Mortgage Saving Tips

Fixed vs adjustable rate loans


Save Big on your Mortgage

Make additional payments to your loan principal to shorten the duration of your mortgage and save thousands of dollars in interest. It can be accomplished in a number of ways. The easiest method is perhaps to make an additional full payment once per year. Most people are unable to afford this large additional payment, so dividing it into 12 additional monthly payments can work as well. Alternatively, you may pay half the amount every two weeks. Although each option has its own advantages, they all result in reducing the total interest paid and reducing the length of your mortgage.

Lump-Sum Extra Payment

For some borrowers, extra payments are simply not an option. It is important to note that most mortgages permit you to make additional payments toward your principal at any time during repayment. You may use this provision whenever you receive extra funds to make an additional payment on your principal. Consider the following scenario: five years after you have purchased your home, you receive a larger than expected tax refund, a large legacy, or a non-taxed cash gift. You could apply these funds toward your mortgage principal, which would result in significant savings and a shorter payoff period. For most loans, even a modest payment made early enough in the loan term could result in substantial savings, both in terms of interest and in the length of the loan.

Learning more about Fixed-Rate Loans

Unlike a variable rate loan, a fixed-rate loan has a fixed monthly payment amount for the duration of the loan. You may experience increases in property taxes (or decreases in some cases), as well as fluctuations in your insurance rates. In general, however, fixed-rate mortgage payments are unlikely to increase significantly.

During the early stages of a fixed-rate loan, a large portion of your payment is applied to interest, while a much smaller portion is allocated to the principal. This situation reverses as the loan matures.

You can secure a low-interest rate by choosing a fixed-rate loan. When interest rates are low and borrowers want to lock in at the lower rate, they select these types of loans. Refinancing your Adjustable-Rate Mortgage (ARM) with a fixed-rate loan can provide greater monthly payment stability. Currently, if you have an adjustable-rate mortgage (ARM), we are more than happy to assist you in securing a fixed-rate mortgage at a favorable rate. Please contact Omni Mortgage Company, Inc. For more information at 6038936616 (NMLS#: 1954).

Learning More About Adjustable-Rate Mortgages

Adjustable-rate mortgages are available in a variety of forms. There are usually periodic adjustments to ARMs, based on various indexes.

You are protected from sudden increases in your monthly payments with most ARM programs. If you have an ARM, interest rate variances may be limited over the course of a year. If the index on which the rate is based grows more than two percent per year, the rate may not increase more than two percent per year. It is not uncommon for an ARM to have a "payment cap," which ensures that your payment will not exceed a specific amount over a period of time. The interest rate on most ARMs is capped over the loan's duration.

The interest rate on an adjustable-rate mortgage usually starts out very low, but may increase over time. The term "3/1 ARM" or "5/1 ARM" may be familiar to you. This type of loan has an introductory rate that is fixed for three or five years. The rate then adjusts every year after that. Loans of this type are fixed for three or five years, then adjust after that period. Borrowers who anticipate moving in the next three or five years may benefit from loans of this type. Adjustable-rate mortgages benefit homeowners who plan to sell their homes or refinance prior to the expiration of the initial lock.

The purpose of an ARM is to get a lower introductory rate and you might plan on moving, refinancing, or just absorbing the higher rate after the introductory rate increases. In the event of a housing price drop, ARMs may be risky since homeowners may have difficulty selling their homes or refinancing with a lower value.

Need more information on mortgage loans? Please contact us at 6038936616. We answer inquiries about a variety of loan types on a regular basis.

Questions about saving on your mortgage? Contact Omni today at (603) 893-6616!

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