subject: Mortgage: What To Consider [print this page] Mortgage: What To Consider Mortgage: What To Consider
A mortgage is simply a loan that is taken out to enable the payment of a piece of land, often times with a house on it. There are many things to consider when getting a mortgage such as the principal, type of mortgage, the interest rate, the monthly payments, the term, any discounts offered or incentives, lock-ins, and closing costs.
The principle of the mortgage is the actual cost of the home itself (not including the interest). It is important however, to include the lowest interest rate that you can qualify for because that, along with the principle, will determine your monthly payments after subtracting the down payment from the total price of the house.
There are two main types of mortgage interest rates, those with a fixed rate and those with an adjustable rate. With a fixed rate, the amount of interest stays the same and therefore, your monthly payments stay the same. With an adjustable rate, although you usually pay less interest initially, your interest will fluctuate with the market. You are therefore taking a risk of your monthly payments increasing in the future.
Often times you can get a combination between the two types of interest rates. For example, you can get a fixed rate for the first few years, then it would turn into an adjustable rate mortgage (ARM) after that. The good news is that lots of times, there is a cap on how much you will pay in interest with an ARM (once it reaches a certain interest percentage, you won't ever pay higher than that amount).
The term is for how long you are to pay off the loan. A shorter term will mean higher monthly payments, but you will own your home much sooner because more money will be paid toward the principle of the home and less in interest. To help you better decide on which plan is right for you, be sure to look at any incentives and discounts that may come along with your mortgage plan as well and take those into account when looking at everything else.
Locking in your interest rate when you are in the middle of paperwork is also very important since the market can change before you are done with finalizing everything! Closing costs at the end can be very costly, so be sure to take those fees into account, and any other fees that may creep up.
