Applying for a mortgage could be one of the major decisions you’ll make in your life. It could change your lifestyle and future plan that’s why careful planning should be observed.
If you come to the decision of getting a mortgage plan, consider these tips on how to choose the right one for you.
Determine your length of stay
How long will you stay in the house? It’s important to know this as it will affect the payment terms you’ll have to choose for your mortgage plan.
If you plan to stay for only 3 to 5 years and then resell the house, a 5/1 adjustable rate mortgage might be the best option for you. If you’re staying for 10 to 20 years, a 15-year fixed rate would be a strong suggestion to consider.
Check your finances
Know how much your savings and income could handle. Having a loan means you’ll be paying monthly dues with interest.
There are also a variety of interest rates to choose from. Depending on your financial projection and length of stay, a fixed-rate or a variable rate would be best suited for you.
It would be a relief in the long run if you can do extra payments aside from the monthly dues you give. This way, the extra payment will be directly deducted from the principal amount in your loan.
Down payments should also be heavily considered. A bigger down payment means lesser terms to pay and more negotiable interest rates.
Fixed rate vs. adjustable rate
Fixed-rate mortgages (FRM) offer fixed interest rates while adjustable-rate mortgages (ARMs) have low initial costs but varying interest rates.
A fixed rate loan would be a good choice if you plan on living in the home a long time. Interest rates are lower the longer the payment term is. Even if inflation surges, the interest rate will remain stable throughout the mortgage period.
Adjustable-rate mortgages have low initial down costs which makes it very tempting to a lot of home buyers. It’s ideal for those who plan to stay in a house for a short period of time.
Each has its own benefits and drawbacks so weigh your options and your financial capability before choosing one.
Consider the additional fees
Aside from the down payment, you need to take note of additional fees such as: loan origination or underwriting fees, broker fees, and transaction, settlement, and closing costs. Some are paid the moment you apply for a loan and some during closing. There are also “no cost” loans available that eliminate these additional fees but for a higher interest rate applied on the loan.
Compare different plans
Look around for lenders that would offer the most appropriate deal. It would help to take a look at mortgage comparison tables to compare features, interest rates and other charges you’ll need to take care of. Mortgage calculators might be also of help in payment projections and calculations.
Look for contingency options
Many lenders offer mortgage amnesties in emergency situations and financial troubles. Some also offer recalculations to adjust your interest rate to shorten or lengthen your mortgage term depending on your paying capabilities. Consider these extra deals when choosing a mortgage plan.
Mortgages could be harsh on your budget. It would be an added burden to your other expenses so carefully study mortgage plans before getting one.