First Time Buyer Mortgages
The real first step into the wider world that homeowners take is when they successfully apply for their first mortgage. Like getting a credit card or a driver's license, becoming saddled with house-related debt is a rite of passage in America. First time homeowners need to understand what kind of mortgage is best for them, given their circumstances.
The recent credit crisis has left those looking to buy their first home with an incredible opportunity. For the first time, interest rates and home prices are low simultaneously. This affords first time home buyers with an incredible opportunity. They can finance their homes at very low rates while purchasing them at bargain prices. From the perspective of mortgages, this represents an opportunity to own their first home cheaply and securely.
In this type of market, for first time home buyers, a fixed-rate mortgage is probably the best one. With a fixed-rate mortgage, the interest rate stays the same for the life of the loan. For example, if the interest rate was 3% when the loan was originated, the interest rate will remain at three percent for the entire duration of that loan. This makes fixed-rate mortgages stable and predictable.
Even better, if the interest rate falls even further, the homeowners can always refinance their fixed-rate mortgage to that lower rate. In other words, a fixed-rate mortgage protects the borrower from inflation, where interest rates rise. In addition, a fixed-rate mortgage allows the borrower to take advantage of deflation in a concrete way, by getting a lower interest rate.
Obviously, the lower the interest rate, the faster the borrower pays back the mortgage and the faster they own their home free and clear. Moreover, if the borrower can afford to make a down payment, it is in their best interest to do so. The larger the down payment, the smaller the monthly payment will be, and the more the lender will like them because they reduce their risk.
Fixed-rate mortgages, because they are stable and predictable, let the borrower plan ahead for the long-term. This mortgage allows them to give serious thought to building wealth. Creating prosperity for themselves and their descendants is made possible with a mortgage that does not change or suddenly shift without warning.
For first time buyers, the fixed-rate mortgage is their best option because it frees them to focus on other important life events, such as having children.