Although home prices have dramatically outstripped incomes in many parts of the country (the typical home value of homes in Wisconsin is $222,738, whereas the median household income is $61,747), the dream of homeownership remains a big part of the American story. However, for many people in Eau Claire, taking out a conventional mortgage is necessary to fund this purchase.
When it comes to conventional mortgages, there are two options that a mortgage company in Eau Claire, Wisconsin will offer: fixed-rate mortgages and adjustable-rate mortgages. We’re going to review these types below so you can decide which option is right for you.
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Fixed-Rate Mortgage
When you take out a fixed-rate mortgage, the interest rate is locked at a certain percentage and will not rise for the loan term. This makes budgeting for the mortgage payments easier because you know exactly how much you will pay. Mortgage terms can be as short as five years; however, most Eau Claire, Wisconsin homebuyers go with terms between 15 and 30 years as they are the most cost-effective.
If you use escrow to handle your insurance and property taxes, your monthly payment can fluctuate slightly from year to year. This fluctuation has little to do with the mortgage terms and more with changes in taxes and insurance.
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Adjustable-Rate Mortgage
The interest rate on an adjustable-rate mortgage fluctuates from year to year. Many Eau Claire home buyers prefer this form of mortgage because the interest rate is lower than that of a fixed-rate mortgage. However, the rate will fluctuate over time. The fluctuation is primarily dictated by an index. This is a method of measuring mortgage rates and can change several times during the year. The rate charged is based on this index — as the rates increase, so do the payments, and when the rate falls, the payments go down as well.
Most adjustable-rate mortgage providers put a “cap” on the rate. This restricts how far it can go. However, the cap can also work in reverse, limiting how low the interest rate can go. Before you take out an adjustable-rate mortgage, you should know how high the cap is, how often the rate will change, and whether there are any limitations on how low the interest rate can go. You should also know when you can expect the payments to increase and whether you can easily handle the monthly payments if it hits its limit.
Which Type of Mortgage Should You Choose?
Buying a home in Eau Claire, Wisconsin is a satisfying experience for most people. At the end of the day, the home is completely yours, so you can do whatever you want with it — paint the walls in your favorite colors and decorate the living space exactly how you desire. However, before signing the documents, it is crucial to consider the types of mortgage options available.
The mortgage application process can be daunting if you have no idea what you are walking into. If you work with a reputable mortgage company in Eau Claire, Wisconsin, do your homework, and have a clear budget, you will be able to choose the mortgage option that’s right for you.
Are You Looking for a Mortgage Company in Eau Claire, Wisconsin?
If you are looking for an experienced and licensed mortgage company in Eau Claire, Wisconsin, you’ve come to the right place — the team at Compass Mortgage is here to help. Contact us today at (877) 793-9362 or submit a form via our website to get in touch with our team.