How To Determine Which
Mortgage Is Best For
You
When it comes time for you to think about what
kind of mortgage you want, you certainly do have a lot of options. Many of
these options, however, will disappear once you understand what may really
be involved. Here are some things you may want to consider to help you come
up with the right decision.
The first thing you need to consider is how long
do you intend to pay on the mortgage. The typical mortgage is for about 30
years, but 40 and even 50 years are now possible. A second mortgage goes
for about 10 to 15 years. If you are not planning on staying in that house
very long, then that can also change the picture, too. The truth is, though,
that the longer you pay on any mortgage the more you will pay in interest.
So, in order to get the greatest savings, you want to keep it as short as
possible, and yet still have some financial breathing room.
The economy at the time of your purchase is another
consideration. When you see that the trend of mortgage interest rates is
on the way up - it is not the time to get an adjustable rate mortgage - no
matter who says otherwise. The only exception might be in the case of mortgages
that have a lengthy period of fixed rates up front, where you also are paying
some on the principal - unless you are not planning on staying very long.
A fixed rate mortgage is definitely the more secure and stable loan - you
can also interpret that as being the safer of the two in times of economic
instability. The one setback, however, is that you will not be able to buy
as big of a house with it, and your payments will certainly be larger - but
also will never change. If you buy a more stable fixed rate mortgage when
things do not look so good, then you can always refinance later.
| Mortgages that have the fancy names, or where
the name indicates it promises a lot, is probably a sign of trouble in the
long run. Mortgages like interest only, 125% mortgages, no cost mortgages,
bad credit mortgages, etc., are all basically pretending to be something
good for you - but in the long run, are probably much more trouble than they
are worth. You have heard it said - if it sounds too good to be true - it
probably is. While there are some situations where this type of loan could
be good, overall, for most who simply need a mortgage for a new home - it
is not a good way to go. If, after reading this, you still want to get one
of them, at least you should read more about it - pros and cons. |
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Some mortgages also come with a promise to enable
you to buy a larger home. This may sound innocent enough, but a lot of people
right now are losing those larger homes simply because they did not get the
larger salary when they thought they would. The larger payments kicked in
- but they had no matching salary - the home was lost. You are far better
off in the long run taking a home with payments you can afford, and buy a
larger home later after some equity is built up - and your salary.
Interest rates are another thing you want to watch.
When you get a mortgage, remember that both your credit rating and your current
debt ratio have a part in determining what your actual interest rate will
be. Raising your credit score by reducing your debt is one way to reduce
the interest rate; another way is to make a good down payment - at least
20% if possible. You may also be able to reduce the interest rate by paying
points, which is cheaper than actually paying the interest.
Finally, be sure to shop around some for your
mortgage. There can be a rather large difference in interest rates and total
amount you will need to pay over the life of the mortgage. Compare fees carefully
by separating all fees from the principal and this will show you quickly
which one is charging you more.
Copyright 2007 - By Mike Valles, not
to be reprinted, copied or circulated without written permission of the
author.
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