According to the National Association of Realtors, parents gifting money to their children to help purchase a first home is a common experience. Gifting money is a type of down payment assistance that can help them realize their dreams of homeownership.
Adjustable- versus fixed rate mortgages
When searching for a home, a homebuyer will want to know the latest mortgage rates, or the rate of interest charged on a mortgage for the home. Depending on the type of mortgage they choose, they often have two types of rates to choose from: fixed-rate and adjustable rate.
Since mortgage rates are always changing, it’s essential that buyers understand the difference between these two types of rates and how it can affect them.
Fixed-rate mortgage charges a set interest rate
Fixed-rate mortgages charge a set interest rate throughout the life of the loan. Since the rate is locked up-front, borrowers can more easily predict future payments and budget accordingly.
This option is popular with homebuyers who are looking for predictability. The most common term for a fixed-rate mortgage is 30 years.
Adjustable-rate mortgage charges a variable interest rate
Also called an ARM, an adjustable-rate mortgage sometimes start at a lower rate than fixed-rate mortgages. This is called an introductory period. This rate can be attractive to borrowers who don’t plan on staying in their homes for a long period of time and come in period terms of 5-, 7-, and 10-years*.
Understanding how the ARM will adjust is the first step to see if it’s the right choice. A lender can help explain:
- How frequently interest rates will adjust
- If there is a limit on how low and high the interest rate can go
- How soon payments could increase
Worried if rates will go up while you’re shopping for a home? You might want to take advantage of Guild’s Lock and Shop program** which allows you to keep your rate for 90 days, even if rates go up in the meantime. If rates go down, you can take advantage of a one time float down option. For full Lock and Shop program information, plus terms and conditions, visit www.guildmortgage.com/cap-hbe-terms.
*Guild does not offer ARMs with an introductory fixed interest rate of 5 years at this time. 7 year and 10 year initial period terms are available.”
**Upfront lock-in fee required
The above information is for educational purposes only. All information, loan programs and interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction.