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Why should I buy a home?
The pride that comes with owning a place you can personalize and call your own often leads Home ownership to be called the "American Dream.". In addition, buying a home provides tax benefits, allows you to build equity, and is one of the most stable and solid investments available.
Should I choose a fixed rate or adjustable rate loan?
Fixed rate loans have a stated interest rate that never changes over the life of the loan. Rates on adjustable rate loans are linked to an index and change as the index rate changes. Many mortgages, such as a 5-Year Fixed (30 Year), start as a fixed rate loan and then convert to an adjustable rate. Adjustable rate loans have more risk due to the possibility that the interest rate could increase. However, because you are assuming some of the risk the lender will generally reward you with a lower interest rate. These loans are best for borrowers who do not plan on keeping the loan for the full term because their financial situation may improve or they move.
When does it make sense to pay points?
Points are a one-time fee that a borrower pays to lower the interest rate. Points are defined as a percentage of your loan amount, with one point being equal to one percent of your loan. For example, if you borrow $200,000, one point would be equal to $2,000. Paying one point will generally reduce your interest rate by approximately .25%.
An alternative to paying points is to receive a "credit" from the lender in exchange for a higher interest rate. Whereas points are added to your closing costs, a credit is used to reduce your closing costs. Once again, you can receive a credit of approximately one point by raising your interest rate .25%.
Whether you choose to pay points or receive a credit, this amount will be applied to your closing costs when your loan funds.
Should I consider an Interest-Only loan option?
Interest-Only loans are a good means of either increasing your home purchasing power or maximizing your flexibility to control cash flow. You can save significant amounts of cash for investment, savings, or other expenditures during the first ten years of your loan. This is also a solid strategy to maximize tax deductibility, with more funds available for paying down higher cost, nondeductible consumer debt. With these loans, the minimum payment required covers interest only-you decide how much or how little of the principal to repay each month. These loans should not be confused with negative amortization loans-with Interest-Only the principal balance NEVER increases.
Should I choose a loan with negative amortization?
PickYourLenders.com generally recommends that people stay away from these types of loans due to the high risk. Most adjustable rate mortgages (ARM) adjust the payment when the interest rate changes. However, negative amortization ARMs have a fixed payment option, even when the interest rate increases. Therefore it is possible that the total loan balance may actually grow over time.
How can I be sure my mortgage choice will be the best financial option?
PickYourLenders.com believes that you should treat your mortgage as an investment. For most people their home will be their biggest investment for the future. A mortgage payment is a type of "forced saving" that many people will count on for retirement. In addition, the tax savings from writing off the interest will greatly reduce the yearly cost of your mortgage payments.
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