Real Estate Mortgage Loans
If you are a first time home buyer or have purchased many homes, the type of mortgage you select is very important in the State of Alaska.
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Below are the many types of mortgage loans available to the home buying consumer. There are many types of home mortgage loans within Alaska to select from with lots of different offers and home mortgage loan application decisions. In the past almost everyone applied for a 25, 29 or 30-year fixed interest rate home mortgage loan, the most common being a 30 year mortgage. Now, there are so many different mortgage options that are well targeted toward borrowers and individuals within Alaska, in different financial situations within the state of Alaska.
ARM (Adjustable Rate Mortgage Loans)
If you think you are only going to be living in your home for a few years an Adjustable Rate Mortgage is the best. An adjustable rate mortgage is also referred to by the acronym "ARM". ARMS's have a set interest rate for a number of years and a set monthly fee. The mortgage loan expense is usually based on the amount to payoff the entire mortgage balance at the end of the term, which is usually 30 yrs.
The most common types of ARMS are 1 yr, 3/1 yr, 5/1 yr and 7/1 yr ARM, After the initial period is over, the rate and term of the mortgage will be adjusted annually to current market mortgage rate if you do not refinance the loan. Most ARMs have caps on how much the interest rate may increase after the loan expires. ARMS are very popular because the rates are usually about 2-3% lower that a fixed rate which means lower monthly cost. The less number of years usually means the lower interest rate. A 1 yr ARM will have a lower interest rate than a 5/1 year term. ARM.
Fixed Rate Mortgage Loan
If you know that you are going to be in the house for a number of years then a fixed rate mortgage is best. A fixed rate mortgage is the most common home finance method and usually are 15 yr or 30 yr mortgage loan. A fixed rate mortgage loan is good if you know you will be living in your home for a long time and you don't have to worry about the cost of your mortgage loan increasing. Monthly loan expenses will be the same for the entire life of the loan. The first set fee will be the same as the last fee.
If home mortgage interest rates increase you have an advantage because your loan interest rate is locked-in at a lower rate which means your mortgage loan expense will not increase. But alternatively if interest rates drop your rate will not go down unless you refinance your mortgage. Rates went up to 18% at one time and as low as 4% recently so it is hard to tell what will happen in the future.
A 15 year home mortgage will have a somewhat lower interest rate but higher monthly payments vs a 30-year fixed rate mortgage loan. The advantages to this type of mortgage financing is that you will get more home-equity by paying down the principal balance. You also will have the loan paid off faster and will not have paid as much total interest when the loan ends. It could save you $100,000 or more in interest.
A 30 or 25 year home mortgage loan will usually have a higher interest rate than a 15 year and a lower monthly cost. This is a good type of loan to get if you are short on money or cannot qualify for the higher mortgage expense. If you start to make more money and want to pay off the mortgage balance faster. You also can just pay more money every month and apply it to the principle balance. Mortgage lenders rarely impose a penalty for paying off your mortgage quickly.
Interest-only mortgages
An interest only mortgage is where the borrower only pays the interest on the loan each month. This means property debt never declines. Many borrowers get this type of loan because the rates are real low and the cost is low. An interest-only mortgage may be good if you expect to earn a lot more in a few years and know you will be able to afford a higher mortgage cost later on where you can always refinance your loan. Some Alaska homeowners may choose interest only mortgages because they are going to invest funds and make money on the savings on the difference between an interest-only mortgage and a regular amortizing home mortgage loan with principle and interest.
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