When buying a home, probably the most important decision you will make will be regarding your mortgage. Your mortgage lender will be a great source of information when it is time for you to decide. Go ahead and discuss your financial situation with your lender and get a preapproval letter. This letter will indicate the basic terms of your mortgage such as interest rate and repayment term.
So you are prepared when you meet with your lender, here are some pros and cons for the different mortgage options that are currently available.
This is the most popular mortgage type and offers you 30 years with a fixed interest rate to pay off your mortgage. You will have a lower payment each month than if you financed your mortgage for 15 years. Because the term of the loan is so long, there is a greater risk to lenders, so you will pay a higher interest rate than with a 15-year loan. In addition, over 30 years, you will spend a lot of money in interest. Your interest is often tax deductible depending on your tax situation, so this may still be a low to no cost way to finance your home.
The overall mortgage works the same as a 30-year mortgage, but the principal is amortized over 15 years instead of 30 years. Because the term of the loan is shorter, there is less risk to the lender and therefore they offer a lower interest rate. In addition, paying the mortgage loan off in half the time will save you lots of money in interest. On the flip side, because you are paying off your loan in half the time, your monthly payments will be higher. Depending on the value of the home you plan to purchase, this may or may not be something you can afford to do. Even if you can afford this option, you may decide to get a 30-year loan, so you have more funds available each month to use at your discretion.
ARM (adjustable rate mortgages) are not very popular right now because mortgage rates are so low, but they are still an option. They work very similar to the traditional mortgage, but the interest rate can be adjusted at different intervals throughout the mortgage. For the lender, if interest rates rise significantly, they are able to adjust your rate in the future and as the owner of the property if rates drop significantly, your interest rate might decrease at some point. Because interest rates have stayed relatively low in recent years, this is no longer a popular option and doesn’t offer significant savings over the current fixed rates. If you are in the jumbo mortgage range, the savings over a fixed rate loan are a little more so you may want to consider this.
Overall, there is a lot of thought that should go into your mortgage decision. Your mortgage terms are stuck with you for the long term unless you refinance or sell your home, so you definitely want to take the time to ask good questions and make the best decision for you. If you don’t have a mortgage lender, contact me and I will be happy to introduce you to select professionals that will deliver excellent service, as well as help you to find your dream home or determine the value of your existing property.
Nancy Davidson is your ultimate real estate resource for Mammoth Lakes, CA and The Eastern Sierra. Visit my website for detailed information regarding today’s real estate markets.
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