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Having owned a house before, the Wrights were familiar with the basics of mortgages. They decided right away to get a fixed rate mortgage. With an adjustable rate mortgage, their mortgage payments would increase after 5 years. They had no plans to move in that time, and they knew their income wouldn’t significantly increase in that time either. They did not want to run the risk of interest rates sky rocketing, leaving them unable to make their mortgage payments. With a fixed rate mortgage, they would have the same house payments for the entire life of the loan and could budget accordingly.
Their next decision was whether to get a 15 year or 30 year loan. The 15- year loan had higher monthly payments, but the Wrights would pay less interest and would have the loan paid off sooner. Since they could afford the monthly payments, they decided to go with the 15-year loan. They hope to have the house paid off by the time they retire.
The Wright’s knew that the high demand and low inventory had made the market competitive. In order to stand out from other offers, they got pre-approved for a 15-year loan of $200,000. Once they got the approval, they put in an offer on a little townhouse in Orange.
The Thompsons’ Story
Just like the Wrights, the Thompsons also had to choose between a fixed rate and adjustable rate mortgage. When they began their home search, they were convinced that fixed rate was the way to go. However, as they began to search they realized they their dream home was a little out of their price range. Instead of looking for a house they could live in for the next couple decades, they started looking for smaller houses that they could stay in for the next 5-7 years.
Because they are planning to resell their house their house in the next 5-7 years, the Thompsons decided to go with an adjustable rate mortgage. The interest rate for an ARM was a full percentage point lower than for a 30 year mortgage. This will save them thousands of dollars over the next few years. They plan on selling the house before the interest rate adjusts, making a significant profit and then buying a larger house that they can stay in for 30+ years.
The Thompsons know the risks associated with ARMs and thought about the decision carefully. Even if they can’t sell the house before the rate adjusts, its very likely Lucas will be making a lot more money and that income can cover the additional costs. Plus, they plan on having one of their student loans paid off by then, so the money that was being used to pay those off can be redirected to pay off the increased mortgage payment. And of course, if they keep a good credit history there is the possibility of refinancing. The Thompsons felt that the benefits out weighed the risks and go pre-approved for a 7-year Adjustable Rate Mortgage.
Finding the right mortgage is just as important as finding the right house, and often more confusing. Do your research and consider carefully if you want a fixed or adjustable rate mortgage and how long you want the loan to last. Your Orange County real estate agent is an excellent source of information when it comes to mortgages. There are also several online resources that will help you understand mortgages. Visit www.bankrate.com, www.thetruthaboutmortgage.com or www.primelending.com for more information about mortgages. You can also email Orange County Realtor Sue LaPeter at firstname.lastname@example.org.
Below is a market update for Belmont Ridge and Belmont Estates, two beautiful and highly sought after communities in Orange, CA. If your a homeowner in Belmont Ridge or Belmont Estates, this information will give you an idea of what your home is worth and help you in your decision to sell. If you’re looking to buy a home, this information will help you determine if you can purchase a home in Belmont Ridge or Belmont Estates.
If you’d like to look at more homes in Orange, CA, browse my Orange County Real Estate website.
|IN ESCROW||Bed/Bath||Sq. Ft.||Price|
|N Preston St||4/3||2,240||$675,000|
|E Hastings Ave||4/3||2,650||$799,000|
|N Whitehall St||4/3||3,450||$ 849,498|
|N Meridian St||5/4||3,600||$ 895,900|
|E Townsend Ave||4/3||3,212||$ 649,000|
|N Whitehall St||4/3||3,400||$ 799,997|
|E Wickham Ave||4/3||3,141||$ 798,000|
|4137 E Regency Ave||4/3||4,244||$ 985,000|