Texas Home Mortgage Loan

Texas Home Mortgage Loan Tips

Not all mortgages are the same and knowing some basics on how to select the right Texas Home Mortgage Loan to meet your needs ensures that you will be a happy homeowner.

The variations of the many different mortgage options that are available can be significant. The most used mortgage options are basically two different types and the difference between the two is how their interest rate is determined. The two types are fixed rate mortgages and adjustable rate mortgages.

With a fixed rate mortgage, the interest rate stays the same, and your monthly mortgage payment amount never changes. However, with an adjustable rate mortgage (also called ARM's) they have an interest rate that adjusts periodically. They typically adjust every 12 months, but can change as frequently as every month.

The interest rate on the ARM is determined by what's happening in the market. When interest rates are going up, so will your ARM, and so can your payment. Conversely, when interest rates fall, ARM interest rates and payments generally fall.

ARM's can get homeowners in trouble if they don't plan for future changes. When interest rates are low, ARM's help you buy more of house. However, if your income doesn't rise (or expenses decrease) at the same time as interest rates rise, you can find yourself in trouble.

So, how do you choose between a fixed rate mortgage or an adjustable rate mortgage?

You are the one who is best positioned to make the call as to whether a fixed rate or an adjustable rate mortgage matches your financial situation and personality.

If you don't like change, then maybe a fixed rate is a better option for you. Fixed rate mortgages make budgeting and planning easier. However, ARM's allow you to get more of a house now. If your anticipating more income in the future and if interest rates were to rise causing your payments to rise, then you could be in a better position to handle the change.

Fixed Rate Pro's and Con's of a Texas Home Mortgage Loan

We already discussed that a fixed rate mortgage makes budgeting and planning easier, but what are the drawbacks of having a fixed rate mortgage?

The first is that you will pay a higher interest rate to get a lender to commit to loaning you money over many years. The longer the loan the more risk the lender has to take.

For example, if a lender agrees to loan you $100,000 for 30 years at a 7% interest rate and then interest rates begin to rise to 10, 12, or even 15 percent (like in the 1980's), then the lender is forced to pay depositers higher rates than what they are earning on mortgages. Not very profitable for the lender!

The second drawback to a fixed rate loan is if interest rates begin to fall, you are stuck with the higher rate of interest on your Texas Home Mortgage Loan. You can always refinance, but refinancing costs additional money and your financial situation may be different making it difficult to qualify.

Something else to consider with a fixed rate Texas Home Mortgage Loan are prepayment penalties. Some mortgages come with a clause that penalizes you for paying off the loan early.

Avoid loans with prepayment penalties. Many "no-points" loans have prepayment penalties.

Be sure and discuss prepayment penalties with your lender before going through the loan process. Also, carefully review the federal truth-in-lending disclosure and the promissory note that the mortgage lender provides you.

Adjustable Rate Pro's and Con's of a Texas Home Mortgage Loan

We already discussed that if interest rates rise, causing your payments to rise was a factor to consider with adjustable rate loans. Here are a couple of other things to consider.

First, because you are accepting the risk of a possible rise in interest rates with an adjustable rate mortgage, mortgage lenders will provide you with an initial lower rate of interest. This initial rate is typically lower than a comparable fixed rate loan.

Second, since the adjustable rate starts out lower, such a mortgage allows you to qualify to borrow more. Just because you can qualify to borrow more doesn't mean that you can afford it. Remember, you are the one that needs to decide if such a loan fits your financial goals.

If you are looking to buy or sell a home in North Texas and need help deciding what type of loan is right for you, please take a moment to fill out the form below and you will be put in contact with a top notch RE/MAX real estate professional who can handle your real estate needs including referring you to a mortgage lender.

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