What Philadelphia homebuyers should know about financing a home purchase
Known for its well established communities that are rich with culture and history, you will find that there are outstanding opportunities for virtually any type of home buyer. But before you are able to make a home purchase, it's critical to choose the right mortgage loan. Most commonly, homeowners elect to purchase with a fixed rate or adjustable rate mortgage in the Philadelphia area. Here are some factors to consider when deciding which is right for you:
Fixed Rate Mortgages v. Adjustable Rate Mortgages
Just to provide a quick overview: a fixed rate mortgage charges the same interest rate from the start of the loan until the day you pay it off. In other words, no matter what happens in the economy or how much interest rates fluctuate, your will rate remain the same. Fixed rate mortgages are recommended for homebuyers who plan on paying off the loan over a long period of time (i.e. for longer than five years). Fixed rate mortgages may also be the more beneficial alternative in situations where the current interest rate is low. Locking in a low interest rate may pay off in the long run.
On the other hand, some Philadelphia home buyers elect to purchase using adjustable rate mortgages. With ARMs, the interest rate can adjust during the course of the loan. Keep in mind that the home buyer is assuming more risk because the rate can rise upward making your monthly mortgage payment higher. However, if you anticipate selling your home in the near future, choosing to go with an adjustable rate mortgage may be the more profitable option for you.
What Are the Current Mortgage Rates in Philadelphia
Though interest rates fluctuate quite often, it's important to see just how affordable buying a home in Philadelphia may be.
- The average 30-year fixed rate mortgage in Philadelphia right now has an APR range of 3.23 percent to 4.2 percent.
- The average 10-year fixed rate mortgage in the city has an APR range of 2.63 percent up to 3.43 percent.
- A 10-year adjustable rate mortgage here has an APR range of 2.99 percent to 3.11 percent on average.
What Affects These Rates?
As you can see, Philadelphia home buyers have a wide range of interest rates to choose from. However, the numbers stated above are general rates; the interest rate may actually be different for each borrower. A number of factors can influence your interest rate, including the following:
- Your credit score is a key factor. The higher your credit score is, the less risk you are to the lender. This translates into a lower interest rate. Be sure to make all your payments on time, reduce your debt to income ratio, and build up your credit history in the months leading up to applying for this loan.
- The amount of your down payment also can affect your interest rate. Lenders want you to put down a significant amount, sometimes more than 20 percent of the home's purchase price. By encouraging you to do this, you'll be less likely to walk away or allow the home to enter into foreclosure. The higher your down payment, the lower your interest rate is likely to be.
- You may also want to consider paying points towards your loan. This can help you to reduce the overall interest you pay over the long term.
When considering buying a home in Philadelphia, your finances are just as important as finding the right property. Luckily, interest rates are low in Philadelphia and they may stay that way for a short period. Consumers need to consider what steps they can take to get the lowest interest on a loan possible. Philadelphia home buyers can save thousands of dollars over the lifetime of a loan by simply shaving a few points off that interest rate.