How to Choose the Best Home Mortgage for You

There's no such thing as the single best home mortgage. The best home mortgage for you is the one that fits you and your personal situation. Here are some things to think about before you decide.

Difficulty: Moderately challenging

Instructions

Things You'll Need:

• Financial Calculator
• Newspaper Subscriptions
• Online Mortgage/finance Services

1. Look carefully at your current financial situation. Try to determine what your financial picture will look like over the next several years.

2. Study interest rates to get a sense of where they are headed. The Wall Street Journal, Barron's (printed on Sunday only) and some of the better Sunday newspapers have comparative interest rate information for the last year.

3. Determine how much you will be putting down on your house and how much you can afford to pay monthly.

4. Decide how long you expect to be in the house. If you expect to stay for only a few years, look at ways to reduce the down payment and to keep the closing costs and points as low as possible. (A point is one percent of the amount of your loan; buyers generally have to pay a certain number of points as part of their closing costs.) If you plan to stay for several years, it's more important to get the lowest interest rate you can.

5. Understand the differences between the mortgage choices available - fixed, adjustable rate (ARM) and balloon (see "How to Decide Between a Fixed and Adjustable Rate Mortgage").

6. Decide which is more important to you now and over the long run: having a steady, constant mortgage payment, or paying the lowest initial rate with the possibility that your mortgage payment could rise.

Tips & Warnings

• Be as realistic as possible when assessing your financial situation. If you have to estimate, make it a conservative or "low-ball" guess.
• While it's good to study interest rate trends, remember that even financial professionals can't say for sure where rates are going - so don't get too obsessed with rates.
• Make sure you're comfortable with your interest rate decision. If your current financial situation says to go with the riskier adjustable rate, but your gut says you want the security of the fixed rate, go with your gut.
• Be sure you understand the types of mortgages available. Fixed rate mortgages are relatively easy to understand, while adjustable rate mortgages (ARMs) and other, newer varieties take a while longer to grasp. Don't go into anything until you have a full understanding of the conditions and consequences.

[himetri]

on 4/2/2008 Useful! See also http://hy-homemortgage.blogspot.com

[sgrant]

on 1/23/2008 This is a really helpful article. Thanks. I had no idea what points were.

[ckwall]

on 8/28/2007 I don't know about anyone else, but, trying to find the right loan, when you don't know anything about loan stuff gets exhausting and you always wonder if there is a better loan, rate or lender out there. I think finding the right loan product should be the first step. We are faced with a mortgage crisis right now because lenders put people in the wrong loans. When doing my mortgage research online I ran across an interesting site called correctlending.com. They do an analysis on your situation and tell you the exact loan to be in. After that you have the option to have lenders who specialize in that particular loan type compete for your loan so you then get the best price. I thought it was a great tool, so, I thought I'd share it knowing that others might feel the same way I did in the beginning.

on 11/22/2005 Brokers get paid two ways, you or the lender. If you can understand that you will pay the broker a fee, it's always better to pay it in up front "points" so that you get the lowest rate. Lenders usually pay the Broker to sell a higher rate!

on 11/22/2005 Brokers are always trying to get you to refinance. Look carefully at all the costs involved. We paid more points up front and got a fixed, 7-percent interest rate when we bought, and that's about as good as it gets for the long term.