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June 23, 2021

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Fixed and Variable Interest Rates: Which One's For You?

Fixed and Variable Interest Rates: Which One's For You?

Fixed interest rates are stable, but variable rates may save you money.

Which may be right for you? Read this article to find out!

First, some housekeeping—what’s the difference between fixed and variable interest?

It’s exactly what it sounds like. A fixed interest rate remains the same throughout the life of the loan. Variable rates, however, are typically tied to another interest rate. If that rate changes, your rate changes.

So what does that mean for you?

In general, fixed interest rates are safer. Because they’re locked in, they won’t suddenly skyrocket if the economy changes. However, their rates are initially probably higher. You’re trading overall payment for stability.

Variable rates, then, can seem like a better deal. Historically, data shows that borrowers pay less on variable rate loans than fixed rate loans. But there are two important things to consider…

  1. Past performance never guarantees future returns. Just because variable rates saved people money in the past doesn’t mean they will in the future.
  2. Variable rates can have catastrophic outcomes. In 2008, families with adjustable rate mortgages suddenly found their interest rates skyrocketing. Many weren’t able to pay their bills and foreclosed, which contributed to the Great Recession.

The takeaway is that variable rates are not to be treated lightly. Consult with a licensed and qualified financial professional before you borrow money. Their knowledge of the current financial landscape can help you choose an interest rate type that works best for you and your goals.

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This article is for informational purposes only and is not intended to promote any certain products, plans, or strategies that may be available to you. Before taking out any loan or enacting a funding strategy, seek the advice of a licensed and qualified financial professional, accountant, and/or tax expert to discuss your options.

Preparing to buy your first home

January 23, 2019

Preparing to buy your first home

Home buying can be both very exciting and very stressful.

Picking out your dream home is thrilling, but credit scores, applications, and mortgage underwriting requirements? Well, not so much. Don’t let yourself be deterred. Here are a few moves to make before you amp up your home buying search that will help increase the fun and decrease the stress.

Know what you can afford
One of the first steps to home buying is knowing how much you can afford. Some experts advise that a monthly mortgage payment should be no more than 30% of your monthly take-home pay. Some say no more than 25%. If you stretch past that you could become “mortgage poor”. Consider this carefully. You might not want to be in your dream house and struggling to pay the utility bills, grocery bills, etc., or find yourself in a financial jam if an emergency comes up.

Get your finances ready for home buying
If you’re scouring listings, hunting for your dream home, but you’re not sure what your credit score is – stop. There are few things more disappointing than finally finding your dream home and then not having the financial chops to purchase it. You’ll need to get your finances in order and then start shopping. Focus on these areas:

Credit score: Your credit score is something you should know regardless of whether you’re home shopping. Usually, to get the best mortgage rates, you’ll want a score in the good to excellent range. If you’re not quite there, don’t despair. If you make payments toward your other obligations on time and pay off any debt you’re carrying, your credit score should respond accordingly.

Down payment: A conventional mortgage usually requires a 20 percent down payment. That may seem like a lot of money to come up with, but in turn, you may get the best interest rates, which can save you a significant amount over the life of the mortgage. Also, anything less than 20 percent down and you may have to purchase Private Mortgage Insurance – it’s a type of insurance that protects the lender if you default. Try to avoid it if you can.

Get pre-qualified before you shop for a home
Once you have your credit score and down payment in order, it’s time to get pre-qualified for a mortgage. A prequalification presents you as a serious buyer when you make offers on houses. Mortgage pre-approval doesn’t cost you anything, and it doesn’t make you obligated to any one house or mortgage. It’s just a piece of paper that says a bank trusts you to pay back the loan.

If you go shopping without a pre-approval, expect to get overlooked if there are other bidders. A seller will likely go with the buyer who has been pre-approved for a mortgage.

Prepare your paperwork
Getting approved for a mortgage is going to require you to do a little legwork. The bank will want to see documentation to substantiate your income and lifestyle expenses. Be prepared to cough up income tax documents such as W-2’s, paystubs, and bank statements. The sooner you get the paperwork together, the easier it will be to complete the mortgage application.

Shop for the best mortgage
Mortgage rates differ slightly depending on the lender, so shop for the lowest possible rate you can get. You may wish to use a mortgage broker to help. Also, get familiar with mortgage terms. The most common household mortgages are a 30-year term with a fixed rate, but there are 15-year terms, and mortgages with variable interest rates too.

Do your pre-home-buying homework
With a little legwork early on, home buying can be fun and exciting. Get your finances in order and educate yourself about mortgage options and you’ll be decorating your dream home in no time.

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This article is for informational purposes only and is not intended to promote any certain products, plans, or strategies that may be available to you. Before taking out any loan or enacting a funding strategy, seek the advice of a financial professional, accountant, and/or tax expert to discuss your options.

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