5 Financing Options for Your Next Home Loan

When people talk about getting a home loan it might sound pretty straightforward, but the truth is that there is more than one type of loan that you can get. Getting the right one can ensure that you are able to afford your monthly payments, your interest rates are as low as possible, and you can get the most home for your money based on the down payment you have available. Here are five options to talk to your mortgage lender about when you’re ready to get a loan.

Fixed-Rate Mortgage

The fixed-rate mortgage, which may also be called a “traditional” mortgage, is designed for homeowners with great credit, at least 10 percent to put as a down payment, and who plan to stay in their home for an extended period of time. This loan will have a fixed rate and fixed monthly payments for the life of the loan, and will generally range from 10 to 30 years. It’s a great option if you have excellent credit and interest rates are low.

Adjustable-Rate Mortgage

An ARM, or adjustable-rate mortgage, will have a low introductory rate for a fixed number of years, then the rate will fluctuate based on the market rates at the time. These type of loans are not necessarily bad, but are not the best option in every situation. For homeowners that plan to only be in the house for a short period of time (usually less than 5 years), getting the lower rate up front can keep payments low and allow you to sell before your rates change. It’s also a potential option if you believe that rates will go down in the future—in which case your payments will go down.

Interest-Only Loans

Most loan payments are structured with a portion going toward interest and another portion toward the principal balance. Interest-only loans have lower monthly payments because the homeowner is only responsible to pay the interest, with nothing paid toward principal. These are certainly not as common as they were a decade ago, but might still be an option for a short-term loan. Since you’re not paying down the balance of your original loan it’s not a feasible long-term option, and buyers will eventually have to refinance, pay off the balance with a lump sum, or increase their payments to begin paying down principal.

Reverse Mortgages

The reverse mortgage is only available for homeowners over 62 who want to turn the equity in their home into income. They have their own risks and obligations, and should be carefully considered and fully understood before any homeowner decides to get one. A mortgage lender can help explain the process and provide you with all the details.

Buydown Mortgage

As you pay down the total principal of your loan, your total interest paid over the life of the loan will go down. These mortgages allow you to pay a lump sum or a fee that buys down the amount of interest you will pay on the loan.

To learn about all the options available and figure out which is best for you, talk to a mortgage lender in Utah today.

3 Ways to Pay Off Your Mortgage Sooner

For most people, a home loan is the largest debt they have, and the longer it takes to pay off your mortgage, the more you will pay in interest over the life of the loan and the longer you will have a monthly payment to budget into your monthly expenses.

While the idea of eliminating your mortgage sounds like a great idea, it doesn’t make financial sense for everyone. In some cases it can improve your financial situation, but in others it would make more sense to invest that money somewhere else or pay off other loans or revolving credit with higher interest rates. If you do decide to pay it off early, here are three proven strategies.

1: Pay Extra Toward Principal

Your monthly payment is divided into paying the interest and paying down the principal balance. If you pay more toward the principal, you can get the entire loan paid off sooner and reduce the amount you will pay in interest over the life of your loan. You can accomplish this in several ways, including:

  • Adding to each monthly payment
  • Making payments every two weeks or every week instead of every month
  • Make an extra payment when you get extra money
  • Make one extra payment each year

2: Refinance to a Lower Rate

If your current loan has a higher interest rate, refinancing into a lower-interest-rate loan can reduce your total monthly payment. The key, though, is to continue paying your higher payment even after you refinance because the extra amount will go toward your principal balance. Refinancing could reduce your payments by hundreds of dollars every year, but if you keep paying the higher payment all that money is now going toward principal.

3: Refinance to a Shorter Loan Term

Shorter-term loans, such as 10 or 15 years, will have higher monthly payments, but will also reduce the total amount of interest that you pay over time, so if you can afford the higher payments, not only is your loan repayment term shorter, you will save quite a bit of money by not paying so much interest.

Paying off your mortgage earlier will require planning and may mean you need to be more disciplined about your personal finances. It can pay off in the long run by allowing you to live mortgage-free and giving you more expendable income to travel, contribute to retirement accounts, or pursue your other hobbies and dreams.