Tuesday, January 15, 2008

How to Choose the Best Home Mortgage for You

Introduction

There's no such thing as the single best home mortgage. The best home mortgage for you is the one that fits you and your personal situation. Here are some things to think about before you decide.

Instructions

Difficulty: Moderately challenging

Things You'll Need

Steps

1

Step One

Look carefully at your current financial situation. Try to determine what your financial picture will look like over the next several years.
2

Step Two

Study interest rates to get a sense of where they are headed. The Wall Street Journal, Barron's (printed on Sunday only) and some of the better Sunday newspapers have comparative interest rate information for the last year.
3

Step Three

Determine how much you will be putting down on your house and how much you can afford to pay monthly.
4

Step Four

Decide how long you expect to be in the house. If you expect to stay for only a few years, look at ways to reduce the down payment and to keep the closing costs and points as low as possible. (A point is one percent of the amount of your loan; buyers generally have to pay a certain number of points as part of their closing costs.) If you plan to stay for several years, it's more important to get the lowest interest rate you can.
5

Step Five

Understand the differences between the mortgage choices available - fixed, adjustable rate (ARM) and balloon (see "How to Decide Between a Fixed and Adjustable Rate Mortgage").
6

Step Six

Decide which is more important to you now and over the long run: having a steady, constant mortgage payment, or paying the lowest initial rate with the possibility that your mortgage payment could rise.

Tips & Warnings

  • Be as realistic as possible when assessing your financial situation. If you have to estimate, make it a conservative or "low-ball" guess.
  • While it's good to study interest rate trends, remember that even financial professionals can't say for sure where rates are going - so don't get too obsessed with rates.
  • Make sure you're comfortable with your interest rate decision. If your current financial situation says to go with the riskier adjustable rate, but your gut says you want the security of the fixed rate, go with your gut.
  • Be sure you understand the types of mortgages available. Fixed rate mortgages are relatively easy to understand, while adjustable rate mortgages (ARMs) and other, newer varieties take a while longer to grasp. Don't go into anything until you have a full understanding of the conditions and consequences.

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