What is the Best Mortgage Plan

[Apr 28, 2008.]

 

One of the most alarming and confusing parts of buying a house is deciding on a mortgage plan. Refuse to be alarmed. Banks offer lots of different plans, but this wide selection is meant to help, not paralyze, the would-be buyer. Good rates are often not the only thing to look for when choosing a mortgage. In fact, what kind of mortgage you should get tends to depend on your whole lifestyle, on what kind of person you are and what you intend to do with the home that you intend to buy. Here are examples of three kinds of home buyers. Their example clearly demonstrates how, certain mortgage plans are more advantageous for some kinds of buyers than for others.

If you don't plan to relocate from the home that you intend to buy within the next ten years, then definitely consider a long-term fixed-rate mortgage. Every payment you make will be charged the same interest. A fixed-rate mortgage is costlier than an adjustable-rate mortgage, but its advantage is in stability. In today's crisis-wracked economy, stability is a big asset. Fixed-rate mortgages typically last 30 years. If you are impatient and can afford the higher rates, you can get a fixed-rate mortgage lasting 15 years. The 15 year loan is advantageous because, even though the individual payments will be higher, you will end up paying less in interest. To obtain a fixed-rate mortgage, go to a mortgage banker. They will lend money to you directly, work with other lenders who will loan them the money to loan to you.

By contrast, if you plan to move from the house within a few years, you should get an adjustable mortgage. These are riskier than fixed-rate mortgages because the interest you pay fluctuates in accordance with the sometimes-unpredictable state of the economy. However, if you accept the risk, you may have to pay less. This is worthwhile if you intend to resell the house anyway, before too long. Some adjustable mortgages have an option where you pay a fixed rate for the first three, five, or seven years (depending on the mortgage plan), and it becomes a one-year adjustable loan. The smaller banks will be eager to sell you adjustable mortgages. Try to get a better deal by getting a checking account or other service with them as well. Banks are often willing to negotiate.

If you're buying an expensive house and can afford a big down payment, the jumbo mortgage is the right option for you. A jumbo mortgage is defined as any mortgage involving a loan above the conventional limits set by the finance industry. That can be up to $729,750 if you live in an expensive place New York. This is a good time to be thinking about jumbo loans: banks used to charge much higher interest rates for these huge loans, but now they cannot afford to do so. Find jumbo mortgages at large banks, or brokerage firms, who respond eagerly to signs of wealth.