15-Year Fixed vs. 30-Year Fixed Rate Mortgages

As far as fixed rate mortgages go, you have two main term options: 15-year or 30-year. But what’s the difference between the two aside from how long they are? How do you know which option is right for you? Read on to find out!

 

What is a Fixed Rate Mortgage?

A fixed rate mortgage has an interest rate that remains the same for the entire life of your loan. This is in contrast to adjustable-rate loans which allow for yearly adjustments to the interest rate following a period where the rate is fixed. An important benefit of fixed rate mortgages is that since your rate is locked in and your monthly payments are predetermined, it’s easier to budget for and there are no surprises.

 

15-Year Fixed Rate Mortgages

15-year fixed rate mortgages have a term of 15 years. The primary benefit of a 15-year fixed mortgage is that you’ll save money on interest since you won’t be paying off the loan for as long. You also build equity in your home faster as a result. In many cases, you’re also able to secure a lower interest rate. You’re paying your home off twice as quickly compared to a 30-year fixed mortgage, so you’ll own your home and complete payments sooner. However, your monthly payments will be higher with a 15-year fixed mortgage than they would be with a 30-year one.

 

30-Year Fixed Rate Mortgages

 

30-year fixed mortgages have a term of 30 years. The primary benefit of a 30-year fixed mortgage is that your monthly payments are lower compared to that of a 15-year fixed rate mortgage. You may also qualify for a more expensive home with a 30-year fixed mortgage since you have longer to pay it off. That said, you also have to keep paying on it longer which means you pay more in interest than you would with a 15-year fixed mortgage.

 

Which Mortgage Term is Right for Me?

 

Whether a 15-year or 30-year fixed rate mortgage is going to be your best option depends on numerous factors. A key one to look at is how much you can afford to spend each month. If you’re able to afford higher payments, a 15-year fixed mortgage may be right for you. But if you’re concerned about being able to save for things like retirement, education, and emergencies, then the lower payments of a 30-year fixed mortgage may benefit you more. If you want to borrow a larger amount than you might otherwise be able to, a 30-year mortgage is probably your best option. However, if you’re more concerned with minimizing how much you pay in interest, a 15-year fixed rate mortgage is likely the way to go. It really depends on your financial situation and goals.

When it comes to determining the best loan option for your unique situation, your best bet is to talk things over with a knowledgeable professional. Contact one of our experienced Loan Officers today to discuss your options and learn more!

Questions to Ask When Applying for a Mortgage

There are a lot of factors to consider when beginning your journey towards a home loan. It can seem overwhelming at first, especially if you’re a first-time homebuyer. There are some questions you can ask your Loan Officer that can help clarify the situation and get you on the path to the best possible mortgage solution for your needs. Here are some of the questions that may prove helpful when pursuing a new mortgage.

What Types of Loans Are There?

There are many mortgage loan options available and it’s important that you understand what they are so you can ensure you choose the best one for your unique situation. Your Loan Officer should explain the difference between fixed and adjustable rates, the different terms available, and additional special programs you may qualify for. While you don’t need to be an expert on every loan option on the market, you should feel like you have enough of an understanding that you know the loan product you and your Loan Officer choose is the right one for you.

Do I Qualify for Any Special Programs?

When it comes to special programs and loan types, your Loan Officer will need to ask you some questions to learn more about you and your background in order to determine whether you qualify. For example, to qualify for a VA home loan, there are certain military requirements you must fulfill in order to be eligible. Your Loan Officer should also be able to fill you in on various other special programs such as down payment assistance programs or special programs for first-time homebuyers.

How Much Home Can I Afford?

Getting prequalified can help you determine how much you can afford to borrow. Prequalification offers an estimate of how much home you can afford based on your finances and credit. It’s beneficial to consult a Loan Officer prior to starting your home search as you’ll know what your budget is so you don’t waste time looking at homes beyond what you can afford.

What Is My Interest Rate and APR?

It’s important to understand what interest rate you’d be getting on your loan. You should be able to receive a quote from your Loan Officer. You may also want to discuss locking in your interest rate if it’s one you want to ensure doesn’t change. Additionally, you’ll want to ask about the annual percentage rate, or APR, for your loan. The APR is the annual cost of a loan expressed as a percentage and factors in fees and other charges.

How Much Do I Need to Save for a Down Payment?

How much you need to put down depends on your particular loan type and any special programs you may qualify for. The rule of thumb is generally 20 percent of the purchase price but sometimes you’re able to put down far less—or even nothing at all. However, be sure to ask about private mortgage insurance, or PMI, which you’ll likely have to pay if you put down less than 20 percent.

These are just a few of the many questions you can ask at the start of the mortgage process. When you work with an experienced Loan Officer, they will be able to answer these questions and more so you have a solid understanding of what to expect. If you’re thinking about buying or refinancing, contact one of our knowledgeable Loan Officers today to get your questions answered.

Understanding Refinancing

Before you decide to refinance your home loan, it’s important that you understand how it works. Refinancing can seem confusing or overwhelming, but it doesn’t have to be.

What is Refinancing?

Refinancing is the process of replacing your existing mortgage with a brand-new loan. In short, refinancing presents an opportunity to improve your current mortgage. It involves getting a new loan with new terms and using that money to pay off your old loan.

Reasons to Refinance

There are numerous reasons you may choose to refinance. Refinancing with a lower interest rate could result in lower mortgage payments, leaving you with extra money each month to save or spend on other things. If you refinance to a shorter loan term, you may see slightly higher monthly payments, but you’ll build equity faster and pay off your mortgage in less time. When it comes to cash-out refinances, you can turn your equity into cash that you are free to access and spend without tax penalty.

Is Refinancing Right for You?

Whether refinancing is right for you depends on lots of different factors. It’s important to consider your financial goals. Do your goals include lowering your monthly bills or shortening your loan term? Goals like these may be accomplished through refinancing. You should also look at your credit score. If your credit score falls within the exceptional or very good range (800+ or 740-700, respectively), you’re in a better position to refinance with a lower interest rate. How long you plan to stay in your home matters, too. Because of closing costs, it can take months or even years to break even and truly see savings. If you are planning to move or sell soon, refinancing may not be the best option. However, if you plan to stay in your home, it could save you money in the long run. If you’re thinking about making home improvements such as finishing a basement, remodeling a kitchen, or installing a new roof, cash-out refinancing may be the right move for you so you can put that money towards increasing the value of your home.

If you think it may be time to refinance your mortgage, contact one of our experienced and knowledgeable Loan Officers today to learn more and explore your options!

New Conforming Loan Limits for 2021

LOAN LIMITS FOR FANNIE MAE AND FREDDIE MAC INCREASE TO $548,250 IN 2021, AN INCREASE FROM $510,400 IN 2020.

The Federal Housing Finance Agency has announced the Fannie Mae and Freddie Mac conforming loan limits for mortgages for 2021.

Each year, the baseline conforming loan limit is adjusted accordingly with the change in the average U.S. home price. House prices during the third quarters of 2019 and 2020 have increased by 7.42 percent on average; therefore, the Federal Housing Finance Agency is increasing 2021’s maximum conforming loan limit by the same percentage. This marks the fifth year in a row that there has been a limit increase by the FHFA. The baseline loan limit has increased by $131,250 since 2016.

The limit is different in some places known as high-cost areas. These are areas in which 115 percent of the local median home value is higher than the baseline conforming loan limit. The Housing and Economic Recovery Act establishes the maximum loan limit in those areas while also setting a ceiling on that limit which is 150 percent of the baseline loan limit. The new ceiling loan limit in most high-cost areas for 2021 will be $822,375, which is 150 percent of $548,250.

Here at First Home Mortgage, we continue to provide the highest level of customer service while adhering to social distancing guidelines. Our innovative communication technologies allow us to exceed your expectations while keeping everyone as safe as possible.

If you are considering purchasing or refinancing a home, please contact one of our Loan Officers today!

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