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Choosing the
right mortgage
Only a very small percentage of people
are able to purchase a home without
financial assistance. As a result, you
will have to take
out a mortgage loan to help pay
for your house. But, which mortgage
is best for you?
CNN/Money senior writer, Jeanne Sahadi
tries to answer this question in her
article, “Choosing the best
mortgage now.”
Sahadi explains that the best way to
find the perfect
mortgage is to ask yourself the
right questions.
The first thing you should decide is
if you would prefer a 15-year mortgage
or a 30-year mortgage.
“The first question you should
ask is, ‘How much can I afford
to pay on a monthly basis?’ Keep
in mind, your
mortgage payment is only part of
what you'll pay to live in your home.
You also should budget for furniture,
your house's upkeep and the general
expenses of life (like, say, food).”
A 15-year mortgage will have a higher
monthly payment, but a lower interest
rate meaning you will pay
off your loan in a shorter amount
of time.
Conversely, a 30-year mortgage will
have a lower monthly payment with a
higher interest rate, thus it will take
twice as long to pay off the life of
the loan.
“‘For most home buyers,
especially first-time buyers, taking
a 15-year (or 20-year) mortgage is out
of the question,’ said Keith Gumbinger,
vice president for mortgage tracker
HSH Associates. The higher monthly payments
are often too much to handle for these
types of buyers.”
Home buyers with sufficient income will
ideally want to take out a 15-year mortgage
because you pay it off in half the time
and you eventually save money.
“The second question you should
ask is, ‘How long will you be
in the house?’ You probably can't
answer with absolute certainty, but
you can play the odds.”
The reason you should ask yourself this
is because you will want to determine
whether to get a fixed-rate or adjustable-rate
mortgage.
“Say, for example, you're single
and buying a small condo but you can
easily envision yourself married; or
you've just started a family and plan
to expand it at some point. Chances
are good you'll want to trade up to
a new home in five to seven years. On
the other hand, maybe you've had your
family and want to settle into a place
with a good school system, which your
kids will be using for the next 12 years.”
If you plan on staying in the home for
over ten years, you should get a fixed-rate
mortgage; it will probably be cheaper
over the life of the loan.
If you plan on living in the residence
for only a couple of years, an adjustable-rate
mortgage will best suit you because
you will pay less up front.
Essentially, an adjustable-rate mortgage
is a fixed-rate mortgage for about five
years and then it adjusts; ebbs and
flows, according to the national interest
rates. |
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