If you plan to obtain a mortgage so that you're able to buy a house, there are several factors that you must think about. No matter how much you love the place that you're planning to move into, those feelings could quickly start to dissipate once you realize that you're stuck with a bad loan that is so expensive that you're unable to pay for any other expenses. Arming yourself with the right mental preparation is the key to knowing how to shuffle through loan offers until you find the right one. Read through the tips that follow so you will be able to select a mortgage loan that you can live with.
Should You Choose a Fixed- or an Adjustable-Rate Loan?
One of the initial decisions you'll need to make involves whether you should go with a fixed-rate or an adjustable-rate mortgage. Only you know what your financial situation truly is, and if you aren't honest with yourself about where you are now and where you plan to go, you stand to make the wrong choice.
Fixed-rate loans have the same annual percentage rate (APR) throughout the life of the mortgage. What this means is if you get the loan at a certain percentage rate, you can count on your mortgage payment being the same amount each month for as long as you have the loan.
Adjustable-rate loans operate a bit differently. The initial APR is usually quite low, and this allows you to qualify for a larger house because the payment is more affordable. However, somewhere during the life of the loan, the rate fluctuates and you can expect to pay a different amount for your mortgage, typically a lot higher than it was at the beginning. Can you afford to live with the volatility of an adjustable rate loan, or would it be better for you to get a more affordable house with a payment you can count on to be the same the entire time?
Watch Out for Balloon Payments
As you are reading through the loan contract, pay careful attention to any mention of a balloon payment. A balloon payment is a large sum of money that is due at a particular point if you are to keep the loan. Unless you're able to come up with large amounts of money in a short period of time, you might want to steer clear of any loan that has a balloon payment attached to it.
Choosing the right loan is within your reach. These suggestions can put you well on your way toward obtaining an affordable loan with great terms.Share