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Stephen C. Bach CFP®
Financial Advisor
7:12 Financial LLC
309 Henry Lane
Wallingford, PA 19086
610-892-1718 (Phone/Fax/Text)
712financial@lincolninvestment.com
July/August 2022
Mortgages: One Size Doesn't Fit All
The state of the economy has a lot to do with interest rates, including the rate you’ll pay on a mortgage loan. But other factors go into the loan equation. Your credit score, the amount of your down payment, the kind of mortgage you’re applying for and the term help determine your interest rate.
There are several types of mortgages. Your personal circumstances will dictate which option best fits your situation.
Conventional Loans
Conventional loans offered by banks, credit unions and lending companies account for the largest percentage of mortgages. A borrower must have a good credit score and a sizable down payment—at least 20% of the purchase price, the threshold for not having to pay PMI (private mortgage insurance). PMI protects the lender in case of default and typically adds a substantial amount to monthly mortgage payments.15 or 30?
Conventional loans come with 15- or 30-year terms. Monthly payments on a 30-year mortgage are lower, but you’ll pay significantly more in interest over the life of the loan. Borrowers who are comfortable with a higher monthly payment should consider a mortgage with 15-year term, which typically offers a lower interest rate.Fixed versus Adjustable Rate
Lenders may offer both fixed-rate and adjustable-rate mortgages. With a fixed-rate mortgage, payments remain the same for the life of the loan. With an adjustable-rate mortgage (ARM), the interest rate rises, or falls based on market conditions. Although rates may start off low, borrowers’ risk higher rates in the future. ARMs are more suited to buyers who don’t plan to stay in a home long term.Government-backed Loans
FHA loans require a smaller down payment and may be appropriate for borrowers who don’t qualify for conventional loans. Borrowers must pay a mortgage insurance premium (MIP), generally for the loan’s term.
VA Loans are available to servicemembers, veterans, and eligible surviving spouses. This is a lifetime benefit that can be used multiple times. VA loans offer competitive rates and limited closing costs and do not require a down payment or private mortgage insurance.
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