Probably but just slightly. Even with a fixed-rate loan, your payment is likely to change over time. The reason? Your property taxes and insurance expenses, upon which the escrow portion of your payment is based, tend to fluctuate. If they rise, it may be necessary for your lender to ask for a higher escrow payment.
Depending on your situation, there are typically three or four parts of your mortgage payment:
Principal: Repayment of your outstanding balance.
Interest: Payment of the interest charged on the outstanding balance.
Taxes: One-twelfth of your expected annual property taxes will be included in your mortgage payment, and deposited into your escrow account.
Insurance: This includes homeowner’s insurance, as well as any other hazard insurances you’re required to have, such as flood or windstorm.
When you obtain a mortgage, you’ll probably be asked to put money into an escrow account to guarantee the lender that the ongoing expenses of owning the property will be handled — specifically taxes and insurance. You’ll pay a lump sum into the escrow account at closing (also known as your “prepaids”), and add to it further with each of your monthly mortgage payments.
In general, be prepared to show all of the following:
· Income verification (last couple pay stubs)
· Drivers’ license
· Bank statements
· Proof of funds to close
· If some or all of your down payment is coming from a gift, you will need gift letter from the source of the funds that confirm they are gift, not a loan.
This depends on how much you want to stretch your budget. If you can afford the higher monthly payments, a 15 year mortgage usually comes with a better interest rate than a 30-year version. Not only will you pay off the house quicker, but you can save a tremendous amount of interest. On the other hand, a 30-year mortgage will cost less per month, allowing you to budget accordingly.
Discount points are money that you pay up front on your mortgage in exchange for a lower interest rate. One “point” is equal to 1% of the loan amount, so on a $200,000 mortgage, one discount point would be $2,000. Discount points are tax-deductible, and mathematically, if the interest savings over the life of the loan is greater than the points paid, it can be worth it. A mortgage calculator can help you determine whether discount points are a good idea by comparing the effect of various interest rates on your mortgage.
A rate lock means that you’re guaranteed today’s mortgage interest rate for some predetermined period, typically 30 to 90 days. If interest rates have been trending upward, it’s generally a good idea to lock in your rate. While the prevailing mortgage rate doesn’t usually make a big move in a month or two, it’s certainly possible. Our mortgage experts pay very close attention to the market to watch the trends so we can gauge the best time to lock.
When interest rates are historically low, like they are now, a fixed-rate mortgage makes good financial sense. Not surprisingly, the vast majority of mortgages originated today are fixed-rate. In fact, only about 3% of buyers are choosing adjustable-rate loans.
That said, while a fixed-rate mortgage is the best choice for the majority of homebuyers, there are some circumstances where an ARM may be better. For example, if you expect to sell the house before the fixed-interest period ends and the rate starts to float, an ARM could end up saving you thousands of dollars. Or, during periods of falling interest rates, an ARM can allow you to get a low initial rate, and will save you money later if rates drop further.
The term “closing costs” refer to all of the charges you’ll need to pay before your loan is completed. This can include origination fees, title insurance, prepaid escrows, and more. Closing costs can vary significantly, but generally, expect to pay around 3% to 4% of the home’s price in closing costs.
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