Thinking of refinancing a current mortgage or buying a new home in the lovely state of Georgia? You are not alone. Falling interest rates have motivated thousands of people to do the same. Before you take that big step and apply for a loan, however, you should first decide what would better fit your needs: a fixed rate mortgage or an adjustable rate mortgage. If you choose the former option, then you also need to decide what the term of your loan shall be.
Usually, adjustable rate mortgages (or ARMs for short) will have a lower initial interest rate. An adjustable rate mortgage’s interest rate is typically tied to one of two independent indexes – either the US Treasury securities or the cost paid by the bank in order to borrow the money. A margin of up to three percent will then be added to the index rate in order to determine what the mortgage rate for the adjustment period shall be. The adjustment period is the amount of time for which that rate will be use to calculate the costs of interest. As major swings in the rate of index can cause major changes in the monthly mortgage payment, generally “caps” are placed on an increase or decrease that occur during a period of adjustment.
If you want to lock in to mortgage costs via the use of a fixed rate mortgage, you should consider the advantages and the disadvantages of both fifteen year and thirty year fixed rate mortgages.
Fifteen year mortgages have man benefits. They include the obvious factor of enabling the borrower to retire mortgage debt at an earlier date while also paying less in interest. These kinds of mortgages also tend to have lower interest rates – sometimes up to fifty basis points lower – than thirty year mortgages.
When evaluating the two types of loans, be sure to factor in a comparison of the after tax cost of making payments of interest. A significant tax deduction can take place in the form of home interest. This tax deduction is available to all tax payers, no matter what their income bracket is. The only requirement is that you itemize your deductions.
Generally speaking, interest that is paid for the procurement, building, or improvement of a personal residence can be deducted as long as the debt is secured by the property. The interest can also not exceed $1.1 million.
As far as thirty year mortgages are concerned, while they tend to cost more in interest – even after deductions – they can still work to one’s advantage because thirty year mortgages have lower monthly payments. From a cash flow perspective, this can be a major advantage indeed – especially if the extra monthly cash is invested the right way.
To conclude, both financial and non-financial matters should be taken in to consideration when choosing what mortgage is right for you and your Georgia home. While those who favor a more disciplined saving program might prefer fifteen year mortgages, a thirty year mortgage will be preferable for an individual who feels that they will get a higher return on investment assets than what is needed to break even.