Home Mortgage: Selecting The Best Loan

There are so many different loan products that sometimes it turns very difficult for first time home buyers or non-specialists to choose the loan that best adjusts to their needs and budget and given that most lenders and brokers employees work on commission, it is hard to get from them an accurate and cheap solution to your financial needs. In order to make things easier we offer you some advice as to which loan you should take according to different easy-to-recognize variables.

Are Your Keeping The Property? For How Long?

If you are going to purchase a property you need to figure out how long you will be staying there in order to select the best loan type. This is due to the fact that variable rate mortgages are cheaper and thus, if you are only staying for a couple of years, it is best to select a variable rate but if you are going to stay for many years and plan to repay the mortgage loan in full without selling the property, then a fixed rate is more advisable.

Therefore, experts state that for periods of time over one year and up to 4 years, it is advisable to apply for a 1 to 3 year adjustable rate mortgage loan while for periods of time over 4 years and up to 7 years, it is advisable to select a mortgage loan with a variable rate lasting the length of the loan or a balloon loan with the balloon payment due date at least a year after the month you are planning to sell the property (to cover yourself from unexpected circumstances). For longer periods of time adjustable rate loans are ok but too dangerous if you are living on a fixed income and the repayment schedules are very long (15 or 30 years). Fixed rate loans are more advisable for such long terms.

Do You Plan To Borrow On The Property Again?

If you want to use the equity on your home for cheap financing, then you will need to build equity fast. For that purpose, the short versions (15, 20 years) of fixed rate mortgage loans are the best while short variable rate terms (1, 3, 5 and 7 years ARM) or long fixed terms are better for reducing the amount of the mortgage loans' monthly installments.

Can You Face The Risk Of Interest Rising?

If you live on a fixed income and you do not think that your income will vary a lot with the years, you should stick to a fixed interest rate loan or a 10 years ARM. If your income is variable and you are a good saver with control over your finances, then you will not have problems if the interest rates rise for a year or two and you will take advantage of the lower interest rates that variable rate loans provide.

Also, you should be smart and study what expert say that will happen the next few years. If all agree that interest rates will rise, then you should avoid applying for an adjustable rate mortgage loan. But if all agree that the interest rates will drop the next few years, then by all means take the chance and take advantage of the lower interest rate on variable rate mortgage loans.