San Diego Mortgage and Home Buying Tips
If you need tips and advice on San Diego home loans and home buying then you've come to the right place!
Choosing a San Diego Home Loan
Choosing your San Diego home loan will be one of the most important financial decisions you will make during your San Diego home buying process. Specifically, the type of mortgage loan you choose (fixes vs. variable, for instance) will play a large role in your financial future.
Thus, when choosing a San Diego home loan, it’s very important to consider each type of mortgage loan carefully to assess the pros and cons and how they apply to your home buying situation.
Only the Home Buyer Can Decide
I often get asked the question, “Which type of home loan is right for me?” But in truth, this is not a question I can answer for somebody else. The only person who can make that kind of home-buying decision is the actual home buyer.
With that “disclaimer” out of the way, I can certainly offer advice on which type of home loan you might consider, mainly by pointing out the pros and cons of each type of mortgage. This will at least help you make an informed decision regarding San Diego home loans.
Types of San Diego Home Loans
When choosing a type of home mortgage loan, the best way to begin is to narrow the field. For example, you should first decide between a fixed-rate and adjustable-rate mortgage loan, and you can make that decision by learning the pros and cons of each.
The major difference between San Diego home loans has to do with their interest rates. All home mortgage loans are either (A) fixed-rate or (B) adjustable-rate. Of course, there many different loan options within these two categories, but it all starts with the fixed vs. variable classification.
As the name implies, the interest rate on a fixed-rate mortgage loan will never change, regardless of what the economy does. On the other hand, the interest rate on an adjustable-rate mortgage loan (or ARM loan) will adjust periodically during the life of the loan.
So this is the first decision you must make when choosing a San Diego home loan — fixed or variable rate. To help you make that decision, I’ve summarized the pros and cons of each:
Fixed-Rate Mortgage Loan: Pros & Cons
As we’ve said, a fixed-rate mortgage keeps the same interest rate over the life of the loan. As a result, your monthly mortgage payment does not change.
This payment certainty is the primary benefit of a fixed-rate home loan. No matter what the economy does, you will always know what your interest rate will be. The downside is that you’ll pay a premium for this predictability, in the form of a higher interest rate.
When a San Diego mortgage lender grants you a fixed-rate home loan over a lengthy period (such as the standard payment period of 30 years), the lender takes on a certain amount of risk. If the prime interest rate goes up during the life of your loan, you will not have to pay the difference — but the lender will. This is why they charge a higher interest rate than with an adjustable-rate mortgage (next topic).
Adjustable-Rate Mortgage (ARM) Loan: Pros & Cons
If you choose an adjustable-rate mortgage, you will probably start off with a fixed rate for an initial period of time. This initial period will commonly last for 3, 5 or 7 years, and the rate you pay during this period will likely be lower than the rate on a regular fixed-rate mortgage. This is the lure that draws many home buyers into the ARM loan.
After the initial period, however, the loan converts to an adjustable-rate. There’s actually a lot of this going on right now, in San Diego and elsewhere across the nation. Many homeowners with adjustable rate mortgage are facing huge payment increases as a result of their mortgage adjustment.
An ARM loan may be a good choice if you only plan to live in a home for a few years. That way, you could benefit from the lower interest rate during the initial period, but sell the home before the uncertainty of the adjustment period.
Narrowing the Field
When you have decided between the adjustable-rate mortgage and the traditional fixed-rate mortgage, things will be a lot easier. By making this decision first, you will narrow your Sand Diego home loan options quite a bit. Then it’s just a matter of examining the different types of loan offers / products under the classification you’ve chosen, and picking the one that best accomodates you.
More information on types of home loans.
Happy home buying, San Diego!