Shopping For A Home Loan

Next to shopping for the home itself, shopping for the home loan can be just as cumbersome. For such a large amount of money, you want to make sure you are getting the best deal possible.

Loan Elements
There are four key elements of your home mortgage payment: the principle, interest, taxes, and insurance. The principle is the amount of money that your are borrowing, less any down payment made. The interest is the cost of borrowing, expressed as a percentage of the total amount that you borrow. The money for your property taxes are put into an escrow account until it is time to pay them. Home insurance is required by most lenders. If your down payment was less than 20 percent, you will also be responsible for paying private mortgage insurance.

Types of Loans
There are several different kinds of home mortgages from which you can choose. The major factor to use in the decision of which home mortgage to borrow is the length of time that you plan to be in your home. For example, if you plan to remain in your home for a long time, a fixed mortgage is perhaps the best mortgage to choose.

The two major kinds of home mortgages are fixed-rate and adjustable-rate. As the name suggests, a fixed-rate mortgage, FRM, has an interest rate that doesn’t change over the life of the loan. Your monthly mortgage payments will never change. FRMs are typically available for 15, 20, or 30 years. With an adjustable-rate mortgage, ARM, the interest rate varies depending on current market rates. In most cases, the initial interest rate for an ARM is lower than that of the FRM. If you are interested in lower monthly payments for the first few years of your loan, an ARM is a good choice.

A balloon mortgage is yet another type of home mortgage loan that you can obtain. This type of loan has a lower initial interest rate for five to seven years. After that time, the entire balance of the loan is due, hence the term “balloon” mortgage. Balloon mortgages are best if you are planning to sell your home, refinance it, or pay it off prior to the balloon payment due date.

Choosing a Loan
Now that you know the components of your home mortgage and the types of home mortgages you can choose, how exactly will you make a final decision? This will depend entirely upon your personal situation. As mentioned previously, the length of time you plan to live in the home is a key factor. You should also consider your career and salary for the length of time you will have your home mortgage. Do you expect your salary to remain the same or increase the length of your loan? Are you comfortable with the uncertainty an ARM can present as far as monthly home mortgage payments?

Also consider the cost of the loan. What is your interest rate for the loan? Consider also the fees charged by the lender. You may be able to negotiate a waiver of some of the fees. Ultimately, you want to pay the least amount of money for a home mortgage loan.

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