A FEW POINTS ABOUT INTEREST RATES!!
Interest rates are a large overriding factor involved in real estate purchases. Less is more If you're new to investing or real estate and don't know the first thing about interest rates. Here's a good tip: the higher the interest rate, the more expensive it's going to be. High interest rates mean you will have to pay back more on the money you borrow each and every month. So, while higher interest rates impact your payments, there are a myriad of options or "temptations" that make paying it more attractive. Is that good or bad? You tell me. Have you heard that old saying, 'there are those that makes it and those that pays it'. Which tale end of it are you on?
Two typical kinds of interest exist: variable and fixed. Fixed stays the same through the life of the loan and variable fluctuates according to how the national market economy is going. Traditionally, variable rates are seen as more risky.
I'd like to project my own terminology onto the industry to get you thinking by trying to contrast perhaps two different sets of ideas. I'll call these two sets of ideas as "conventional wisdom" vs. "entrepreneurial spirit". The conventional wisdom, let's say, would be represented by the 30-year fixed interest rate loan. This loan will weather out the storms and fluctuations of the market by always staying the same. It tempers the bad times, but does not benefit from the good times either.
Let's say entrepreneurial spirit is represented by an option loan that takes advantage of lower payments to begin with or of a lower variable rate or of an interest only scenario. The thought process here is not necessarily toward more risky if the holder plans to move quickly or soon enough to avoid consequences associated with not paying down the principle on that loan. Rather the "entrepreneurial spirit" see's rather the opportunity involved in making more money in equity (money in or out of the house) through an increased selling price over and above what they paid for it. The money in the house, in this instance, will not have come from building equity through paying down the principle, but rather in the increased price for that home upon selling it.
Now this example is limited because conventional wisdom would take into consideration, for example, the circumstance of not living in the home for more than 3 years and perhaps in choosing a different loan. So, each person/family must way their options carefully before "locking-in" (for the duration of that loan scenario).
Another good rule of thumb is that affordability increases if you use an adjustable rate mortgage (it's easier to qualify this way). Often a lender will get you in the door with an interest rate that is fixed and low to begin with for 3 to 5 years, but turns into a variable rate there after (what ever the going variable rate will be then). Of course, there will be a wide range of prices that you can choose from, depending on what kind of financing you choose.
Mortgage interest rates are affected by many unpredictable political, economic and social events. So there is no guarantee what direction interest rates will go, despite the forecasts of the experts. Therefore, make your financial decision based on where things are today including your budget, your needs and your future plans.
When you prepare to buy, you can get pre-approved, which guarantees you a loan. In procuring that process further, from the time you apply and the time that the lender sends the funds to fund on a particular purchase, the interest rate you were quoted can fluctuate. If you do not want the risk of it going higher you can pre-lock it in for a small fee of course.
Locking-in a rate, as in an option to buy (lend) at a given interest rate comes with a time table. If you do decide you want to lock-in at a certain interest rate, you will need to complete application and other paper work and requirements in to your lender as soon as possible. This must be done so that your "lock" doesn't run out before your loan is approved. Follow-up and be sure that the lender is receiving all of the necessary documentation.
Later, upon purchasing, get a property appraisal (standard that the lender requires for their protection), which usually costs about $300, through your loan agent, as soon as possible. Don't obsess and miss a good real estate deal.
Although rising interest rates can create more problems for home buyers, waiting and hoping for low rates is not necessarily a smart move. You may end up paying a higher price for your home. Also remember that, refinancing is always an option in the event that interest rates come down. Don't forget all the service costs associated with doing this.
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