| As you start your search for a mortgage, there are a | | | | below 20% or below 5%) that can affect the return |
| few questions you need to ask yourself in order to | | | | significantly. |
| narrow your search and know what you're looking for. | | | | Do I Want an Interest-Only Mortgage? |
| Unfortunately, the answers to those questions aren't | | | | An interest only mortgage offers homeowners an |
| always easy. For some honest mortgage advice on | | | | option to pay only interest, but for a specified period of |
| the answers to your mortgage questions, keep | | | | time. This results in a lower required monthly payment |
| reading. | | | | and the buyer is still free to make payments on the |
| Fixed Rate Mortgage or ARM? | | | | principal. |
| If you plan to stay in the house you're planning to | | | | Interest only mortgages should only be used though by |
| purchase for longer than 7 years or simply want | | | | borrowers who actually need them. For example, a |
| stability in your monthly payments, pick the fixed rate | | | | good candidate might be a freelancer or contractor |
| mortgage if you can afford it. A fixed rate will allow | | | | who has a fluctuating income and wants the freedom |
| you consistent payments month-after-month for the | | | | to make extra payments on the principal while still |
| duration of the mortgage loan. | | | | having a smaller monthly commitment. |
| Alternatively, an ARM (Adjustable Rate Mortgage) is | | | | Other examples include individuals who need the cash |
| great for families who know they'll be out of their | | | | flow for high-yielding investments (earning more than |
| house in less than 7 years. Before you take on an | | | | 9% over the long term) or families who are expecting |
| ARM, ask your lender what your worst case scenario | | | | to make higher incomes in a few years, at which point |
| would be based on your annual rate adjustment cap. | | | | they can begin making some significant principal |
| Make sure you could financially handle a potential | | | | payments. |
| sharp spike in your monthly mortgage payments. | | | | Should I Accept a Pre-Payment Penalty? |
| How Large Should My Down Payment Be? | | | | A pre-payment penalty is a clause in your mortgage |
| Ask yourself how much of an interest rate reduction | | | | agreement that says you'll pay a penalty if you pay |
| you'll get with a higher down payment and whether a | | | | off the mortgage too early or seek to make extra |
| lower down payment will result in having to pay | | | | payments. On the surface, you might assume the |
| expensive private mortgage insurance. Mortgage | | | | lending institution would welcome the faster repayment |
| insurance is often required by the lender to cover their | | | | of its loan. However, doing so actually results in some |
| risks when the buyer's down payment is too low. | | | | financial loss through lost interest payments. |
| Typically, investing in a larger down payment results in | | | | Typically, prepayment penalties disappear after a few |
| a return on the investment that's equal to the | | | | years. If you opt for a fixed rate mortgage and plan to |
| mortgage interest rate. Now, if dropping your down | | | | remain in the house for a long time, you can often |
| payment puts you in a different category (for example, | | | | exchange a pre-payment penalty for a lower rate! |