How to Choose between Different Types of Mortgages

With so many different types of mortgage available, it’s difficult to determine the right one for you. Before you start looking at available mortgages, however, it’s important to first evaluate your finances, as your financial situation is an important factor that will dictate the type of loan you need, and how much you can afford to borrow.

Step One: Evaluating Your Finances

Before you even think about the type of mortgage you should obtain, it’s important to evaluate your financial situation. Check your credit rating and FICO score, evaluate your income and debt level, figure out the size of the down payment you can afford, and determine how much mortgage you can afford and what your credit rating will allow you access to.

When it comes to your credit rating, know that between 620 and 699, you’ll probably pay a higher interest rate than if your credit rating is over 700, due to a slightly higher perceived risk on the part of lenders. If your credit rating is below 620, you may find it’s better to wait and improve your credit rating rather than be forced into a sub-prime mortgage with a high interest rate.

Step Two: Choosing the Best Mortgage

Once you have completed an evaluation of your financial situation, you’re ready to start thinking about the kind of mortgage you want. The mortgage that best suits you will depend on a long list of factors, not all of which are related to the amount of money you have for a mortgage. Think not only about how much mortgage you can afford, but also your credit rating, how long you plan to stay in the home, and whether you think your plans or financial situation might change in the future.

So what are your main mortgage options?

Fixed rate mortgage

 

Normally a 10, 15, or 30-year mortgage, you pay the same interest rate over the life of the loan.

Good for: If you like the security of paying the same amount every month and you’re planning on owning the home long-term, this is definitely the best option. There are some variations on this theme, including jumbo mortgages, which are larger-than-standard loans with a slightly higher interest rate.

Adjustable rate mortgage

 

These are mortgages with adjustable interest rates, which come in several different varieties. When you first get an adjustable rate mortgage the interest rate is lower than that you’d get with a fixed rate mortgage. However, at intervals, the interest rate can increase or decrease according to current market rates. This means your monthly repayments aren’t fixed, so these types of mortgages are more risky in comparison to fixed rate mortgages.

Good for: If you want a mortgage with an initial low rate and you’re prepared to take a risk on later rates (or you only plan to own the home for a few years), this may be a good prospect.

Interest-only mortgage

 

The standard type of mortgage is amortized, meaning your monthly repayments include both principal and interest. An interest-only mortgage is just what its name suggests – your monthly repayments don’t have to include principal (but you can pay off principal amounts at any time). This means you are not building up equity in your home while you’re only paying interest, but there are no pre-payment penalties.

Good for: This type of loan can work well if your income is at a consistent level overall but is subject to highs and lows, since you can pay off extra principal when you can afford to do so, and pay interest only when your income is at a lower level.

Balloon mortgage

 

This type of mortgage has a fixed interest rate and stable repayments over the life of the loan, with lower repayments in comparison to a fixed rate mortgage. However, the terms of the loan are generally short, with three, five, and seven years being the most common options. At the end of this time period, the entire balance of the loan is due. The final payment is typically very large, so a balloon mortgage is one which shouldn’t be taken lightly.

Good for: This type of mortgage can be a good option if you plan to stay in the home long term, want to get your mortgage paid off quickly, or if know you can afford the balloon payment. Alternatively, a balloon mortgage can be useful if you know you’ll be moving or refinancing before the balloon payment is due.

30-due-in-7

 

For the first seven years of the mortgage you have a fixed interest rate which is generally lower than that of a standard fixed rate mortgage. In the eighth year of the mortgage, the interest rate changes to be in line with whatever the current rate is at that time. For the remaining 22 years of the mortgage, the interest rate stays fixed at that rate. Another option is a 30-due-in-5 mortgage, where the interest rate changes in the sixth year.

Good for: These mortgages can be a good option if you’re planning to stay in the house for more than five or ten years and you are willing to risk the possibility that your monthly payments may change substantially when the second interest rate is due.

About the Author

Rachel Jackson is a freelance writer who writes about topics and pertaining to the mortgage industry such as refinancing home mortgage.

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Great Tips On How To Be Rich

Being rich can be accounted for on various terms. Some people may feel rich if they are surrounded by their family or close relatives. Others count richness based in the number of their friends or fullness of heart due to service rendered for the good of humanity.

Still, one of the most sought-after richness is often that which is measurable in terms of monetary or property value.

People can be rich through various ways and means. What one needs to look out for is his or her interest, and then find ways of earning through such interest so as not to feel the burden and stress of raising funds.

Below are some tips on how to get rich:

1. Invest in stocks. Though stocks are highly unstable, an individual should have the necessary knack for determining when to sell and when to purchase the right number of stocks.

Entailing the services of a broker might be a good idea, though a conservative one is still sometimes the best choice since a chancy broker, though he or she might give you a fortune on a surge in certain stocks, might be too much of a risk.

2. Buy and sell. Individuals who have large amounts of capital engage in buying and selling of real estates or houses, with the intention of reselling it after its value has increased.

Value may increase due to renovations and repairs if it is a house or improvements on the area for estates.

For individuals who have full-time jobs, he or she may sell small items to earn extra cash.

Earning is not the end-all and be-all of being rich. One has to learn and take into consideration the following information to be able to retain such earnings.

1. Live simply. The common downfall of most people who experience a sudden upward surge in their income is to uplift their cost of living. This may be in the form of acquiring a larger house, a trendy and costly mobile phone, new cars or new appliances.

Though at first glance this may look like a one-time purchase or flow-out of money, others costs or probable expenses are hidden in the form of maintenance expense gasoline for all the newly-acquired cars, repairs larger houses entails larger amount of money needed for probable repairs and larger bills utility bills for the large house or housecleaning services.

2. Saving. If an individual saves at least 20 of his or her monthly earnings, and invests the same on mutual funds or other investment vehicles that offer higher interest rates as compared to savings account interest on some banks, he or she would be guaranteed a fair amount of money saved for future use.

3. Recycle. Items that currently have no more value or use to the owner might be of something good to someone else.

Hold garage sales to discard items that occupy space and clutter the home. Not only would this clear the house, but this would give an individual extra cash from which he or she may add to their savings account or use as additional capital for whatever investment he or she would like to engage in.

Still, richness can only be truly felt when an individual has the feeling of being satisfied with everything that he or she has. This is the shortest way to the path to richness.


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