Use
your home equity to consolidate debts into a simple interest, fixed rate
home loan, which can save you three times more than paying on credit cards.
Plus, you can save even more from the allowable tax deduction on your new
home loan.
When you choose a fixed-rate
mortgage, you're assured your interest rate will remain the same for the
life of the loan.
1.Loan Length.
The life, or term, of a mortgage is 30 years by industry standards, but
15- and 20-year-term loans are also available.
2.Rate Reduction.
Should you opt for a shorter-term loan, you can reduce your interest rate
even further. For example, a 15-year rate is typically one-quarter to one-half
percent lower than one for 30 years. The smaller rate and shorter term
mean you'll pay less over the life of the loan than if you borrowed the
same amount over a longer term.
3.Monthly
Money. Of course, the shorter the loan term, the higher the monthly
payments.
4.Higher
Rates? Fixed-rate mortgages protect you from the risk of rising interest
rates. But you could end up with a higher rate should interest rates
fall.
The second major mortgage
category is the adjustable rate, or ARM. Initially, an ARM rate is lower
than one that is fixed, about one-quarter to two points less, depending
upon the economy.
5.Larger
Loans. With its lower preliminary rate, ARMs can help you qualify for
a larger loan or start off with smaller payments than with a higher fixed
rate.
6.Rate Cap.
Generally, ARMs have caps on how high it can adjust during each adjustment
period and over the life of the loan. This protects you from drastic market
changes, bit doesn't offer the stability of a fixed rate loan.
7.Income
Increases. ARMs are a good choice for someone who knows their income
will rise and at least keep pace with the loan rate's periodic adjustment
cap.
8.Moving
On? If you plan to move in a few years and aren't concerned about the
possibility of a higher rate, an ARM could be a good choice.
9.Rate Changes.
When the first adjustment occurs (usually between six and 12 months) and
how often it adjusts depends upon the terms of the loan. After the first
adjustment, subsequent modifications can occur every six months, once a
year or longer. Should rates fall, so does your monthly payment.
10.Rate Configuration.
To
come up with an ARM rate, the lender adds a "margin," usually two to four
percentage points, to the index. Its interest rate adjusts up or down,
depending upon current economic trends and is based on a money market index.
The one-year U.S.
Treasury bill is commonly used because its yield is similar to the 30-year
U.S. Treasury bill used to set rates on 30-year fixed mortgages. |
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