As you know, one of the main components of the American dream is nothing more than your own home. It’s no secret that the United States of America is on the list of the most profitable countries in the field of lending, especially mortgages. Low interest rates on loans, a loyal attitude towards borrowers and a high standard of living in the country allow Americans to take out loans without thinking about the multi-year burden of repaying them. You can learn more about first time home buyer loans here.
The main concept
Wanting to buy a house, and not having the financial ability to do so, you go to the bank for a targeted loan – to buy real estate. In this case, the house itself acts as a mortgage, as a pledge to the bank for a loan granted to you for its purchase, or for the purchase of another home as a pledge of your property. When registering such a transaction, the mortgage object will be officially entered in the register of rights to real estate, and information about the status of real estate “secured” will become public. Until the loan is fully repaid by you, the property will documentally belong to the mortgagee – the bank, and formally to you. A mortgage loan is a type of loan in which funds are provided for the purchase of real estate. In contrast, there are multifamily bridge loans, which refer to creating positive cash flow by investing in apartment buildings and student housing. A Multifamily bridge loan provides fast financing and is less risky.
A bank transaction in providing you with a consumer loan, for example, to buy a car, as collateral for your property (which you own), will be considered a “loan secured by real estate”.
The average market value of a five-room house varies in different states from 60 to 150 thousand dollars (read: The average cost of real estate in the United States). Despite the fairly affordable housing prices, many Americans, not wanting to lay out the amount of the cost of real estate in a single payment, take out a mortgage for a period of 30 years. This makes it possible to give a minimum part of your income to pay off the loan every month, and not be in conditions of austerity. Of course, in aggregate, the amount paid on interest for such a huge period of time will significantly exceed the interest on a loan for a period of 10 years. A mortgage for a period of 30 years at a 5 percent rate will cost the borrower twice the value of the property. This is due to the fact that the client, monthly making a small amount on the loan, pays almost one percent, without reducing the size of the loan body. The borrower has the right to make a monthly payment several times greater than specified in the agreement, thereby reducing the loan repayment period, if this does not contradict the terms of the agreement.
What is the US interest rate for real estate loans?
Americans are always faced with the choice of which option “mortgage” 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 affected by the conditions associated with the state of the US economy at the time the bank revises the rate. Having taken such a mortgage, the borrower is a kind of “roulette” with the interest rate, and is not able to distribute his expenses in the future. Depending on the terms of such a loan, the floating interest rate may not change in the first 3, 5, 7 years (3ARM, 5ARM, 7ARM) from the moment the mortgage is issued, after which it can be raised to the limit 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 annually revise the rate until the borrower fully repays the loan, and in extremely rare cases, downward. This type of mortgage is preferred by those who plan to repay the loan in a short period of time. Interest rates on such a loan range from 3.1% to 4.5% on average. To date, the rate on five-year mortgage loans (ARM) averages 2.85%.
The option of a mortgage with a fixed interest rate, due to the lack of risks, is increasingly attracting Americans. It is used by 75% of borrowers. Often, potential property buyers wait for a moment of economic stability in the country, when the FRM rate is not too high and the entire loan period pays a lower interest rate.
90% of Americans wanting to buy real estate on credit choose a mortgage for a period of 30 years with a fixed interest rate.