Whats The Deal With Variable Rate Mortgages

(There are two primary components to buying a house; finding it and then financing it.)

If you are in the fortunate position to have a couple hundred thousand dollars stowed away somewhere and can afford the home of your dreams, then good for you. The rest of us need some assistance, though.

Therefore, mortgages come into play. When it comes times to applying for a mortgage, you have to do a lot of homework even prior to contacting an agent since there are many different options and programs available; you do not want to limit yourself.

Once you know the basics involved with the various available mortgages, you struggle to obtain the best mortgage with the lowest rates.

The article, "Teasing Me, Is Not Pleasing Me," written by Dale Rogers and posted on jumboloanrates.net provides some insight to what you should really expect when applying for alternative, nontraditional mortgages.

"Teaser rates on variable mortgage products looked great at the beginning. Borrowers are starting to come out from the affect of the ether and waking up to a rate that is in some cases DOUBLE from where they started. A lender would offer ½% to 1.0% below Prime rate (currently just increased to 8.25%) for say the first six months then go up to say just Prime."

As a borrower in search of the lowest possible rate, you want to believe the lender that if a particular rate is offered, it will be legitimate. Although adjustable-rate mortgages generally start at low rates and then adjust with the potential of being higher, they are increasing in popularity, they may not be in the borrower's best interest.

So then what should a first-time or novice borrower do?

"Many fixed rate mortgages are less than the Prime rate." This means that the rate you sign the mortgage for will remain constant for the duration of the mortgage which is usually about 30 years.

A fixed rate mortgage may be more beneficial for a borrower, especially if he or she desires a set payment they can rely on month-in and month-out.

"What was once a very cheap and attractive borrowing mechanism has now burdened the borrowing public with rising rates."

"I suspect those little voices from the past when parents and the like would share with their children, '.stay away from adjustable rate mortgages, they can bite you down the road.'"

Your mortgage choice should be rather obvious by getting a 30-year fixed rate if you intend on living in your new home for an extended period of time, say 10 years or longer. However, if you plan on only living in the home for two to three years then a fixed rate mortgage may not be very beneficial.

An adjustable rate mortgags usually does offer a lower rate for the first three to five years and then adjusts to the prime rate, but if you sell your home by then, you could potentially save thousands of dollars.

Take your time to understand as much of the mortgage process as possible. Your agent or a mortgage coach, like one of the highly trained coaches with LEI Financial, will be able to further assist you in your mortgage decision.

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