Making Good Choices When Shopping For Mortgage Loans

There are many mortgage products in the market now days. Therefore, it is very important that buyers do their homework to determine what type of mortgage is best for them. The best mortgage is the mortgage that best fits the personal situation of the buyer. Buyers should look at the following issues before signing a loan.

Look carefully at the current financial situation.

Make a very realistic determination of much you can afford.

Decide how long you expect to be in the house.

Determine how much will you be putting as the down payment.

Make sure you are comfortable with the payment.

Understand the mortgage choices available in the market.

Following is a description of the most common mortgage choices available in the market:

1) Fixed mortgage rates are the traditional loans that have a fixed rate over the life of the loan. In other words, the interest rate on the note remains the same through out the terms of the loan. The payments handling the principal and interest will remain the same. Typically the life of these loans is 30, 25, 20, 15 years. This type of mortgage is recommended for buyers who want the safety of a constant mortgage payment and plan to stay in the home for longer than 7 years.

2) An Adjustable Rate Mortgage (ARM) is a mortgage where the interest rate on the note is periodically adjusted based on a variety of indexes. This type of mortgage typically starts at a lower interest rate; consequently, with lower interest payments, but interest rates fluctuate depending on market interest rates.

3) An Interest only Mortgage is a loan for set term, the borrower pays only interest on the principal balance, but the principal balance remains unchanged. At the end of the interest only term, the borrower pays the principal or converts the loan to a principal and interest type loan.

4) Balloon Mortgage is usually rather short with a term or 5 - 7 years; however, the payment is based on 30 years. This type of mortgage often has a lower type of interest rate, and it can be easier to qualify than the traditionally 30-years fixed rate. The risk for this type of mortgage is that at the end of the short term (5-7 years), the balance must be paid off or the loan must be refinanced.

5) A Negative Amortization Mortgage is a type of mortgage where the payment made by the borrower is less that the accrued interest. The interest difference is added to the loan principal. Consequently, the amount of the loan keeps increasing as time goes by. Potential home buyers must carefully consider this option as they may, in time, find themselves with a loan amount that greater than what the home is worth.

Once the buyer has determined what mortgage product is best for him/her, he/she will need to select the lender that offers the mortgage product that they want along with the best interest rate. Part of a job of a good lender is to educate you, the buyer, on the mortgage products and the options available for you.

Maria Suarez writes on mortgage lending issues. You can visit my related pages at:

http://real-state-refinance-basics.blogspot.com/

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