Which Mortgage Should I Choose
Key Questions to Ask Yourself and Lenders When Shopping for a Mortgage.
Traditional Fixed Rate Mortgage? Graduated-Payment Mortgage? Adjustable Rate Mortgage? FHA Mortgage? Two-Step Mortgage? There are a lot of different loan programs, terms, and options for you when shopping for the right mortgage program and you're wondering, "Which mortgage is best for me?!". The answer: Well, it depends on your situation.
Deciding which type of mortgage will best fulfill your needs can be difficult. There are so many types of loans and different term lengths. Your choice is extremely important and can take some time and effort to research. While often neglected by homebuyers, a little research before choosing your mortgage can save you thousands of dollars in the long run. Take a moment and answer these questions:
How long do you plan to stay in this home?
Five years? Ten years? Thirty years? The length of time you will be in the home will certainly play a part in determining which loan to apply for. If you only plan to be in the home for 5–7 years or less, an adjustable rate loan, while more risky over a long period of time, can get you a lower rate for an initial few years. Know how long you plan to be in the home AND how long your rate (mortgage payment) will be low before it "adjusts". If you intend on staying 20–30 years, a fixed rate mortgage will provide the interest rate stability you are looking for.
How much risk are you willing to accept?
If you are the type of buyer that needs to know exactly what you will be paying each month for the term of the mortgage, a fixed rate mortgage will fulfill this need. The fixed rate loan, however, will also net a slightly higher interest rate especially over the short-term. If you are willing to take some risk of fluctuations in the interest rate, you may be able to receive a lower interest rate.
What are your income expectations?
Plan for the future. Do you anticipate a gradual or dramatic increase in your income in the next few years? If you expect a big increase, a graduated payment mortgage may be best for you. Be realistic with yourself, if you don't know with certainty an increase in income is in your future, don't plant on it.
How much cash do you have available for upfront costs?
If you have the resources, you may want to make a larger down payment to lower your monthly payment. By keeping a higher monthly payment however, you might be able to shorten the term of the loan to a 15-year loan in order to pay it off quicker.
Keep in mind that you’ll have closing costs and fees to pay in addition to your down payment. Some lenders allow you to wrap these fees up into the loan itself. I've seen some lenders wrap these fees into the loan and tell buyers "no fees involved". This is a fine service but deceptive terminology, understand that there are always fees involved with obtaining a loan.
In addition to choosing a type of loan, you must also consider which lender to use. Use the following criteria to help compare potential loan services.
Annual Percentage Rate (APR)
This is most likely the best way to make an "apples-to-apples" comparison of lenders. The APR reflects the cost of credit on a yearly rate and includes any points and fees in addition to the interest rate.
Interest Rate
Find out the rate the lender will commit and how long the lender will guarantee it. Get any commitments in writing. As with any transaction, if it isn’t in writing it doesn’t exist.
Points and fees
These factors will vary greatly. Look out for hidden fees. Make sure the lenders disclose all fees; ask what they charge and what is included and what is not.
Loan Approval
Both approval and funding time should be considered. You don’t want to lose a prospective home because your lender takes weeks to fund your loan. A lender should be able to fund the loan within ten days.
Lender Reputation
Don’t rely on solely someone else’s recommendation. You, not your friend, must feel comfortable with your lender. If you do feel good about your lender and trust him , it will be much easier to trust his advice on what kind of mortgage will best suit your needs.
Traditional Fixed Rate Mortgage? Graduated-Payment Mortgage? Adjustable Rate Mortgage? FHA Mortgage? Two-Step Mortgage? There are a lot of different loan programs, terms, and options for you when shopping for the right mortgage program and you're wondering, "Which mortgage is best for me?!". The answer: Well, it depends on your situation.
Deciding which type of mortgage will best fulfill your needs can be difficult. There are so many types of loans and different term lengths. Your choice is extremely important and can take some time and effort to research. While often neglected by homebuyers, a little research before choosing your mortgage can save you thousands of dollars in the long run. Take a moment and answer these questions:
How long do you plan to stay in this home?
Five years? Ten years? Thirty years? The length of time you will be in the home will certainly play a part in determining which loan to apply for. If you only plan to be in the home for 5–7 years or less, an adjustable rate loan, while more risky over a long period of time, can get you a lower rate for an initial few years. Know how long you plan to be in the home AND how long your rate (mortgage payment) will be low before it "adjusts". If you intend on staying 20–30 years, a fixed rate mortgage will provide the interest rate stability you are looking for.
How much risk are you willing to accept?
If you are the type of buyer that needs to know exactly what you will be paying each month for the term of the mortgage, a fixed rate mortgage will fulfill this need. The fixed rate loan, however, will also net a slightly higher interest rate especially over the short-term. If you are willing to take some risk of fluctuations in the interest rate, you may be able to receive a lower interest rate.
What are your income expectations?
Plan for the future. Do you anticipate a gradual or dramatic increase in your income in the next few years? If you expect a big increase, a graduated payment mortgage may be best for you. Be realistic with yourself, if you don't know with certainty an increase in income is in your future, don't plant on it.
How much cash do you have available for upfront costs?
If you have the resources, you may want to make a larger down payment to lower your monthly payment. By keeping a higher monthly payment however, you might be able to shorten the term of the loan to a 15-year loan in order to pay it off quicker.
Keep in mind that you’ll have closing costs and fees to pay in addition to your down payment. Some lenders allow you to wrap these fees up into the loan itself. I've seen some lenders wrap these fees into the loan and tell buyers "no fees involved". This is a fine service but deceptive terminology, understand that there are always fees involved with obtaining a loan.
In addition to choosing a type of loan, you must also consider which lender to use. Use the following criteria to help compare potential loan services.
Annual Percentage Rate (APR)
This is most likely the best way to make an "apples-to-apples" comparison of lenders. The APR reflects the cost of credit on a yearly rate and includes any points and fees in addition to the interest rate.
Interest Rate
Find out the rate the lender will commit and how long the lender will guarantee it. Get any commitments in writing. As with any transaction, if it isn’t in writing it doesn’t exist.
Points and fees
These factors will vary greatly. Look out for hidden fees. Make sure the lenders disclose all fees; ask what they charge and what is included and what is not.
Loan Approval
Both approval and funding time should be considered. You don’t want to lose a prospective home because your lender takes weeks to fund your loan. A lender should be able to fund the loan within ten days.
Lender Reputation
Don’t rely on solely someone else’s recommendation. You, not your friend, must feel comfortable with your lender. If you do feel good about your lender and trust him , it will be much easier to trust his advice on what kind of mortgage will best suit your needs.
posted by Gabe Hoggarth at
11:53 AM
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