How to Find the Best Mortgage For Your Needs

My Plan for Finding the Best Mortgage for Your Needs

Once you have found the house that you would like to purchase, if you have not already done so, you need to get a pre-approval from a mortgage lender. Nothing regarding the purchase of a home or a refinance of a home means anything if you do not know what you can afford with your credit rating and income. If the mortgage company is not one that you have heard of or is not a nationwide company, be sure to investigate the company's history and rating with the Better Business Bureau. Once you have completed these preliminary steps it is time for you to find the best mortgage for your needs.

Two Loan Types: In general, there are two different types of mortgage loans. There is the adjustable rate mortgage and the fixed rate mortgage. Homeowners who plan on staying in their home for a length of time are usually better off going with a fixed rate mortgage. However, if you plan on staying in your home for a very short duration or if interest rates are on their way down, you may consider the benefits of an adjustable rate mortgage. Adjustable rate mortgages offer the borrower the benefit of having a lower monthly payment. Typically, the loan interest is lower on these types of loans. Mortgage companies offer them because if the prime interest rate goes higher than the beginning interest rate, the mortgage company makes quite a big more money. Talk to your lender about which one would be the best for your situation and keep the following tips in mind:

• If the interest rate rises, can you afford the highest payment that is allowed by law?
• Are you able to handle the stress of watching your interest rate and payment raise if the LIBOR rises?
• Do you have an emergency reserve of money available to handle difficult financial circumstances if you cannot directly afford a huge raise in payment?

30-Year vs. 15-Year Mortgages

Once you decide what type of loan you want to work with, it is time to decide the duration of the loan. The majority of people go with the 30-year mortgage because they figure on staying in the home for a longer duration and they also want the lower payment. Fifteen-year mortgages are advantageous because while you make a higher payment every month, you pay less money in interest over the life of the loan. In my experience, I might choose the 30-year mortgage yet add 25 percent more to each payment than is required. This way, I will pay off the mortgage in less time while retaining the option to pay less if needed.
A word of advice: If you go with the 30-year mortgage, since you have a lower payment, consider investing that money somehow instead of just spending it every month.