There are many different types of mortgages available
today. It's important to shop around to find the mortgage and
mortgage rate that's right for you.
Contact lenders at banks and credit unions as
well as mortgage brokers. Or let Allie Mae assist
you in finding an approved lender. Keep in mind that the lowest
mortgage rate may not always be the best choice for you. Rates
are important, but also consider the overall cost of the loan.
Look at other costs such as loan and origination
fees, and discount and origination points. Be sure to ask the
lender exactly what he or she is quoting to you. Ask what the
annual percentage rate (APR) of the loan is. The APR takes into
account the interest rate and fees.
Ask for a "good-faith estimate" (GFE)
in writing from each lender that you work with so you understand
all of the costs and you can compare lenders. Required by law
to be given to you by the lender, a GFE is a written statement
itemizing the approximate costs and fees for the mortgage.
Some of the most common mortgages available
Fixed-rate mortgages are stable and offer long-term
savings. Because the interest rate never changes, the monthly
principal and interest payment never changes either. Your payment
could go up a little, however, if property taxes and insurance
costs go up. A fixed-rate loan is the most common loan for first-time
Adjustable-rate mortgages (ARMs)
usually start with a lower interest rate than a fixed-rate mortgage,
so your monthly payments are lower. This allows you to qualify
for a larger mortgage than would be possible with a fixed-rate
mortgage. The interest rate on an ARM is adjusted periodically
based on an index that reflects changing market interest rates.
When the interest rate is adjusted your monthly payment goes up
or down. It's important to understand all the aspects of ARMs
before you make your decision.
Balloon/reset mortgages may be a good choice
for home buyers who don't expect to own their home past the maturity
date of the balloon note: 5 or 7 years, for example. At the end
of that time, you must sell your house or get a new loan, called
a refinance. Expect to pay fees associated with a refinance.
Graduated payment mortgages start out with
lower monthly payments; then over a period of years, your payments
go up slowly. When the payments reach a certain amount, they stay
fixed at that amount for the rest of the loan. Graduated payments
loans are good if you think your annual income will go up.