There are many variables that go into choosing a mortgage type, such as whether you’re a first-time buyer, how long you intend to stay in the house and other considerations.
Loans for first-time buyers
The State of New York Mortgage Agency (SONYMA) runs a handful of mortgage programs designed specifically to help first-time home buyers purchase homes. The programs feature competitive interest rates, low down payment requirements, flexible underwriting guidelines, no prepayment penalties and down payment assistance.
- Homes for Veterans Program is for military veterans and active duty U.S. military personnel. This program allows qualified veteran or active duty U.S. military personnel to apply for any SONYMA program with more favorable terms.
- Remodel New York allows first-time buyers to purchase a home and finance the cost of renovations – all with one low, fixed-rate mortgage.
- Achieving the Dream is available to lower income first-time homebuyers.
- Construction Incentive Program is specifically for first time-buyers who are purchasing homes under construction or rehabilitation.
- Low Interest Rate Program is SONYMA’s standard mortgage program for first-time buyers who are purchasing newly constructed or existing homes.
Federal Housing Administration-approved lenders also provide loans aimed at first-time buyers’ special needs. Be warned, though, that “FHA-approved” buildings are few and far between in New York City.
With a fixed-rate mortgage, you are locked in to a set interest rate, resulting in monthly mortgage payments that remain the same for the entire term of the loan. The chief benefit of this type of mortgage is inflation protection; if mortgage rates rise, your rate stays the same. Conversely, the big drawback is that if mortgage rates plummet, your interest rate will not drop. But, if rates drop significantly, you may be able to refinance.
Most lenders offer 15- and 30-year fixed mortgages, and some also offer 10- and 20-year terms. The longer the term of your fixed mortgage, the lower your monthly payment will be, because you’re paying over many years. With longer term loans, however, you will end up paying more interest over time.
A 15-year fixed mortgage will have a higher monthly payment because you’re paying for fewer years. The benefit is that you’ll build equity at a faster rate and will pay less interest over the life of the loan. Shorter term loans generally have lower interest rates.
Adjustable-rate mortgages – often referred to as ARMs – are loans with interest rates that change over the life of the loan. ARMs have adjustment periods that determine how often their interest rates can change and they have initial “fixed” periods – often 3, 5 or 7 years — during which their interest rates won’t change at all.
ARMs were widely blamed for the housing bubble burst of 2007 and, consequently, fell out of favor with consumers. But with mortgage rates rising, these once-maligned loans are experiencing a resurgence in popularity, especially among high-end NYC borrowers.
These loans often are considered riskier because the interest rate and payments can increase when the fixed period ends and the loan adjusts. However, if you’re planning to live in your home for a shorter period of time, an ARM may make sense, especially because you’re likely to obtain a lower interest rate than with a fixed mortgage.
There are many things to consider before selecting a home loan. Do your research to ensure you’re getting the best possible deal.
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