Sources of Mortgages

Mortgages can come with fixed or variable interest rates, and the ability to pay is the most common determinant of choice.

Sometimes, you can buy down interest with upfront payment of (tax deductible) mortgage points.  Each point is worth 1% of the loan amount and it usually lowers interest rates by 0.25%.

Fixed Rate Mortgages

A fully amortized fixed interest rate loan monotonously demands the same payment over years and the interest will not fluctuate.  Typically, these run for fifteen or thirty years and they can be paid off early, Historically, roughly three quarters of buyers chose this path.  The long term and relatively low interest may make fixed rate loans affordable.

Variable Rate Mortgages

Consumers may choose ARMs to get lower initial rates of interest if they have reason to believe their income will rise or they expect to move in a short time.  But they face risks that rates will rise based upon market interest rates beyond their control, so payments may even double.

Riskier Loan Options

Generally, borrowers can repay loans early, but there may be prepayment penalties in some contracts.  The stiffest contracts have balloon payments which require complete repayment of the loans at some early stage.  Typically, these are construction or hard money loans that must be refinanced.  The lowest payments come with interest only loans or loans with negative amortization that increase in size—like reverse mortgages.  These allow use of realty but only with more debt.

“The two questions that anyone ever asks me are: ‘Are house prices going to go down?’ and ‘Is it a good time to fix my mortgage rate?'”

-Evan Davis