There are many different types of mortgages with a plethora of features and fees. Choosing the right kind of mortgage based on your life style could not only make it easier for you to repay the loan but also save you thousands of dollars.
First, make an honest assessment of your financial position. Do you have a stable job? If you are in business, does it yield you a regular profit? Calculate your gross income. If you have a very low income that deters you from saving anything then you would do well to opt for a low down payment mortgage. If your income is good enough to have allowed saving for the down payment it’s better that you make a 20% or more down payment. The less you owe the better.
Are you sure that you can repay your loan after a sudden loss of employment? On the other hand, if you as a couple are repaying together, what if your spouse loses their job, can you still manage it? A longer amortization period (30 years) would mean that you pay a smaller amount monthly, which would be lighter on your monthly budget. Also, remember that you pay a higher interest and a larger amount overall with mortgages that are spread over longer periods. A shorter (15 year) amortization period would mean that you pay a larger monthly installment, but a lower interest rate and therefore, a smaller price for the house.
Choosing between a fixed rate loan and one with an adjustable rate is always a gamble. If the fixed rates are low now, it’s better to go for that option. The choice between an Adjustable Rate Mortgage (ARM) and a Fixed Rate Mortgage (FRM) is based on the wider economic outlook, whereas the choice of mortgage is more dependent on your financial situation.
Mobility is another factor that has to be actively considered when deciding about your mortgage. Will your job require you to move away from your current place of residence to another? Do you see yourself out of a house in 4-5 years? Alternatively, you do not intend to move out of the town/city where you live, for the rest of your life.
A short stay may not work in favor of buying a house altogether, unless rent prices in the area where you live are higher and real estate prices are appreciating faster. If you plan to sell the house in 5 years and move out, then opt for mortgages where the interest rate is lower in the first few years of the mortgage. ARM mortgage loans are also suitable for short home owning periods. The rate with ARMs is very low during the first few years. Definitely, the monthly payment will be less than the rent you would have paid. Those considering a move to a larger house after a few years can also consider these mortgages.
Assuming that you have thought well about the kind of property you have decided to buy, make sure that you are entering into a debt with complete understanding of all the pros and cons. And lots of luck on your move!
Lester Bleich, New York State Licensed Mortgage Loan Originator 