What is a mortgage?
In the US, real estate loans are called “mortgages”, which literally translates as mortgages. At the same time, mortgage can be either with a fixed interest rate – Fixed-Rate Mortgage (FRM) or floating-rate – Adjustable-Rate Mortgage (ARM).
What is the interest rate on real estate loans in the USA?
Americans are always faced with the choice of which version of the “mortgeeg” will be more profitable for them. The size of the floating interest rate is always lower than the fixed one (by 1-2%), but it is significantly influenced by the conditions related to the state of the US economy at the time of the bank reviewing the size of the rate. Taking such a mortgage, the borrower kind of “plays roulette” with an interest rate, and is not able to distribute their expenses in the future. Depending on the conditions of such a loan, the floating interest rate may not change in the first 3, 5, 7 years (3ARM, 5ARM, 7ARM) from the moment of registration of the mortgage, after which it can be raised to the boundary values (CAP), for example, from the initial 3 % to 7%, of which 4% will be CAP. At the end of the fixed period, the bank will review the rate annually until the borrower fully repays the loan, and in extremely rare cases, downward. This type of mortgage is preferred by those who are planning to repay the loan in a short period of time. The rates for such a loan on average vary from 3.1% to 4.5%. Today, the rate on five-year mortgage loans (ARM) averages 2.85%.
The option of a mortgage with a fixed interest rate, due to the absence of risks, is increasingly attracting Americans. It is used by 75% of borrowers. Often, potential property buyers are waiting for the moment of economic stability in the country, at which the size of the FRM rate is not too high and the entire crediting period pays a lower percentage.
90% of Americans wanting to buy property on credit choose a mortgage for a period of 30 years with a fixed interest rate. The average rate on such a loan at the beginning of 2016 is 3.72%.
In addition to favorable credit conditions, the US state provides its citizens with the opportunity to refinance a mortgage (repaying the loan balance by processing a loan at another bank with a lower interest rate), and also creates all kinds of mortgage lending programs for low-income citizens, veterans, and victims of disasters (who have lost their homes), pensioners, citizens using energy-saving systems, etc.
Of the main features of the mortgage in the US are the following:
- Low interest rate. Of all types of loans, the mortgage has the lowest interest rate. This is explained by the fact that mortgages are often issued for a long term – 30 years.
- Primary and secondary real estate markets. In the US, banks willingly take on any transaction, both with the secondary housing, and with the one that is in the process of construction.
- High competition. Due to the fact that the mortgage is very popular in the United States, each of the banks is trying to keep its client. Therefore, such lending is available to many segments of the population. In extremely rare cases, borrowers are refused.
- Accounting for customer income. When considering an application for the issuance of a mortgage, US banks take into account not only the client’s income from wages, but any personal savings, including pension, as well as dividends, and rental income.
- An initial fee. The size of the initial payment is 10-50%, but in some programs of the bank such obligations are completely absent.
A real estate loan in the USA can be borrowed by people over 25 years old, but not older than 75 years.
Picture Credit: image4you