If you’re looking to buy a new home, you’ve probably heard a lot about mortgages. But we’re not all bankers: there are a lot of complicated details about mortgages that are foreign to people who do not have experience with them. For a mortgage in Waco, TFNB Your Bank For Life can offer wonderful plans to fit your needs. But first, let’s answer some of your questions.
What is a Mortgage?
Let’s start at the beginning. A mortgage is a type of loan that is used to buy a home. Getting a mortgage is the most common way to purchase a home, because most people cannot afford to pay such a big expense in full. The mortgage helps you to spread the payment out over a set time period, usually 15 or 30 years.
It consists of a down payment and interest payments. Your lender gives you an amount of money to buy the home, called the principal, and you agree to pay back the principal over a fixed time period with interest. The down payment is what you pay back upfront. The more you pay in your down payment, the less you pay over the course of the loan term—that ultimately means less interest you have to pay in the long-run.
What Should My Down Payment Be?
Your down payment should be an amount you are comfortable paying right away that won’t leave you struggling to pay for other necessities. A small down payment can help you right now, but a larger down payment has many benefits in the long term. Some benefits of a large down payment are:
- A better interest rate
- Lower fees
- More initial equity in your home
- Lower monthly payments
There is a common misconception that you must put 20% down on a home, but that’s not necessarily true for the majority of homeowners. Most Americans put between 6-12% down on a home. Think about your personal financial situation. If you have a lot of money saved in the bank, but a low monthly income, it is beneficial to put down as much of a down payment as you can afford, as this will lower your monthly payments. However, if you do not have much saved up in the bank but a reliable monthly income, you can put down very little initially and pay more each month. There is no one-size-fits-all down payment. It’s about what fits your lifestyle best.
What Should I Know About Interest Rates? What is a Good Interest Rate?
Interest rates can be determined by several different factors. However, there two main criteria that most banks weight heavily when determining loan terms:
- Current market trends
- The amount of risk the lender is taking
In many cases, the risk assessment of your lender has to do a lot with your credit score. If you have a good credit score from paying things on time over your credit history, the risk is lowered. If you have a bad credit score, you may have to pay higher interest because the bank sees you as a higher risk.
Even a small change in your interest rate could result in thousands of dollars of difference over the course of your mortgage, so it’s important to pay attention to your options. The current average interest rate for a 30-year mortgage is 4.31%.
Should I Get a Fixed-rate Mortgage or Adjustable-rate Mortgage?
A fixed-rate mortgage locks in your interest rate for the entirety of the loan term. This means that your interest rate will never change while you’re paying off your mortgage. An adjustable-rate mortgage (ARM) begins with a fixed interest rate, but after a set time the interest rate can go up or down each month. But what are the benefits of each?
A fixed-rate mortgage will allow you to lock in a set interest rate for the entire loan, making it easier to anticipate and budget for monthly payment amounts. You also know that your interest rate will never go up.
ARMs typically offer lower initial interest rates before they begin to change. But after that, ARMs can get a bit difficult to plan for. You might choose an ARM if you plan to sell the home or refinance your mortgage before the rate significantly changes. When choosing your mortgage in Waco, you should think critically about both ARMs and fixed-rate mortgages. Each option has its own unique benefits and applications to serve best in different situations.
Should I Get a 15-Year or 30-Year Mortgage?
The most common mortgage lengths are 15 and 30 years. So, what are the pros and cons of each?
One of the advantages of a 30-year mortgage is that it is safe and predictable. You’ll have a lower monthly payment, giving you room for financial ups and downs over the next 30 years. It ties up less of your budget, so you can spend more in other areas each month. A 30-year mortgage can also make lenders more likely to lend you more money. If you’re planning to buy an expensive home or see yourself living there for a long time, a 30-year mortgage in Waco might be the way to go. And, of course, you don’t have to wait the full 30 years if you don’t want to! You can always make extra payments to pay your mortgage off quicker.
30-year mortgages also come with their disadvantages. Your interest rate will be higher on a 30-year mortgage, meaning you will pay a lot in interest over the course of your mortgage. Your total amount paid will increase as the length of your mortgage increases. And, a 30-year mortgage means you’re stuck with monthly payments for longer.
A benefit of a 15-year mortgage is that you will have a lower interest rate and will pay a lower total amount over the course of your mortgage. This will save you a lot of money over time. Plus, you’ll be mortgage-free a lot sooner, freeing up your budget from mortgage payments.
However, a 15-year mortgage will tie up more of your monthly budget with larger monthly payments. This means you’ll also have less money available to invest.
TFNB additionally offers loans of 20 and 25 years, which can be a happy medium for many home buyers.
What is Refinancing? When Should I Consider it?
Refinancing is the process of taking out a new loan to completely pay off your current loan. From then on, your monthly payments go toward the new loan.
There are a few reasons why you might want to refinance your mortgage in Waco:
- Lower the interest rate
- Shorten the mortgage’s term
- Lower the monthly payment
- Switch to a different mortgage type
Refinancing is beneficial when interest rates have decreased. By refinancing, you will be able to get a better interest rate, thereby decreasing the amount of interest you are paying each month. Lower interest rates through refinancing can also be achieved if your credit score has improved since you first took out the mortgage.
Refinancing may be a bad idea if interest rates have increased. You’re not likely to get a lower interest rate if they are trending upwards. It’s also not a good idea to refinance if you don’t plan to stay in your home for long. The closing costs of selling your home can exceed the money you will save by refinancing.
What is Private Mortgage Insurance?
Private Mortgage Insurance (PMI) is an insurance you pay to the lender to protect the lender in case you default on your mortgage. Whether or not you’ll have to pay a PMI depends on the amount of your down payment.
PMI typically ranges from between 0.58% to 1.86% of the original loan amount each year. The cost of PMI can be influenced by a variety of factors.
- The size of the mortgage loan: the more you borrow, the more you will pay in PMI
- The down payment amount: the more you pay upfront, the less PMI you will pay
- Your credit score: a good credit score will decrease the size of your PMI
- The type of mortgage: PMI may cost more with an ARM than a fixed-rate mortgage, because this loan is riskier for the lender
Once you have more than 20% equity in your home, your PMI should end and you can just focus on your normal monthly payment.
Where Do I Go for a Mortgage in Waco?
Whether you’re a first-time homebuyer or a real estate guru, TFNB Your Bank For Life has home loan experts ready to help you. We would be happy to meet with you and discuss your options for a mortgage in Waco. Unlike national chains or corporate banks, we look at you as a person—not an account number.
Our personal approach helps us (and you) find the home mortgage that sets you up for long-term financial success. Even with our personalized approach, we offer flexible mortgages in Waco just like corporate banks or mortgage lenders. With 30, 25, 20, and 15-year ARMs, you can choose a timeframe that fits your financial goals.
To get started with a mortgage in Waco, or to ask us more questions about home loans, set up a mortgage consultation with TFNB today!
