Where to Start Looking for a Mortgage

Different institutions offer different mortgage terms and rates depending on your personal circumstances. In other words, you can choose among mortgage brokers, mortgage bankers, commercial banks, savings and loan associations, and credit unions.

Still, there is no one answer as to who can offer the best mortgage deal for any one person per se. What we can give you is a quick roll down of their options and benefits. Mortgage brokers are considered middle persons between buyers and lenders. They’re not competitive in terms of rates compared to banks, but they do offer the buyers their services as “scouts” or shoppers for the lowest bank interest rates.

Mortgage bankers

Mortgage bankers are bank employees. They can help you only in as much as orienting you with the best loans a particular bank can offer. This is probably your last choice, unless you already have a particular bank you want to work with. Most banks have special low interest rates when it comes to mortgages for their account holders. If you already have a good credit or savings record with a particular bank, now is probably a good time to use your loyalty points.

Dealing with commercial banks is also advantageous because their primary business is not in real estate alone. You can rest assured, then, that the bank is not trying to vehemently make money off you.

Credit unions

When you make deals with credit unions regarding mortgages, it’s best for you to deal with them personally. Verify any information should you go for online transactions.

Understanding Blanket Real Estate Mortgages

A blanket real estate mortgage is a higher security mortgage with better possibilities of interest rate and loan term negotiations. In layman’s terms, this type of mortgage allows the borrower to put more than one property in a single mortgage scheme.

Advantages of a blanket mortgage

On the plus side, the lender has more security because more properties are being pledges. This makes for a higher level of security for the lender.

Because the lender is more secure about the loan and the borrower’s capability to meet his/her obligations, the borrower can, then, negotiate for lower interest rates in the blanket mortgage, or sometimes longer terms with lower monthly payments.

Disadvantages of a blanket mortgage

The only upfront disadvantage for the borrower in a blanket real estate mortgage is the greater risk involved. In any event that the borrower fails to meet his obligations, all properties within the blanket mortgages will be foreclosed.

Separation from the blanket mortgage can also be a problem if and when the borrower decides to sell one of the properties within the blanket mortgage. The borrower might have to pay huge penalty fees because s/he is unable to keep to the mortgages terms and conditions.

Handling a Mortgage Buy Down

A mortgage buy down may be the better option compared to an adjustable rate mortgage.

With a mortgage buy down, you basically have the same scheme as a fixed rate mortgage which has a 1% increase in interest rate for the first three years and the fixed rate for the remaining term.

In a mortgage buy down, however, you manage to retain the original interest rate for the whole term, provided that you pay for the interest rates of the next three years in advance. Let’s say your interest rate for the first year is 3.75%, and in increases to 4.75% in the second year, 5.75% in the third year, and 6.75% in the fourth through 30th year. This means that you will have to pay a high 6.75% interest rate for 27 years.

That translates to a ridiculously huge sum of money if you put it together. This is what happens when your fixed rate mortgage is not bought down. When you buy down your mortgage, on the other hand, you only pay for the interest rate increase of the first three years. The interest rates of the remaining term will drop back to 3.75% on your 4th through 30th year when you choose the buy down option. In money talk, this means paying $15,853 to lower your 27-year interest rate to 3.75%. This might look like a heft sum at first, but it is well worth it. It beats the fluctuating interest rates of an ARM and the ridiculously high 6.75% interest rate of a fixed rate mortgage that hasn’t been bought down.

Fixed Rate Mortgages Simplified

A fixes rate mortgage is the oldest and most popular mortgage scheme in the market today. A lot of people choose the fixed rate mortgage over the adjustable rate scheme for a number of reasons. Just like the ARM or adjustable rate mortgage, a fixed rate mortgage has its own set of advantages and disadvantages.

Pros

On the upside, a fixed rate mortgage gives the borrower more security in terms of fixed payments through the years. There’s a great probability that interest rates will skyrocket instead of drop as the mortgage matures. With a fixed rate mortgage, you won’t have to worry about paying for more than what you bargained for.

In other words, even if the mortgage interest rate rises from 10% to 15% in five years, you’ll be paying a significantly lower monthly payment compared to borrowers who took their mortgages later than you did.

Cons

On the down side, if the market psychology shifts, and real estate interest rates drop, you will be paying higher monthly fees compared to the accepted mortgage interest rates of the time.

You can probably dodge this consequence by choosing to refinance. However, refinancing also costs you money. You will be paying a hefty some just be altering the terms of your loan. An average of 1 to 3 years as a break even period is already a kind estimate.

Some people who are too hasty in their decisions actually suffer from bigger losses because of refinancing. They end up having to wait for at least five years to break even from the costs of bad refinancing.

Do you need to get an Adjustable Rate Mortgage?

Just like fixed rate mortgages, adjustable rate mortgages also have its pros and cons. It’s really all a matter of how you look at your spending habits. Adjustable rate mortgages or ARMs generally have lower interest rates, and they offer more leeway for even lower rates in the future.

On the other hand, a fixed rate mortgage gives you, as a borrower, the security of having to pay fixed monthly fees for the duration of your mortgage term.

Advantages

No one can actually predict the movement of mortgage interest rates through the years. On the one hand, it can shoot up dramatically in the next 30 years, which is the most common term for mortgages.

On the other hand, mortgage interest rates can also experience drops within the term. With a fixed rate mortgage, you won’t be able to benefit from these rate drops unless you choose to refinance your loan.

Refinancing should also be your last option, because refinancing costs a lot of money. Unless you manage to break even within three years, you’re seriously facing a major dent in your savings.

Disadvantages

ARMs can look initially enticing because of the lower interest rates, but, as we’ve mentioned, the interest rates can fluctuate unpredictably though out the term.

One of the major issues that most borrowers experience when they choose an ARM is the possibility that they will be facing bigger expenses than what they’ve bargained for.

If you’re living on a more or less fixed stipend, you should also go for a fixed rate mortgage. It might not give you the biggest savings in the long run, but at least you can always rest easy because you know what to expect with your finances.