First Time Home Mortgage

Fixed Home Loans (Fixed Interest Mortgage)
Adjustable Rate Mortgages (Variable Mortgage)
Balloon Loans
Hybrid Loans (Hybrid Home Loans)

With fixed home loans your interest rate stays the same for as long as you have the mortgage.

To start with, the interest rate will probably be higher than with other types of mortgages.

But better than those other types of mortgages, better than rent, you always know what you need to pay each month. And your monthly payment will never go up.

Advantages:
You can easily plan the rest of your life because your mortgage - probably your largest single monthly payment - is rock steady. It's not going to move.

Disadvantages:
Interest rate is usually higher than that of other mortgages. At first.

With adjustable rate mortgages, also known as variable mortgage, your interest rate will change as market rates change. It could go up or down.

Your lender could calculate and adjust your interest rate once a year, once a month, even bi-weekly. So some months you could pay less, some months you could pay more.

It's not something you can control. Too many homes on the market or a change in the rate of inflation, for example, will affect your interest rate.

The thing is, your mortgage will have a low interest rate to start with. It will look like it is more affordable ... Well, it is more affordable. To start with.

Then the rates - and your mortgage payments - change. They go up. And then they keep changing. You will need to find a way to plan for all these changes.

Advantages:

• The lower interest rate at the beginning could make it so you can afford more of a mortgage.


• The lower interest rate at the beginning could make the mortgage you might have had in mind, cheaper.

Disadvantages:

• The rates will change. That's not so easy to plan for.


• The rates will change. They'll go up. And that mortgage you were able to stretch to will become a lot less affordable.


• Unless you are disciplined and plan for the change, the mortgage that was cheap to start with will end up taking a lot of your spare cash, and affecting your lifestyle dramatically.

Your Unfair Advantage
It's important you get the answer to 12 questions before you decide to sign up for any variable mortgage.

The answers you get will make it a lot easier for you to decide if that mortgage is the right one for you.

These 12 questions will also give you a simple way of planning for the changes that come with a variable mortgage - if you do decide to have one.

Here they are --> First Time Home Mortgage Checklist For Adjustable Rate Mortgages

When you take out a first time home mortgage with balloon payment, your rates are fixed for a short while - 2 to 7 years. Then you need to pay off the whole mortgage at once - this is the balloon payment.

This balloon payment will have to come from either your savings or another mortgage - a refinance.
In fact, some balloon loans come with a refinancing option. They allow borrowers to convert to a fixed interest mortgage

Advantages:

• Interest rate is usually lower than 30- and 15- year mortgages.


• Monthly payments are lower.


• This could be very good if interest rates had dropped a lot by the time you came to re mortgage.


• If you refinance when the balloon payment is due, the process should be straightforward, You shouldn't need to re qualify, nor your home be re approved.

Disadvantages

• You will have to come up with a lump sum to pay off your lender.


• You don't get favourable rates locked in place. So, it could be quite costly if interest rates have soared at the time you need to refinance.


• There are conditions.


• Expect a processing fee

Hybrid loans are creative combinations of fixed and adjustable rate mortgages. They are 2-part mortgages.

Here are some common hybrid loans:

Fixed-Period Adjustable Rate Mortgages
Part 1 is a fixed interest mortgage which can last three to ten years.
Part 2: The mortgage becomes a variable mortgage for the rest of the mortgage.

For example, 5/25 Hybrid Loans start off as 5 year fixed home loans. Then they become adjustable rate mortgages for the next 25 years.

Two-Step Mortgage
Part 1 is a fixed interest mortgage which can last up to seven years.
Part 2 is another fixed interest mortgage based on the interest rate at the time the change-over happens.

Convertible Adjustable Rate Mortgages
Part 1 is a variable mortgage.
Part 2: You can choose to convert to a fixed interest mortgage, at specific times, based on rates at the time.

So if you see interest rates start to rise, you can fix your mortgage at that point.

Note: Expect to pay a conversion fee.

Convertible Fixed Interest Mortgage
Part 1 is a fixed interest mortgage.
Part 2: The mortgage remains fixed but you can adjust your interest rate to going rates.

So if interest rates drop, you can reduce your mortgage rate and take advantage of the reduction.

Note: a) Expect to pay a conversion fee, b) There are conditions

So far we've looked at the types of mortgages - the choices - you have.

Now to establish how much you can afford.

Once you've done that, you'll be able to compare different mortgages against your own figures. Then you'll start to see realistic (and hopefully thrilling) possibilities open up...

But, for now, how much can you afford to borrow?

Here's how to find out:

1. Write down everything you spend and everything you earn (your complete budget)
2. Add up everything you earn
3. Add up everything you spend (less rent if you're paying rent at the moment)
4. Take your total spend (3) away from the total amount you earn (2)
5. Add up all your savings. Keep this figure separate.

The figure you get at step 4 above = the maximum amount of money you have to spend in mortgage payments.

The figure you get at step 5 above = your down payment plus costs.

Now you can take your figures and go and see what sorts of mortgages you could be offered, right here:

First Time Home Mortgage Notes, Checklists And Tips

Once there, do look out for lots more help and guidance on where to go next.

Here are a few reminders:

• You'll make this quick and easy if you gather all your paperwork together first. You want all documents that have to do with any money you've spent in the last 3 months, and any money you've earned (or been given).
  
  Documents such as: bank statements, credit statements, shopping receipts, payslips.


• Always overestimate rather than underestimate. This way you won't come up short.


• Don't forget your more occasional expenses like Thanksgiving, trips, gifts. Easiest thing to do is: Add all these items up for the year then divide by 12 to give you a monthly figure.


• If your pension comes straight from your salary as a payroll payment, don't include it in the budget, just take the amount you receive after all deductions. If, however, you send a cheque or have a payment from your bank account each month to pay into your pension, then you do need to include these payments in the budget.


• Because the amount you spend on items such as groceries differs from week to week, you can add up all you've spent on each item in the last three months and divide by three to get your average monthly spend.


• Check everything thoroughly.


• You must be completely honest with yourself. Remember, you don't have to show this budget to anyone. And it's a million times better for you to discover any uncomfortable truths about your finances, now, and fix it, than to be unpleasantly surprised and embarrassed later.

What's next?

How to get preapproved for a mortgage ->
First Time Home Mortgage Notes, Checklists And Tips