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CHOOSING A MORTGAGE

The mortgage debacle of the past few years has changed some things, but the variety of mortgage loan programs can still be confusing.

30-year fixed, 15-year fixed, FHA, 7-year ARM, 1-year ARM, etc. etc. etc.  How do you pick the loan that's best for you?  That will depend on your personal financial situation and what the current rates are.

We have always been pretty conservative about financing options and have kept our clients out of the riskier mortgages, something which has turned out to be pretty smart. As long as interest rates remain at their current low levels, a 30-year fixed loan is probably safest.

Most mortgages are paid over a period of 30 years, which makes it easier for homeowners to afford the monthly payments.  However, the longer the term of the mortgage, the more interest is paid over the life of the loan.  That is why some financial planners recommend 15-year mortgages, which have a higher monthly payment but cost less in interest.  Other financial planners tell us that it is better to invest the difference in payment between a 15-year and 30-year loan which will gain you a higher return on your investment.

Whether you choose to pay off your mortgage more quickly or leverage the low interest rate for a longer period of time is up to you and your long-term investment goals. 

If you think you will be in your house a short period of time, less than five years, you may want to consider an adjustable rate mortgage (ARM). These loans usually have a low start rate and then can go up or down 2% per year or 5-6% over the life of the loan.  There are other ARM loans which are fixed for three or five years, and then become a one-year ARM.  Most ARM loans are convertible to fixed rate loans, which makes them more attractive in periods where interest rates have risen temporarily.

Remember that if your down payment is less than 20% you could have to pay mortgage insurance, which insures the lender against your default. Some lenders still offer "piggy back" loans which includes a second mortgage to avoid mortgage insurance with a smaller down payment, and FHA loans are available with as little as 3% down payment.

When you are ready to think about buying a home, call or email us and we will review all of the various mortgages and provide you with computerized comparisons to help you make informed decisions.