MORTGAGE BASICS

Mortgage Basics

When searching for a mortgage, be sure to explore your options. There are many different types of loans available and many components to a loan and San Mateo realtors have the best resources. Understanding these variables is the first step to making the right choice. A mortgage broker can also work with you to analyze what mortgage options are right for you and your financial situation.

Variable or Fixed Rate Mortgage
Because the monthly payments for a fixed rate loan remain the same (with the exception of fluctuations in property taxes and insurance), this type of mortgage will help keep your monthly expenses consistent. A variable, or adjustable rate mortgage, can be a way to secure a lower interest rate initially. However, be cautious. Interest rates are subject to change and your payments will fluctuate with it.

San Mateo Real Estate
15 vs. 30 Year Mortgage
The length of a loan will affect the interest rate you receive as well as the amount of your monthly payments. A 15-year mortgage can save you many thousands of dollars in interest payments over the life of the loan, but your monthly payments will be higher. On the other hand, the longer the length of the loan, the higher the rates will be.

Down Payment
The down payment reduces the amount of the loan. The lower the down payment, the higher the interest rate and the monthly payments. In addition, mortgage companies typically require insurance on low down payment loans for protection in the event the homeowner fails to make his or her payments, the premium for which is added to your monthly payment. First-time home buyers or those with low to moderate income may be eligible for a mortgage from the Federal Housing Administration (FHA), which offers some loans with a lower down payment requirement.

Points
Another way to reduce your monthly payment is to pay points on your loan. In exchange for more money upfront, lenders will lower the interest rate, cutting the borrower’s payments. One point equals one percent of the total loan amount. Shop around to determine which lender will cut your rate the most in exchange for one point. Paying points may or may not be a smart financial decision. Your taxes and the number of years you remain in the home also determine if paying points at closing is a better deal than paying zero points and having a higher interest rate.

Credit History
When you apply for a loan, your credit history plays a significant role in determining in the terms you will receive. The more favorable your history, the more favorable terms you will receive. Credit reporting agencies collect information about you and your credit history from public records, your creditors and other reliable sources to compile your credit score. Lenders use these scores to quickly and objectively assess the credit risk of applicants. The best way to ensure a good score is to pay your bills on time. In addition, keep your credit card balances low, don’t apply for more credit cards than you need and focus on paying off your debts rather than moving them around.
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