Getting a Mortgage

Thing No 1  

Two sides of your coin.

Mortgages fundamentally break down into two camps. Fixed Rate and Adjustable. The fixed rate mortgage guarantees a certain interest rate for a period of time. The most popular fixed mortgages are 15 and 30 years.  The biggest selling feature of fixed mortgages is the 'guarantee' of the payment no matter how much rates may go up. However, if you pick a long-term fixed mortgage - say 5 years - you'll pay for the privilege of having your interest rate locked in. In general, unless you think rates are going to go up past your premium, you'll end up paying more in interest costs over the life of your mortgage if you choose long term fixed.  An adjustable rate mortgage (a.k.a. variable rate mortgage) does as the name implies - move up and down according to a financial index like the Treasury rate. (which moves up and down according to…God knows what.)  Many of them are offered with a fixed front end of five or even ten years.   These are called teaser rates and they are usually 2% lower than the fixed-rate percentage. With an adjustable rate mortgage you can expect the interest rate to be adjusted at regular intervals and your payment will change (up or down) accordingly. For more detailed info than you can possibly bear, go to mortgageguide101.com

Thing No 2  

Determine which way the wind is blowing

If interest rates are going down, consider a shorter-term mortgage. Go for one year or less (if your credit rating and life circumstance will allow). Read up on financial sites and see whether rates are expected to go down, stay the same, or go up; during what time frame. Based on this information you can decide whether to lock in, for what time period and whether a variable mortgage or adjustable rate mortgage are better deals.

Thing No 3  

Shop the Internet plus.

One of your best tools in getting quotes is the Internet. Many sites offer free mortgage quotes from either one or many lenders. This saves a lot of footwork and hassle. Start at places like LendingTree.com and E-loan.com. You may also want to check out the rates at CNNMoney, Bankrate or HSH Associates. These sites carry nationwide listings of mortgage interest rates and other related information.  Don't limit your search to the Web though. Once you have an idea of the best rates from national lenders, get on the phone to your community banks and any other institutions, including credit unions, with which you may have a relationship. Ask if they can beat the national rates. Often, the local lender can offer a better deal simply because he or she knows the local market and wants to keep your business.

Thing No 4  

Loan Officers vs. Mortgage Brokers.

Loan officers at a bank, credit union or other lending institution are employees who work to sell and process mortgages and other loans originated by their employer. Mortgage brokers are professionals who are paid a fee to bring together lenders and borrowers. They usually work with dozens or even hundreds of lenders, not as employees, but as freelance agents. The mortgage broker working to secure your loan is earning a fee for the transaction and the better deal they achieve for a lender, the more they are paid. Don't be too anxious to disclose to a broker the interest rate you are willing to accept--let them tell you what terms they can secure. What difference does it make?  A local or online mortgage broker may find you a lender in another part of the country. An online bank might not have a local office where employees can help you one-on-one.  Using a local bank can sometimes be a plus. Their staff generally understands the specifics of local properties, but a distant lender who doesn't will delay closing until questions are answered.  Mortgage brokers can often find a lender who will make loans that a bank refuses--problem credit is one example. Loans for unique or commercial properties might be easier to secure through a mortgage broker.

Thing No 5  

Figure out what you can afford.

You can typically borrow up to three and-a-half times the main earner’s income before tax, plus one times any second earner’s income, or alternatively two-and-a-half times their joint incomes. Your lender may only count half of income such as overtime, commission or bonuses unless this is guaranteed. Lenders will reduce the amount they will lend if you have substantial outgoings such as other loan payments.