How to Shop for a Mortgage Loan
Mortgage loans June 28th, 2007
Ronda Curtis
Mortgage Loan Officer
Air Academy Federal Credit Union
ph (719) 488-4954
mobile (719) 360-7003
fax (719) 488-2932
Just like shopping for a car, there are many features and components to compare when searching for the best mortgage product.The best way to begin is to determine what your goals are for your financial future. If you are buying a home, ask yourself if you are planning to stay in that home for a long time, or will this residence be a short term purchase. Once you decide how long you will be staying in the property, you can determine the type of mortgage you should apply for. For instance, if you believe you will be in the home for 3-5 years, then you may want to consider a 3/1 ARM or a 5/1 ARM. Both of these products are what is termed as an Adjustable Rate Mortgage. However, the rate is fixed for a certain period; either three years in the 3/1 ARM or five years in the 5/1 ARM. This product may be a better choice then a traditional 30 year fixed rate loan as the interest rates are often times lower than the 30 year fixed rate product. Keep in mind, that if there is a slightest chance you will remain in the property, or want to keep the loan longer than the three or five year period, you will want to consider the risks with the Adjustable Rate Mortgages. After the initial fixed term of the loan, the interest rate can change dramatically, most often times up to 5% higher than the initial fixed rate. This can substantially affect your monthly mortgage payment.
Another feature of mortgage loans to consider is the pre-payment penalty. Most of us don't want to even consider having a pre-payment penalty on our mortgage loans. However, this is a useful tool is reducing the rate on the mortgage. If you know for certain that you will be in the property and will not want to refinance the mortgage loan for a certain period of time, you can opt for a 12 month, 24 month, or even 36 month pre-payment penalty. This can save you between .125% and .375% on your interest rate. Again, realize the risks involved. If you do sell the home or refinance before the pre-payment penalty is expired, then there can be significant fees to pay.
Interest only loans have received a bad review lately, due to the large number of foreclosures. This is because the interest only loan product is a tool for a specific audience. If you have equity in your property, and realize that you will be basically paying rent that is tax deductible, then the interest only mortgage product may work for you. It will allow you a lower required monthly payment for a specific period. One of my favorite products is the 30 year fixed rate interest only mortgage. This mortgage will allow you to pay interest only payments for the first 10 years of the loan. The interest rate remains fixed for the entire 30 year period. After 10 years, the mortgage payment will adjust to principal and interest at the same fixed rate, and amortize the payments on the remaining balance for 20 years. Make sure that your mortgage provider will allow for additional payments to be made to the principal balance without penalty. You can then control what you pay each month toward the principal balance based on your finances.
The main thing to consider when shopping for a mortgage, is to choose a mortgage lender you can trust. You will need to choose a lender that is readily accessible to answer any questions you have. Make sure that your lender understands exactly what you want to accomplish with the mortgage loan. A good lender will also offer you other information and choices you may want to consider. The mortgage loan process is very detailed with a lot of working components all coming together in the end to allow you to purchase a new home or refinance an existing property with exactly the terms you first agreed upon. Ask your friends for referrals of a lender that did a good job for them. This process can be very smooth and well handled by the right lenders...but can also be very bad and sometimes costly if you simply look for the best rate!!!
Happy Mortgage Shopping!!!
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