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Defining and Comparing Mortgage Options
Author David Schneider | May 23,2007
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Choosing a mortgage may seem complicated, but if you are prepared and organized before you go about pursuing your mortgage, it can be much easier than you think. There are a number of mortgage options which you should consider before approaching a lender. Here are a couple of the basic ones.
Should I opt for a Fixed Rate Mortgage or an Adjustable Rate Mortgage?
A fixed rate mortgage is one where your interest rate is constant for the life of the loan. In an adjustable rate mortgage, the rate is periodically changed based on the prime market rate. Adjustable rate mortgages tend to be considerably cheaper in the short term, but over the length of a ten, fifteen or thirty year mortgage loan, fixed rate mortgages are usually a better option financially. If you expect to be holding the property and paying the mortgage for an extended period of time, you should opt for the fixed rate mortgage if you are able to.
How Should I Handle Points?
Points represent a percentage that is paid to the lender up front as a fee. Just as with other mortgage options, the more you are willing to pay now, the less you will have to pay later, so if you can afford it, you should usually opt for higher points in order to secure a more competitive interest rate.
Should I choose an Interest Only Mortgage?
In an interest only mortgage, your mortgage payments for the first five or ten years go only towards paying off the interest, and do not affect the principal. Like the adjustable rate mortgage, this will mean a cheaper payment in the short term, but will probably prove more costly down the road, so if you can pay more than the interest each month, you should.
What do I Need to Understand About Mortgage Options?
As should be clear by now, the main thing to understand about mortgage options is the way in which you balance the cost to you now versus the cost to you later. The more you can pay earlier the better, but not all investment or purchasing opportunities allow for high up front payments. If you have a great opportunity now, you may not be able to afford to wait until you have more purchasing power to pursue a mortgage loan. Whatever options you choose, a great way to start is by comparing mortgage rates using quotematch.com. Just by filling out a free, simple form with no obligation, you can get the best rate quotes for the mortgage you want, and be easily paired with the types of lenders who can meet your needs. Now that the Internet allows you to easily see which lenders can provide which rates for which options, the mortgage process has become a whole lot easier. |
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