Guide to First Mortgages, Adjustable, and Reverse

What are the benefits of home ownership?

Being a homeowner has a number of advantages including owning something that typically appreciates in value. This appreciation can be a big deal since it increases the equity you have available to you. You can later liquidate this equity to make funds available for whatever needs you may have including debt consolidation. When you rent, you throw money away that doesn’t build up anything for you. Another advantage of being a homeowner is that the money you spend on mortgage interest and property taxes may help you reduce your overall tax liability.

What financing options are available for a mortgage?

When you are getting a mortgage for a home purchase or refinance, you have several options to choose from. The two basic options many opt for are the adjustable rate mortgage and the fixed rate mortgage.

With an adjustable rate mortgage the interest rate on your loan is set at a lower amount initially for a certain period of time (1-year, 3-year, 5-year, etc.). At the end of that period, the rate will increase at set intervals. With a fixed rate loan, your interest rate will not change over the life of the loan.

There are other mortgage products available as well such as interest-only loans. With this type of mortgage, you only pay the interest on your loan until a certain point. When the term for paying only the interest ends and the principal comes due, many find that the monthly payment increases significantly making it more difficult to meet monthly expenses. Be careful when applying for a mortgage to make sure you fully understand all of the loan terms.

What is an ARM (Adjustable Rate Mortgage)?

For a home buyer who doesn’t plan to stay in a house or a city for any significant length of time, an adjustable rate mortgage may be the right loan. This often offers quite a sweet deal with a lower interest rate that doesn’t increase until one or more years into the life of the loan. If you plan to live in the house for a number of years, this may still be a good opportunity for you. You can take advantage of the lower interest rate initially and refinance before the rate adjusts.

What is a reverse mortgage?

Senior citizens may be able to qualify for a special type of home loan known as a reverse mortgage. By setting up this type of arrangement, you can actually have the bank send you a payment each month rather than you send one to them. Typically you have to own the property outright for this to apply but it may help you meet monthly expenses. One disadvantage that you need to remember is that this will impact how much you will leave for an inheritance. This is still in fact a loan and you need to understand future implications. The idea of a reverse mortgage could be confusing so work with an attorney or other expert to better understand this option.