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Mortgages
Seeking a mortgage in today's climate might
seem like a shaky proposition, but you shouldn't be overly concerned.
Although the banking industry has gone through some real turmoil, your position
as a borrower is the same. With decent credit and a job you should be able
to qualify for a home loan. Regardless, you shouldn't let anything hold
you back from owning your own home. It makes sense emotionally and
financially.
Be careful though to avoid the mistakes of
others. Interest only loans, adjustable rate mortgages, and balloon
payments are for fools and professional investors only. Normal homeowners
should only consider fixed rate mortgages. Interest only loans are just
that. The home will never be paid off, and the effect is that you are
renting your house from the bank. Adjustable rate mortgages (ARMs) might
give you a lower payment today, but put you at great risk of increases in
interest rates. Your payment could double or triple in short order leaving
you in a real bind. Balloon payments give you a lower payment today with a
huge payment due usually after just a few years.
Fixed rates loans are the answer. An
even better answer is a fixed rate loan of a shorter period of time.
Depending on the terms of your loan, just $50 to $100 extra per month can
shorten a 30 year loan down to $15 years. Sometimes you may get better
interest rates on shorter term loans. Many bankers will only present you
with a 30 year loan unless you ask for examples of 25 year, 20 year, or 15
years. This is going to affect the rest of your life, so don't
hesitate to be a stickler and get what you want. Also, don't hesitate to
negotiate with the bank for a lower interest rate. For instance, ask them
if you can pay a little money to lower the interest rate. You may be able
to pay $1000 to lower your interest rate by 1%, or $2000 to lower it by 2%.
This is often an option and sometimes not mentioned unless you ask. If you
have this option, figure out the amount saved per month divided into the amount
paid upfront to calculate the break even date. Often, you will break even
after 3-5 years. If you sell the house, or pay the loan off before that,
you will have made a mistake. But if you are making payments for 15-30
years, it is often a wise choice to "pay the points". We wish you luck in
your new home.
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