Finding a Lender
Lenders may be found through several sources. In addition to calling on ads you may see in local periodicals or the newspaper, you may also find and apply to lenders over the internet. Or ask your Realtor for referrals as they are normally happy to suggest lenders based on those who have proven themselves competitive and capable.
Choosing the Right Lender
It is always wise to interview a few lenders to evaluate the following:
- Their ability to explain things clearly and return your phone calls in a reasonable time period.
- Competitiveness of interest rates, costs and fees.
- Availability of loan programs that suit your credit profile and desired property.
Choosing Your Loan
There are a multitude of loans on the market, so many so that it would be impossible to cover and adequately explain them all in this arena. Your chosen lender is your best source of assistance when it comes to selecting a loan program to suit your needs. Below is a summary of the three most popular loan types often seen in the industry today. As a borrower, one of your first choices is whether you want a fixed-rate or an adjustable-rate mortgage loan. All loans fit into one of these two categories, or a combination “hybrid” category, as explained in short terms below:
- Fixed loan:A fixed rate mortgage loan has the same interest rate for the entire repayment term. Because of this, the size of your monthly payment will stay the same, month after month, and year after year. It will never change. This is true even for long-term financing options, such as the 30-year fixed-rate loan. It has the same interest rate, and the same monthly payment, for the entire term.
- ARMs (adjustable rate mortgages):Adjustable-rate mortgage loans (ARMs) have an interest rate that will change or "adjust" from time to time. Typically, the rate on an ARM will change every year after an initial period of remaining fixed. It is therefore referred to as a "hybrid" product and is a loan which starts off with a fixed or unchanging interest rate, before switching over to an adjustable rate. For instance, the 5/1 ARM loan carries a fixed rate of interest for the first five years, after which it begins to adjust every one year, or annually. That’s what the 5 and the 1 signify in the name. However, it is important to understand the index, the readjustment interval, the capitalization rate and downside risks of an ARM before making a final decision to use this type of loan.
- Intermediate ARMs: Also called Hybrid Loans, these loans can offer fixed interest rates for the first 3, 5, 7 or 10 years after which the interest rate adjusts with the market every 6 months or year thereafter.