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T.D. Landrum

AHWD, PSA, RENE, TAHS
Texas Realty Associates
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Find the Home Loan That Fits Your Needs

March 22nd, 2021



It's easier to settle happily into your new home if you're confident you can afford it.

Here's what you need to know about your mortgage financing options, including how to choose the loan that matches your income and tolerance for risk.

Mortgage Financing Basics

The most important features of your mortgage loan are:

1. Term (how long the loan lasts)

Mortgages typically come in 15-, 20-, 30- or 40-year lengths. The longer the term, the lower your monthly payment. The interest rate on a 15-year mortgage might be 1% lower than the rate on a 30-year mortgage.

The trade-off for a lower payment on the 30-year mortgage is that you make more payments. Since you borrow the money for longer, you pay more interest to the lender.

2. Interest Rate (how much you pay to borrow money)

Mortgage interest rates generally come in two flavors: fixed and adjustable.

A fixed rate gives you the same interest rate and payment until the end of your mortgage. That's attractive when you're risk averse, if your future income won't rise, or when interest rates are low.

The interest rate you pay on an adjustable-rate mortgage (ARM) changes at some point in the future based on where interest rates are at that time. ARMs are named for how long the rates last. For example, with a 5/1 ARM, your rate changes after the first five years and again every year after that.

ARM Risks and Rewards

An adjustable-rate mortgage rate goes up or down based on a particular financial market index, such as treasury bills. Typically, ARMs include a limit on how much the interest rate can change, such as 3% each time the rate changes, or 5% over the life of the loan.

Rewards for the uncertainty:

Risks: If rates go up, your ARM payment will jump dramatically. So before you choose an ARM, be comfortable with your answers to these questions:

More Mortgage Options: Government-Backed Loans

If you've saved less than the ideal downpayment of 20%, or your credit score isn't high enough for you to qualify for a fixed-rate or ARM with a conventional lender, consider a government-backed loan from FHA or the Department of Veterans Affairs.

Before you decide on any mortgage, remember that slight variations in interest rates, loan amounts, and terms can significantly affect your monthly payment. To determine how much your monthly payment will be with various terms and loan amounts, try realtor.com's mortgage calculator.


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Disclaimer : The views and opinions expressed in this blog are those of the author and do not necessarily reflect the official policy or position of the Houston Association of REALTORS®

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Texas Realty Associates
5225 Katy Fwy, Ste 545, Houston, TX 77007   Get Directions
Phone: (281) 407-3820
Fax: (281) 971-0331
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