Once you understand all the mortgage requirements, have saved up a down payment and gotten preapproved, you’re ready to start shopping for that new home. One of the other financial matters that you need to look at is the mortgage types that are available to first time home buyers. Following is a quick overview of some of the things that you’ll need to know.
A fixed rate mortgage, as the name implies, is one where the interest rate doesn’t change for the entire term. These have their advantages in that the first time home buyer can work out the amount that goes to the principle and interest every month. On the other side of that coin, the variable rate mortgage has an interest rate that moves with the market fluctuations. When the rates are lower, you pay more off, but as those same rates climb, you won’t be paying off as much.
As you’ve no doubt heard by now, saving for a sizeable down payment has a few distinct advantages. Perhaps one of the biggest benefits is the fact that if you save over 20% of the valuation or purchase price of the new property, you won’t be required to pay mortgage default insurance. If you can only come up with less than the 20%, your mortgage needs to be insured against default by a mortgage insurer. Essentially those are the differences between a conventional and high ratio mortgage.
Finally, you’ll want to look at one more set of terms when you’re putting together a library of mortgage types and that’s the open versus closed mortgage. As the name suggests, an open mortgage gives you the opportunity to pay any amount on your mortgage at any time. A closed mortgage requires you make set payments at regular times and negotiate if you want to pay off any extra.
