A lot of people think that the best financial deal is a 15 year fixed rate mortgage. I guess we have all heard of the home stimulus package where the government pumped billions of dollars into the economy in order to get home owners to refinance their mortgages, and they are making good on that promise. But what do you do with your fixed rate mortgage? This article will talk about options you have for a 15 year fixed rate mortgage and how some of them may benefit you.
If you have a solid income and you plan to stay in your home for at least the next 15 years, you should definitely look into getting a fixed rate mortgage. But, what type of fixed-rate loan can you qualify for? There are basically two options. They are interest only and repayment only.
An interest only loan allows you to make interest only payments every month. Every dollar you pay goes to paying off your principle which is the loan amount plus any interest. So, your monthly payment never increases no matter what. The advantage to this is that you will probably get a lower monthly payment than you would with a repayment loan. You will, however, end up paying more in total due to the compound interest.
But, what if you want to refinance? Then you need to go with a repayment loan. The repayments you make will add to your principle so your payment will increase each year until you finish paying off your loan. It’s really a good deal like a car loan but with fixed rates. You’ll usually get a slightly better deal than with an interest only mortgage. Also, it is tax deductible.
Another option is a balloon loan. With this option you sell part of your home and use the proceeds to pay off the balance on your new loan. You do not get to keep the home and will not be able to deduct the interest paid on the new loan. However, if you can sell your home for a profit, the full face value of the loan can be capitalized.
A fixed rate refinance is a very big decision so you need to make sure you understand everything involved before going through with it. Make sure you understand the options and how they work. You need to know the basics and be able to explain them to any lender. If you don’t you could end up losing your home if you make a mistake when calculating the costs or the option price. This is why it is so important to get the facts right and to not get caught out by the salesperson.
When you finally decide on a fixed rate, it’s always a good idea to get some professional help. Your lender should be able to provide one. Also check with your tax adviser, this may be a good way to lower the tax you have to pay on your loan. If you have a lot of debt, you could also talk to a debt consolidation company. They will be able to give you advice on your budget, how to reduce your debt, and how to find the best loan for your circumstances.
If you feel uncomfortable with the options available to you, there is no need to panic. Just make sure you understand the process completely before moving ahead. A lot of people who are going through difficult times opt for this option because they want to make a fresh start financially. Just make sure you do this in the right way, and take some time over the next few months to see if your financial situation improves.