Sorting through the numerous mortgage options available to today’s homebuyers can be intimidating, but professional help is readily available. Your REALTOR® can offer you information along with your financial institution’s mortgage specialist.
First, it’s necessary to know which kinds of institutions will lend you money. Banks and trust companies lead the pack, but credit unions, mortgage companies and private lenders also offer funds. There is also the option of consulting a mortgage broker.
A number of different mortgage options are available. Under a conventional mortgage, lenders will loan you up to 80% of the appraised value or purchase price of the property (whichever is lower) to a maximum set by government regulation, and you must come up with the remaining 20% yourself.
If you don’t have the 20% down payment, a high-ratio mortgage may be available that could provide most of the required funds. The proviso is that high-ratio mortgages must be insured and the cost falls to you. Check with your lending institution or mortgage broker to see whether you would be eligible for such a mortgage.
Variable-rate mortgages are usually offered for both conventional and high-ratio mortgages. If interest rates climb, you may be paying more per month in interest; if rates drop, you may be paying more off your principal. Fixed-rate mortgages, on the other hand, maintain the same rate of interest over the entire negotiated term.
Amortization refers to the time period in which the mortgage is assumed to be paid. A common amortization period is 25 years. This means interest and principal are set as if you were paying the amount borrowed over a 25 year payment schedule. Obviously, the shorter the amortization period, the less interest you will pay.
Prepayment privileges are very important for borrowers to consider. These allow you to pay money against the principal, reducing the total amount of interest you will ultimately pay.