It�s in the news and everywhere we turn. It�s all about the mortgage industry and how it is falling apart. The reality is that the unconventional types of mortgages have created problems and are probably a thing of the past. The risky way of qualifying for a mortgage is also becoming a thing of the past while
the historical conventional way is still around. So if you are looking for a new mortgage or a refinance, remember these tips so you know how to choose the right mortgage to avoid trouble later.
Basically, we are back to the old fashioned conventional, FHA and VA mortgages. Although all mortgages have their risk, these types are the good, quality mortgages that are still available. Which one you choose will depend on your financial situation, your credit score and your lender.
More importantly at this point is whether to take a fixed rate or an adjustable rate mortgage. For many years in the past, everyone wanted a fixed rate. Then, it seemed like all of the sudden, the tides changed. All of the hype was geared to the adjustable rate mortgage. This type of loan was highly advertised because people were qualified based on the initial low rate at the time of application, not the going fixed rate or the potential higher adjustable rate. The lender�s reasoning for using an adjustable rate was that most people move within three years or will refinance within three years. The last reason for justifying the use of an adjustable rate always puzzled me. Reasoning was that within three years of taking an adjustable rate loan you would have a better job, get a promotion or have a salary increase which would take care of the increase in rate and mortgage payment. In the end, more people were able to get approved and lenders were able to close more loans.
Now things have changed. If someone wants an adjustable rate, they must qualify based on the fixed rate at the time of application. Although this is better than it was in the past, there are no guarantees of what the fixed rate is going to be in the future. Making the choice between fixed rate and adjustable rate is probably the most important decision you will make.
With a fixed rate loan, your principal and interest will stay the same for the life of the loan. Taxes and insurance might and usually do go up which will increase your payment. The fixed rate is not that much higher than an adjustable rate and you will not have to refinance if there is no other needs.
You probably already know that the adjustable rate loan payment will change depending on the terms that you agreed upon along with tax and insurance increases. With this you can always refinance. The risk is that your credit has changed or the fixed rate is higher and you cannot qualify. Keep in mind that every time you refinance, there is a cost to pay. Closing costs can add anywhere from $3000 to $6000 or more on to the loan amount.
Everyone needs to make their own decision when choosing which way to go. I, personally, am a fixed rate enthusiast. I don�t like risks or surprises. And I don�t like to keep paying the bank more money to do another loan. It becomes a vicious cycle. My theory is, get it done and get it paid off as quick as possible.
So there you have it. You have just read about the good, the bad and the ugly. I hope this helps you when making your decision when choosing the right mortgage which, by the way, is your decision and only your decision. Do let anyone else do it for you or talk you into something that you are not comfortable with.