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which mortgage do i choose? Key questions to
ask yourself and lenders when shopping for a mortgage!
Compliments of: Linda Christianson
Traditional Fixed
Rate Mortgage? Graduated-Payment Mortgage? Adjustable Rate Mortgage?
FHA Mortgage? Two-Step Mortgage?
You are wondering
which kind of mortgage is best. The answer: There is no one correct
answer. Deciding which type of mortgage will best fulfill your
needs can be difficult. There are so many types of loans and different
term lengths. Your choice is extremely important and can take some time
and effort to research. While often neglected by homebuyers, a little
research before choosing your mortgage can save you thousands of dollars
in the long run.
There are several
elements of a loan that should be analyzed. While one of these elements
may suggest one type of loan, another may call for a different type. You
must weigh each ingredient separately and collectively.
You will find that your answers to the questions below will ultimately
determine the type of mortgage that best fit your needs.
How
long do you plan to stay in this home?
Five years? Ten years? Thirty years?
The length of time
you will be in the home will certainly play a part in determining which
loan to apply for. If you only plan to be in the home for 5 – 7 years
or less, you should seriously consider an adjustable rate loan. If you
intend on staying 20 – 30 years, a fixed rate mortgage may be right for
you.
How
much risk are you willing to accept?
If you are the type
of buyer that needs to know exactly what you will be paying each month
for the term of the mortgage, a fixed rate mortgage will fulfill this
need. The fixed rate loan, however, will also net a higher interest
rate. If you are willing to take some risk of fluctuations in the
interest rate, may receive a lower interest rate.
What
are your income expectations?
Plan for the
future. Do you anticipate a gradual or dramatic increase in your income
in the next few years? If you expect a big increase, a graduated
payment mortgage may be best for you.
How
much cash do you have available for upfront costs?
If you have the
resources, you may want to make a larger down payment to lower your
monthly payment. By keeping a higher monthly payment however, you might
be able to shorten the term of the loan to a 15-year loan in order to
pay it off quicker.
Keep in mind that
you’ll have closing costs and fees to pay in addition to your down
payment. If you don’t have much cash saved for your upfront costs,
don’t despair. You may be forced to accept a higher monthly payment or
could even lower your monthly obligation by choosing an adjustable rate
mortgage.
In addition to
choosing a type of loan, you must also consider which lender to use.
Once again, several factors of a loan will influence your decision.
Annual
Percentage Rate (APR)
This most likely is
the best way to make an “apples-to-apples” comparison of lenders. The
APR reflects the cost of credit on a yearly rate and includes any points
and fees in addition to the interest rate.
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.
Points and
fees
These factors will
vary greatly. Look out for hidden fees. Make sure the lenders disclose
all fees; ask what they charge and what is included and
what is not.
Loan
Approval
Both approval and
funding time should be considered. You don’t want to lose a prospective
home because your lender takes weeks to fund your loan. A lender should
be able to fund the loan within ten days.
Lender Reputation
Don’t rely on
solely someone else’s recommendation. You, not your friend, must feel
comfortable with your lender. If you do feel good about your lender and
trust him , it will be much easier to trust his advice on what kind of
mortgage will best suit your needs.
I sincerely hope
these tips and ideas will be of value to you. The types of loans
mentioned above are only a few of the multitude of loan types
available. If I may be of any further service please contact my
office. I would consider it a privilege to be of service to you! If
you would like a free consultation call my office at 218-825-3610 or
800-250-9701.
Ext. # 5028
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