Although home loans are all generally referred to as mortgages, there are different types of loans that entail different payment standards and have different advantages. The two that we’re going to talk about today are the loans you get when purchasing a new home and when refinancing.
Purchasing a Home
When you’re in the market for a brand new home, or one that’s new to you, you’re also probably in the market for a mortgage that allows you to purchase the home. The amount of the mortgage will generally be the difference between your down payment and the purchase price. If your down payment is too low, you may need to pay private mortgage insurance (PMI) until you build up sufficient equity.
Sometimes, the original loan a homeowner gets when purchasing a home seems like a great deal, but ends up being difficult to maintain. This is especially true when you have an adjustable rate mortgage (ARM) during an environment with rising interest rates. You could find your monthly mortgage payment climbing far beyond what you can comfortably afford.
Refinancing a Home
After you’ve lived in your home that your original purchase mortgage allowed you to buy, you may find a lender who’s willing to give you better terms than your original mortgage had. If you decide to take out a new loan with these better terms and use it to pay off the original loan, you have just refinanced. When refinancing, if you have equity in the home after making payments or due to an increase in value, you may be able to tap into that equity through the loan.
Refinancing can be extremely advantageous. It can give you a much lower interest rate, reducing the overall amount you pay for your home and sometimes even reducing the number of years you pay. Just keep in mind that refinances also have closing costs, title fees, and other expenses that can negate the positive effect of the reduced interest rate.
Whether you’re trapped in an adjustable rate mortgage or simply locked-in to a high fixed interest rate in your original purchase loan, a refinance through a company such as Flagship Financial can help you break free and save money.