Author: Ryann Cairns
The mortgage market is very hot right now, and competition among lenders is rife. One of the many enticements used by lenders to lure mortgage shoppers is the discounted rate.
A discounted rate is generally a below market interest rate that is available for a limited number of months. After the initial discount period is over, the interest rate reverts to market interest rates. There are some excellent home mortgage loans that include this discount rate feature, but it is important for the prospective borrower to understand all the terms and conditions of any home mortgage loan, including one that includes a discounted initial rate.
Some discounted rate mortgage loans come with unpleasant surprises such as a large balloon payment at the end of the loan term, or interest rates that rise to far above market rates. It is important to get a full disclosure of all terms and conditions when considering a home mortgage loan that features a discount rate. As with any type of home mortgage loan, it is important for the prospective home buyer to shop around carefully and compare the loans offered by various lenders.
Mortgage loans are available at a wide variety of lenders, everyone from the bank down the street to a mortgage broker who specializes in writing all sorts of home mortgage loans. Mortgage brokers also have a wide variety of loan types available, including variable rate mortgages, interest only loans, and of course discount rate loans.
Any time you are considering a discounted rate mortgage, it is important to run the numbers and determine the monthly payment both at the initial low discount rate and at the interest rate going forward. The lender will often quote an extremely low monthly mortgage payment in their ads. Then in the small print they will disclose what the new monthly payment will be when the real interest rate kicks in a few months later.
It may be best to ignore the low monthly payment that is quoted in the ad when considering a discount rate mortgage. After all, that rate will only be in effect for a short time. Instead, evaluate the home mortgage loan just as you would any other mortgage loan. Are the terms and conditions favorable to you? Will you be able to easily afford the monthly mortgage payments? Using these evaluations for the discount rate loan will help you determine if it is truly the right loan for you.