Find_The_Home_Loan_That_Fits_Your_Needs

Mortgage rates can be fixed or adjustable. Do your homework to determine which is right for you.

It’s easier to settle happily into your new home if you’re confident you can afford it. That requires that you
understand your mortgage financing options and choose the loan that best suits your income and ability to tolerate
risk.

The basics of mortgage financing
The most important features of your mortgage loan are its term and interest rate. Mortgages typically come in 15-, 20-
, 30- or 40-year lengths. The longer the term, the lower your monthly payment. However, the tradeoff for a lower
payment is that the longer the life of your loan, the more interest you’ll pay.

Mortgage interest rates generally come in two flavors: fixed and adjustable. A fixed rate allows you to lock in your
interest rate for the entire mortgage term. That’s attractive if you’re risk-averse, on a fixed income, or when interest
rates are low.

The risks and rewards of ARMs
An adjustable-rate mortgage does just what its name implies: Its interest rate adjusts at a future date listed in the loan
documents. It moves up and down according to a particular financial market index, such as Treasury bills. A 3/1
ARM will have the same interest rate for three years and then adjust every year after that; likewise a 5/1 ARM remains
unchanged until the five-year mark. Typically, ARMs include a cap on how much the interest rate can increase, such
as 3% at each adjustment, or 5% over the life of the loan.

Why agree to such uncertainty? ARMs can be a good choice if you expect your income to grow significantly in the
coming years. The interest rate on some—but not all—ARMs can even drop if the benchmark to which they’re tied
also dips. ARMs also often offer a lower interest rate than fixed-rate mortgages during the first few years of the
mortgage, which means big savings for you—even if there’s only a half-point difference.

But if rates go up, your ARM payment will jump dramatically, so before you choose an ARM, answer these questions:

How much can my monthly payments increase at each adjustment?
How soon and how often can increases occur?
Can I afford the maximum increase permitted?
Do I expect my income to increase or decrease?
Am I paying down my loan balance each month, or is it staying the same or even increasing?
Do I plan to own the home for longer than the initial low-interest-rate period, or do I plan to sell before the rate
adjusts?
Will I have to pay a penalty if I refinance into a lower-rate mortgage or sell my house?
What’s my goal in buying this property? Am I considering a riskier mortgage to buy a more expensive house than I
can realistically afford?
Consider a government-backed mortgage loan
If you’ve saved less than the ideal downpayment of 20%, or your credit score isn’t high enough for you to qualify for
a fixed-rate or ARM with a conventional lender, consider a government-backed loan from the Federal Housing
Administration or Department of Veterans Affairs.

FHA offers adjustable and fixed-rate loans at reduced interest rates and with as little as 3.5% down and VA offers no-
money-down loans. FHA and VA also let you use cash gifts from family members.

Find the Home Loan that Fits Your Needs