Things to Consider When Getting a Mortgage
Buying a home is one of the most exciting times of someone’s life, and getting a mortgage is one of the biggest financial decisions you will ever make. There are many different types of mortgage products available on the market today. So how do you know which one is right for you? It’s not as complicated as you may think, and in the next few paragraphs you’ll understand why.
The biggest factor in determining what type of mortgage you should get is how long you plan on staying in the home. If you know or strongly believe you will be staying in the home for longer than five years, then your best option is to get a fixed rate mortgage. Mortgage rates are so low today that you want to take advantage of that and lock in a low rate. With a fixed rate mortgage the most popular products are a 15 and 30 year mortgage.
Getting a 15 year mortgage will save you a ton of money in the long run. If you buy a $200,000 house with a mortgage rate of 5% your monthly payment on a fifteen year loan will be $1581.59 before taxes and insurance. If you apply these same terms towards a 30 year loan then your payment will be $1073.64 before taxes and insurance. The total amount you pay with interest for the house in option one is $284,686.20. The total amount you pay in option 2 is $386510.40. As you can see you’ll save big money by choosing to go with a 15 year fixed rate loan. This does not include the peace of mind benefit you’ll receive by living in a paid for house.
If you’re 100% certain you will be living in your home for less than five years, then it may make sense to get an interest only loan. This will keep your payment low, and hopefully your home will go up in value by the time you sell. You could also go with an adjustable rate principal and interest loan. One of the most popular types of these loans is a 5-1 ARM. This is a mortgage where the rate is lower than fixed rates, but your interest rate is only fixed for 5 years and then it will usually increase. This is a great option if you know you’ll be selling in the next 5 years.
The last thing you must consider when getting a mortgage is the closing costs. Not all loans are created equal. If you’re offered a no closing cost loan make sure you are not paying more in the interest rate. It is better to pay some closing costs if you can get a lower interest rate, because in the long run you’ll save money. Closing costs can really add up so make sure you shop around and get the best deal possible. Buying a new home is stressful enough, but if you follow these sound guidelines, getting a mortgage will be easy.