Purchasing your first home is an exciting time but it can also be stressful, especially when it comes to understanding how to finance your property. The majority of homeowners need to borrow money before they can purchase a property.
There are various funding options available when buying a home including fixed-rate mortgages, cash payments, and various loan agreements. To help you choose the best option, here are some of the most popular finance options available to new homeowners:
Fixed-rate mortgage loans
Fixed-rate mortgage loans are the traditional way to fund property. With a fixed-term mortgage, the interest rate remains the same throughout the agreement. According to experts at Investopedia, the major benefit of fixed-rate mortgage loans is that you are protected for any unexpected changes in mortgage repayments if interest rates increase. The disadvantage of fixed-rate loans is that it can be more difficult to qualify for one, especially if you’re a first time home buyer with minimal credit history. The repayments on a fixed-rate mortgage may also be higher if you take one out when interest rates are high.
Adjustable-rate mortgage loans
As the name suggests, adjustable-rate mortgage loans offer a viable interest rate. The major benefit of an adjustable-rate loan is that they are typically offered at an interest rate that is lower than the market rate. This means that they can save you money in the short-term. However, the interest rate can change over time and end up being higher than that of a comparable fixed-rate mortgage loan.
Adjustable-rate mortgages have the initial interest rates fixed for a certain period. They can, therefore, be a cost-effective option if you are only planning on living in your new home for a short amount of time. Whereas, a fixed-rate loan is considered a safer option if you plan on living in your home for a long period. You can find more information on adjustable-rate mortgage loans by visiting bankrate.com.
A bridging loan is a short-term finance option that can be used to purchase a property when a traditional bank loan would be unsuitable. Alternative Bridging Corporation explains how a bridging loan is useful “where speed is of the essence, i.e. an auction purchase or when a new property is being purchased before the sale of an existing property.”
One of the major advantages of bridging loans is that they provide homeowners with the flexibility to pay once they have the cash flow available. This means that homebuyers don’t miss out on the opportunity to purchase their dream home due to issues such as chain-breaking or a delay selling their existing residence.
Purchasing a property is likely to be the biggest investment that you make in your life. The various funding routes available to homeowners can be overwhelming, especially for first-time buyers. It is therefore essential that you research the different funding routes carefully and take your personal circumstances into account. Use the advice above to help you identify the best finance options to fund your new home.