Qualifying for a mortgage might seem intimidating, but we’re here to help! There are several kinds of mortgages that you can apply for, which include variable-rate and fixed-rate. A fixed-rate mortgage loan in Las Vegas has a set interest rate that doesn’t change. A fixed-rate loan is popular with new homeowners or people who are less confident about their finances.
What is a fixed-rate loan?
When you take out a mortgage in Las Vegas with a fixed rate, you will make the same monthly payment on your interest for the loan. You pay a set amount for your home loan each month, including the principal and interest. Together, they are called “amortization.” It’s not uncommon for the interest rate to be higher when you first take out a loan. However, as time goes on, you can always pay more for your mortgage than the minimum amount required every month. That way you’ll pay off both the principal and the interest faster. Even though the interest rate doesn’t change with a fixed-rate loan, it never hurts to pay as much for your loan as possible every month. After all, the sooner you finish paying off your mortgage, the less money you will spend on interest rates. If you can pay off more than the minimum required every month, you’ll also be cutting down on the amount of money that you spend on interest. Those savings can add up from month to month and year to year.
Are fixed-rate mortgages ideal?
The majority of people seeking home loans in Las Vegas (95%) opt for fixed-rate loans. And there’s a good reason why they choose those loans! Fixed-rate loans offer more stability and predictability than variable-rate loans, which are loans that have a fluctuating interest rate. Even if your interest payment is lower with a variable-rate loan at first, the interest rate can change, and it usually ends up rising over the course of the loan’s lifetime. If you’re wondering how to get the best interest rates in Las Vegas, ask us for help! We can tell you all about the benefits of a fixed-rate loan and how to secure optimal interest rate payments.
How do fixed-rate loans work?
A fixed-rate mortgage loan in Las Vegas has an interest rate that does not change. That also means the principal amount that you owe does not change. Although you still have to technically pay the same amount every month for your principal and interest payments, you can cut down on the cost of your loan by paying more than is necessary every month. The payments you make primarily go towards the principal, so by the time you’re done paying off the principal payments, you just have to pay interest, which translates to a much lower per-month cost. For example, if you have a loan worth $250,000 with a 4% fixed interest rate, you’ll owe $834 per month for interest in the first month. Assuming you’ll take out a 30-year loan, you will only need to pay $216 per month in the first month of the 25th year. Those interest payments will continue to decline so that you’re paying only $200 per month in interest towards the end of a 30-year loan.
Types of Fixed Rate Mortgages
When you take out a fixed-rate mortgage loan in Las Vegas, you have a few options to choose from. The most common loan terms are 15-year and 30-year. A 30-year loan is the most popular option for most people, especially new homeowners. When you take out a 30-year loan, you’ll have a fairly low principal payment over the course of the loan’s lifetime. Even expensive homes can be relatively affordable with a long-term loan.
Although a 30-year loan is popular because it means you’ll make the lowest monthly payments over time, there are other loan options to choose from, too. Along with the 30-year loan, a 15-year loan may also be appealing. Monthly principal payments are higher with a 15-year loan compared to a 30-year loan, but you will spend less money on interest over time. A 20-year loan might be a good choice if you want something in the middle. You can even get loans that are under 15 years in duration, including 10-year and five-year loans. Some lenders may even allow you to choose how long you want your loan to last. Regardless of how long your mortgage in Las Vegas lasts, all loans work the same, which means you’re still responsible for paying the same amount for your Las Vegas mortgage rates every month until the loan is paid off.
What can you afford?
One of the most important things to figure out when you’re shopping for home loans is how much you can afford for a mortgage. Lenders have their own formula for determining a suitable mortgage for prospective borrowers, called the ratio. The ratio is divided into two categories called “front-end” and “back-end.”
The front-end ratio is the total amount of your monthly income that goes towards a mortgage payment. Many homeowners can comfortably purchase a home that costs two times or a little more than their average salary. For instance, someone who earns $80,000 per year can afford to buy a house comfortably that costs about $200,000 or slightly more. Even if you can afford a house double your income, lenders recommend getting a mortgage that is no more than 28% of your annual salary. It’s always best to get a smaller mortgage in Las Vegas that you can comfortably afford rather than struggle to pay off a larger loan.
The back-end ratio considers all the other expenses that you owe every month. That might include car payments, student loans, rent, and other factors. When you apply for home loans, lenders will add up all those other expenses to determine how much you can afford to pay for your home loans in Las Vegas. Ideally, your total back-end expenses should be less than 36% of your gross income.
Remember that local housing values can affect your debt-to-income ratio, so it’s a good idea to contact a lender before applying for a mortgage to determine what you can realistically afford to pay per month. If you want a more expensive home or you’re buying in a pricier neighborhood, the debt-to-income ceiling that lenders permit might be slightly higher, up to 45% rather than 36%.
While you can plan in advance for taking out home loans in Las Vegas, the cost of a loan is also subject to current market trends, which means timing is essential.
Contact us to apply for a fixed-rate mortgage today!