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?
You are wondering which kind of mortgage is best. The
answer: There is no one correct answer. 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.
There are several elements of a loan that should be analyzed.
While one of these elements may suggest one type of loan, another
may call for a different type. You must weigh each ingredient separately
and collectively. You will find that your answers to the questions
below will ultimately determine the type of mortgage that best
fits your needs.
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, you should seriously consider an adjustable
rate loan. If you intend on staying 20–30 years, a fixed
rate mortgage may be right for you.
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 higher interest rate. 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.
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. If you don’t
have much cash saved for your upfront costs, don’t despair.
You may be need to accept a higher monthly payment or even lower your
monthly obligation by choosing an adjustable rate mortgage.
In addition to choosing a type of loan, you must also
consider which lender to use. Once again, several factors will
influence your decision.
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.
