When purchasing a home, people typically must qualify for a mortgage under one of three scenarios: a fixed rate, a graduation rate, or an adjusted rate mortgage. One of the mortgage choices is a 30 year fixed mortgage. By going with this option, borrowers are able to get a set percentage rate on their mortgage. Over time homeowners will earn more and more equity into their own home. After 30 years, they officially own the house. The 30 year fixed mortgage is most ideal for first time home buyers, typically those just out of college.
The other option for potential home owners is going after the graduation rate or adjusted rates mortgages. The similarities with these two rates is the fact they are both back heavy with their interest rates, resulting in homeowners paying a higher amount later in the life of their mortgage. The ideal term for either a graduation rate or adjustable rate mortgage (ARMs) is normally the 15 year mortgage. Graduation rates or ARMs could potentially start as low as 4 percent for the first several years of the mortgage before the interest starts to rise.
Graduation rates, or ARMs, could potentially start as low as 4 percent for the first several years of the mortgage before the interest starts to rise. By the end of their mortgage life, homeowners could be paying as much as 15 percent on their house. Refinancing refers to the replacement of current debt obligations with a different debt obligation under different terms. If refinancing comes under circumstances regarding cash problems, it can be known as debt restructuring.
Many people assume their salary will be going up as their mortgage goes on, but things do not always happen like this. When salaries do not go up by the time the interest rates start to climb, people look into refinancing. By refinancing, homeowners can try and get another 15 year graduation rate or ARMs with smaller payments again. This is one reason someone could potentially be turned down for a mortgage. Brokers and mortgage underwriters look at what they make now, not what their potential income is.
Another potential problem for those homeowners who want to use a graduation rate is the fact that not every mortgage broker will use a graduation rate because of the risk of not being able to qualify for a potential mortgage and pay the mortgage off to its fullest extent. Graduation rates and ARMs are typically in the best interest of the wealthy or of the older generation.