Choosing a Mortgage

by Raz

Traditional Fixed Rate Mortgage? Adjustable Rate Mortgage? 5/1 ARM? 3/1 ARM? or Option ARM? What type of mortgage is best for you, a serious matter as the right kind of mortgage choice can save you thousands over the years. With a little effort, you can understand the advantages and disadvantages of various programs. Mortgage payment calculators offered in this site can guide you along.

The following will help you identify your needs:

How long do you plan to stay in this home?

If your plan is to live in the home from 2 -7, then a short term fixed rate loan will be good chice as that type of loan is fixed for a specified period of time from 2 to 7 years after which it turns into an adjustable rate mortgage.

How much risk are you willing to accept?

If needs to know exactly what you will be paying each month for the term of the mortgage, a fixed rate mortgage will be best. A fixed rate loan will have a higher rate. But what if you are not qualified for that payment though you may qualify for the slightly lower 5/1 ARM payment.

What are your income expectations?

Do you anticipate a gradual or dramatic increase in your income over a period of time? This applies to the newly graduate who has only been in the workforce for a short time. If so then an adjustable rate mortgage will be ideal.

How much cash do you have available for upfront costs?

Very often a 1 point mortgage will actually save you money as oppose to the so called no cost mortgage. Check this little fact by comparing payments using mortgage payment calculators.

In addition to the above, you need to make an informed decision about your lender and other details of the offering.

Annual Percentage Rate (ARP)

This most likely is the best way to make an "apples-to-apples" comparison of mortgage programs. The APR reflects the cost of credit on a yearly rate and includes any points and fees in addition to the interest rate.

About Interest Only mortgages

Interest Only Mortgages are based on a variety on programs, including but not limited to fixed rate, 3/1 ARM, 5/1 ARM and 7/1 ARM. The interest only period of the loan does not normally extend to the full life of the loan but is limited to something like a 10 year period, after which the mortgage converts to a fully amortized version, amortized over the remainder of the life of the loan.

Shopping for an interest only mortgage loan can be tricky, like all new products, lenders take advantage of the average shopper's ignorance. Be extra careful

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.


About the author:
Raz is mortgage industry veteran specializing in the origination and closing of residential purchase refinance and construction loans.

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