A mortgage is a necessity for most people looking to buy a home, and homebuyers in Philadelphia fortunately have a number of mortgage options to choose from. The type of mortgage you get will determine how much you’ll pay each month, as well as how much you’ll end up paying over time. Depending on your budget, for example, you might choose to pay more over the life of the mortgage in exchange for paying less each month. Among the institutions offering mortgages in Philadelphia are banks, local credit unions, and independent mortgage bankers.
When it comes to mortgage options, this is a straight-shooter. The interest rate you’re offered when you take out a fixed-rate mortgage will be the same interest rate you’ll pay throughout the term. In Philadelphia, most mortgage companies and banks offer fixed-rate loans for terms ranging between 10 years and 30 years. With a 10-year mortgage, the monthly payment is higher, but the amount you pay over time is lower. Thirty-year mortgages, meanwhile, offer lower monthly payments, but more is paid over time.
The benefits of a fixed-rate loan include having the same monthly payment throughout the life of the loan and the ability to lock in a low rate for a period of up to 30 years. Some Philadelphia lenders will let you take out a fixed-rate loan with a down payment as low as 5 percent.
Unlike a fixed-rate mortgage, the interest on an adjustable-rate mortgage (ARM) fluctuates. The terms also vary; one mortgage lender might offer terms between one and 10 years, for example, while another offers a five-year term. The rate on a one-year ARM is adjusted based on the current interest rates after a period of a year. The rate on a 10-year ARM is adjusted after a period of 10 years. The initial interest rate for an ARM might be lower than the rate offered for a fixed-rate mortgage. In October 2013, for example, Bankrate’s average rate in Philadelphia for a five-year ARM was 3.16 percent, compared to 4.42 percent for a 30-year fixed mortgage.
Like fixed-rate mortgages, you can take up to 30 years to pay off the loan. Since the interest rate can be lower, you might qualify for a higher mortgage amount with an ARM than you would with a fixed rate. The big drawback with ARMs is that you have no way of predicting whether interest rates will skyrocket, fall, or stay as they are. For a more exhaustive look at ARMs, the Federal Reserve Board has a consumer handbook that explains everything in detail.
Federal Housing Administration Mortgages
If you’re a homebuyer with a limited amount of cash, many mortgage companies in this city offer the option of taking out a Federal Housing Administration (FHA) mortgage. FHA loans only require a down payment of 3.5 percent. In exchange, they guarantee the loan in case you default. To protect the FHA, however, you pay a mortgage insurance premium each month. FHA loans are ideal for buyers with limited cash and also for people with less-than-stellar credit scores.
The mortgage option that is best for you depends on what kind of house you want to buy, your income, and your credit history. Different lenders in Philadelphia will offer different interest rates, and the rate you’re offered one day could be substantially different from the rate you’re offered the next. Before you actually start looking at homes, it is a good idea to shop around with different lenders to find the one that offers you the best mortgage.
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