total cost. - Interest Rate Type
The interest rate is the amount that a lender charges you for lending you money. There are two different types of interest rates—fixed and adjustable. A fixed rate is unchangeable; it means you will pay the same amount each month with no chance for it to change. It may be a higher amount to pay, but there are no risks of heightened rates over time. An adjustable rate is changeable and based upon the market; they are generally lower rates to start but the rate may increase, decrease, or even double over time. - Loan Type
There are several different types of loans—including conventional, FHA, or special programs; each are for different scenarios and situations.- Conventional loans are the most common loan form and they are not a part of any specific government programs. These generally cost less than FHA loans, but may be difficult to obtain.
- FHA loans are loans from private lenders that are regulated by the Federal Housing Administration (FHA).
- Special program loans are specialized for certain groups, such as veterans or low-income groups.
- Annual Percentage Rate
The annual percentage rate (APR) is a broad measure of all of the costs included in getting a loan. The APR is generally higher than the interest rate as it reflects the total cost of acquiring a loan. Comparing APRs is a good way of determining costs of loans and which may be more beneficial for you, but take care to note that APRs of adjustable-rate mortgage loans may not accurately portray the interest rate as the rate may change over time.
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