How To Determine Which Mortgage Option Is Best

When it comes to applying for a mortgage, the simpler the terms, the better. The loans that banks were offering just a few years back may have sounded great at the time, as they offered a variety of perks and easy qualifying criteria. What resulted was the mortgage crisis and thousands of foreclosures. In today’s mortgage world, the rules are more upfront, and if your credit is not solid, you simply may not qualify. While this may sound harsh, it is much better in the long run, as taking out a loan that you cannot afford can be the start to a long road of financial problems.

During the height of the real estate bubble, “exotic” mortgages were quite popular. Many banks offered what are known as liar’s mortgages, (meaning no proof of income needed), low down payment mortgages, adjustable rate mortgages, and balloon mortgages. These loans seemed like a god-send to individuals with less than desirable credit and the self-employed, but they turned out to have dangerous consequences for both the lenders as well as the consumers.

A good rule of thumb in today’s market is to settle for a fixed rate plan with a realistic term.

For most individuals, a 15 or 30-year fixed rate mortgage is the best way to go. While adjustable rate mortgages may sound tempting, a fixed rate loan will allow you to know exactly what your rates will be throughout the term. If your lender suggests a low-rate ARM, you will want to steer them back to a fixed rate plan before they can sway you with the promise of low rates and other exotic loan terms.

The majority of banks offer the standard mortgage terms of 15 to 30 years, which are the best for the majority of consumers. 30 years should be the maximum that you are willing to go, even if the rates are substantially lower for longer term loans. Longer term loans in the range of 40 to 50 years result in excessive interest charges, and the truth of the matter is that the length of the loan terms are quite unrealistic.

Once you have decided on your terms, you will most likely be required to make a down payment. If you are offered the opportunity to make a down payment that is lower than 20 percent, it is always a better idea to make a payment of at least 20 percent or more. Not only will you end up borrowing less money for your home, 20 percent is also the down payment amount needed in order for the borrower to avoid paying for private mortgage insurance, which only benefits the lender.

Shop around and compare mortgage rates. In today’s mortgage world, the lenders are still quite competitive with one another, so it is important to learn what is available to you before signing on the dotted line. Even a small difference in a percentage point can save you a large amount of money in the long run.

Take your time, and choose wisely. If you can’t seem to find a mortgage that sits right with you, or if you are finding yourself on the fence about taking out a specific mortgage, chances are you haven’t found the right fit just yet. You may wish to take a few months off and build up your credit score, as well as continue to shop around. By taking the time to weigh out your options and make realistic and responsible choices when it comes to borrowing, you will be able to find a mortgage plan that suits your needs and budget, ultimately saving you a lot of money in the future.

Author: Scott Skyles

Since 1995, Scott has been involved with over $1 Billion in mortgage fundings and is recognized as an expert in residential mortgage lending. Scott is licensed and able to originate mortgage loans in all 50 states. You may follow Scott on your favorite social networks: Facebook | Google+ | Twitter

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