A first mortgage is the primary loan that pays for the purchase of a home. It is typically the largest and most expensive loan that a person will take out in their lifetime. While a first mortgage can be a great way to finance the purchase of a home, there are some drawbacks to consider before taking out this type of loan.
What is a Mortgage?
A mortgage is a loan that’s used to finance the purchase of a home. The loan is secured by the home, which means that if you don’t make your payments, the lender can take your home. Mortgages are generally repaid over a period of 15 to 30 years, and you can choose an interest rate that’s fixed or variable. Fixed-rate mortgages have the same interest rate for the entire repayment term, while variable-rate mortgages have rates that can fluctuate over time.
What is First Mortgage
A first mortgage is the primary loan that you take out to purchase a home. This type of loan is typically offered by banks and other financial institutions, and it’s secures by your home equity. First mortgages typically have lower interest rates than other types of loans, making them a good option for borrowers who are looking to save money on their monthly payments.
The Drawbacks of a First Mortgage
If you’re thinking of taking out a first mortgage, there are a few things you should know. A first mortgage is a loan that’s secured by your home. That means if you can’t make your payments, the lender can foreclose on your home. First mortgages also typically have higher interest rates than other types of loans.
You May End up Paying More Interest
If you have a fixed-rate mortgage, you may end up paying more interest if rates go up. For example, let’s say you have a $250,000 mortgage with an interest rate of 4.5% and you lock in for 30 years. Your monthly payment would be about $1,013. But if rates went up to 5%, your monthly payment would be about $1,062 – an increase of $49 per month.
And if rates went up to 6%, your monthly payment would be about $1,111 – an increase of $98 per month. Of course, this is just an example and your actual payments could be more or less, depending on the size of your loan and the length of your loan term.
You May Have a Higher Monthly Payment
Your monthly mortgage payment is typically made up of four parts: principal, interest, taxes, and insurance. With a first mortgage, your interest rate may be lower than with a second mortgage, but you’ll also have to pay closing costs when you take out the loan. The interest rate on a first mortgage is usually fixed for the life of the loan, which means your monthly payment stays the same even if interest rates rise. But if you have an adjustable-rate first mortgage, your interest rate and monthly payment could go up or down after the initial period.
You May Have a Shorter Loan Term
If you have a first mortgage, you may have a shorter loan term than if you had a second mortgage. This means that you’ll have to pay off your loan faster, which can be difficult if you’re not prepared.
You may also have to pay higher interest rates on a first mortgage, which can cost you more in the long run.
How to Avoid The Drawbacks of a First Mortgage
A first mortgage is when you borrow money from a lender using your home as collateral. This type of loan is usually for a large sum of money and has a lower interest rate than other loans. However, there are some drawbacks to taking out a first mortgage.
Shop Around For The Best Interest Rate
When you’re shopping around for a first mortgage, be sure to compare interest rates from multiple lenders. The interest rate you get will have a big impact on your monthly payment, as well as the total amount of interest you pay over the life of the loan. Even a small difference in rates can make a big difference in your payment, so it’s worth shopping around for the best rate.
Get a Fixed-Rate Mortgage
ARMs adjustable-rate mortgages offer lower interest rates than fixed-rate loans for the first few years of your mortgage. After that, your rate can change annually, which means your monthly payments could go up or down. If you plan to stay in your home for a short period of time, an ARM might make sense.
But if you plan on being in your home for the long haul, you’re usually better off with a fixed-rate mortgage. With a fixed-rate loan, your interest rate and monthly payment stays the same for the entire term of your mortgage, ‘says Brian Sullivan, spokesman for the .
Rates on fixed-rate mortgages are currently averaging about 6 percent, according to HSH Associates ‘ Weekly Mortgage Rates Survey. That ‘s down from about 6.5 percent last year at this time but still relatively high by historical standards.
Get a Shorter Loan Term
Most first-time homeowners opt for a 30-year fixed rate mortgage. And while there are plenty of benefits to this loan type – like the low monthly payments that make homeownership more affordable – there are also some drawbacks.
One of the biggest drawbacks is that it takes longer to build equity in your home. It can also be difficult to refinance a 30-year mortgage if you want to take advantage of lower interest rates down the road. One way to avoid some of the drawbacks of a 30-year mortgage is to get a shorter loan term. A 15-year fixed rate mortgage will have higher monthly payments, but you’ll build equity in your home more quickly. And if you do want to refinance, you’ll be able to do so after just five years.