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FINANCING YOUR NEW HOME

The type of loan you choose can affect your monthly mortgage payment. Investigate your options ahead of time. Keep in mind that choosing an interest only mortgage, while it allows for lower monthly payments, does not allow you to build equity in your home unless the property increases in value steadily from the time of purchase.

Choosing a 15, 20 or 30 year mortgage will also affect your monthly payment. The longer the loan the more interest you end up paying. Many mortgage companies suggest that people who hold long-term mortgages make one additional payment per year which can be applied to their principal balance and reduce the length of their loan. Some suggest enrolling in a plan which deducts half of your monthly mortgage payment from your bank account bi-weekly. At the end of the year you have made 26 bi-weekly payments rather than the 24 payment amount due, thereby reducing your loan by an additional payment per year.

Government-backed loan such as those sponsored by the FHA (Federal Housing Administration) or VA (US Dept. of Veteran’s Affairs) offer lower interest rates and lower down-payments if you qualify.

Fixed rate mortgages allow you to budget your mortgage payment at the same rate over the life of the loan.

ARM’s (Adjustable Rate Mortgages) are subject to change. Usually there is a limit on the percentage of the increase and the number of times per year the increase can be applied to your loan. The interest rate on an ARM is generally lower the first year of the loan so you may wish to choose this option if interest rates are high and you expect that your household income will increase steadily over the next few years. If interest rates drop after you have some payment history with your bank you may wish to investigate re-financing with a fixed rate mortgage.