Your Mortgage Options

There are many mortgage options available to homebuyers here. We’ve prepared the following information on the seven most common mortgage loans available for buying a home in the New Albany area.

Which mortgage is right for you?

Deciding which mortgage is best for you depends on your monthly income, any future expected income, your current debts and any liabilities you have. Read on to find out what options are available and then decide which one is right for you.

Fixed-Rate vs. Adjustable-Rate Mortgages

Fixed-rate mortgages are just that–fixed. The rate stays the same throughout the life of the loan– usually 10, 15, 20 or 30 years. Adjustable-rate mortgages (ARM) have rates that fluctuate. Generally, the initial rate is lower but increases each year. This type of loan is desirable for buyers expecting a promotion or big raise within a couple of years. It is important to note that ARMs do have a cap as to how high they can go.

FHA vs. VA Loans

The Federal Housing Administration (FHA) makes loans available to qualified Americans. There is a preset spending limit but usually requires only 5% down as opposed to the typical 20% down payment required of other loans. Often, mortgage insurance is required and can be relatively expensive. This is to protect the FHA from losing too much on defaulted loans.

A Veterans Administration (VA) loan is available to all military veterans regardless of how long they served in the military. It allows buyers to purchase a home with nothing down and no mortgage insurance is required because the VA backs the loan in case of default. There is a current borrowing limit of $417,000 for one-unit properties (higher limits are available for homes in Hawaii and Alaska).

Two-Step Mortgages

These 30-year loans – sometimes called 5/25s or 7/23s – have a fixed rate for either five or seven years then will be changed to a convertible or nonconvertible loan. The convertible loan maintains a fixed-rate after the first five or seven years. The nonconvertible loan changes to an ARM after the first five or seven years.

Balloon Mortgages

With a balloon mortgage, you pay either the principal and interest or the interest only until the loan period ends. At this time, the loan must be paid in full. This type of loan can be beneficial for buyers expecting a financial windfall such as an inheritance.

Bi-Weekly Mortgage Payments

By making two half-monthly mortgage payments a month, buyers significantly decrease the amount of time they have a loan thereby decreasing the interest they have to pay. The mortgagee makes two monthly payments (half of the payment paid twice) equaling 13 payments annually rather than the usual 12.

Need help deciding which mortgage is right for you?

If you’re unsure which loan is right for you, we have a list of lenders who are qualified to give you the best advice for your particular situation. For a comprehensive list of lenders we work with and trust, contact us now. This information will help you select the mortgage that best fits your finances.

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