How to Pick a Mortgage Loan

By Dlaniger, eHow Member Rating

Rate: (8 Ratings)

There are literally hundreds of types of mortgage loan programs. Mortgage loans are available for almost every scenario you can think of. You never really know what your neighbor’s financial situation is, so when you’re told “I got this great loan and you should get it,” proceed with caution. There are important things you should consider in order to choose a mortgage loan that is the right fit for you.

Difficulty: Moderate

Instructions

Step 1

Determine that you have the ability to meet all your financial obligations and will have the same desired quality of life you had prior to picking your mortgage.
Step 2

If you are refinancing or purchasing a home, determine how long you plan to keep the home. Since fixed rate loans are the safest loans, you may want to look for a fixed rate product.
Step 3

If you plan to sell your home within the next two years, consider a Hybrid Arm loan, a fixed rate loan which changes to an adjustable rate loan after the fixed rate period expires. For example, there is a 3/1 Hybrid Arm loan that is perfect for someone who is positive they will have their home sold in less than three years. The 3/1 means the loan will be fixed for 3 years and adjusts every year after that based upon the index the loan is priced at. There is a 5/1, 7/1, and 10/1 Hybrid Arm loan as well. They are all amortized over 30 years. If mortgage interest rates are good, go with a standard 30 year fixed rate loan.
Step 4

If you finance over 80% of your home’s value, you have three options to consider, because mortgage insurance is required on prime loans over 80% of the value of the home. Either get one loan and pay mortgage insurance. Secondly, get one loan at 80% and a second mortgage for the amount over 80% so that you won’t have to pay mortgage insurance. Third, get one loan at 80% and a Home Equity Line of Credit for the remaining value of your home. The third option allows you to not only avoid mortgage insurance, but it gives you access to the equity in your home whenever you need it without having to apply for a new mortgage loan.