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Which Mortgage Is Right for You? Three Questions to Help You Decide.
September 15, 2015
If you're ready to buy your dream home, take time for a financial reality check to make sure you're getting the right mortgage for your needs—at a rate that's right for your budget.
How do you decide which type of mortgage is right for you? Alan Speck, a 30-year industry veteran who is vice president and director of mortgage lending at Mid-Atlantic Federal Credit Union in Montgomery County, MD, suggests you start with these three simple questions:
- Do I want my monthly mortgage payment to stay the same, month after month? If the answer to this question is "yes," focus your search on fixed rate mortgage options. Available in terms as short as 10 years—and as long as 30 years—the rate on these mortgages stays the same for the life of the loan so you'll always know what your monthly payment will be (which can make budgeting easier).
- Am I willing to pay more later if I can get the lowest possible rate now? If this describes you, then consider an adjustable rate mortgage (ARM). You'll benefit from a lower introductory rate for a set period of time (five, seven or 10 years). While the rate adjusts based on one of several market indices—and may increase—an ARM has two "caps": One that ensures your monthly payment won't go up too much at once as well as a "lifetime cap" that your interest rate can never exceed, no matter what.
- How much of a down payment can I afford to make? Lenders typically require a borrower to put down 20 percent of a home's purchase price. If you don't have that money to put down, you will be required to pay private mortgage insurance (PMI) as part of your monthly payment until you reach that 20 percent threshold.
Once you've answered these basic questions, you're in a better position to narrow down your search and begin comparing the mortgages offered by various lenders. Make sure you consider your interest rate as well as any fees and closing costs. Many lenders such as MAFCU offer no and low-closing cost options that can add up to even greater savings—and help make buying your dream home a financial reality.