Even though the current housing market is unstable, the interest rates are still very low, so finding a great mortgage is likely with a little research. However, there are many variables, so finding the right mortgage for your circumstances will take some work. It is important that you understand the effects of each aspect of the mortgage. Mortgages often have fees, exceptions and contingencies that can catch buyers unaware. Make sure that you understand everything before you sign your name on the dotted line. For example, you need to look for things like the interest rate over the entire loan period (adjustable rate mortgages have a low interest rate during an introductory period), fees for paying ahead, interest rates if your loan goes into default and, if you have an adjustable rate mortgage, how often the payments are adjusted.
Your Monthly Payment by Term Length
The length of time that it takes to pay back the entire loan is called the loan term. Traditionally, 15- and 30-year fixed-rate loans were the only ones available. In today’s market, there are many more options, even up to 40-year terms. However, if you want to build equity in your home and pay off the principal of your mortgage, a shorter term is preferable. A longer loan term will lower your monthly payment, but you will build equity much slower. However, more of your payment will also be tax-deductible interest.
Adjustable Rate Mortgages Can Result in High Monthly Payments
The most important decision you make will be deciding between a fixed rate or an adjustable rate mortgage. The interest rate and monthly payment does not change for the duration of a fixed-rate mortgage. The adjustable rate mortgage starts with a lower interest rate, but after a specified period of time, will go up or down according to certain financial indexes, meaning that your monthly payment will go up or down. Usually it is up due to inflation since the index is not merely based on the prime rate. Even an increase in one percentage point can raise a monthly payment by several hundred dollars, depending on the total amount of the loan. Typically, an ARM is preferable if you plan on only keeping your home for a short period of time (less than five years).
Other Mortgage Options are Available
In order to find the best loan, first get a clear picture of your own financial condition and goals: how much money you have for a down payment, how much you can budget to pay out monthly and how long you plan to remain in your new home. Then, do some research on the internet and determine which types of mortgages available that you qualify for. Traditionally, people started at their local bank or credit union. Now, most people use a mortgage broker who has access to many different lenders and can comparison shop for you. If you think your credit has issues, a mortgage broker can help you overcome some difficulties. Using a mortgage broker will cost you a little more at closing, but you often save more in the long run. You can also shop around for a lender on the internet. This allows you to eliminate the extra fees associated with a mortgage broker. You may want to do some internet research and then go to a bank or mortgage broker.
Do not rush, take care to make the right decision for you and your circumstances.