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.