Assuming you're not paying cash for your new home, finding the right loan to meet your needs can be one of the hardest parts of buying. There are a number of mortgage options out there, and if you choose one that isn’t really ideal for your situation, you might end up paying a lot more for it in the long run. With so many options, though, how do you know that you’re getting the best loan to match your situation?
It might take a little bit of homework, but there are actually a few different ways to sort through potential loans to find the best one for you. A lot of things can affect the loans that are available to you, including where you live, what your credit history looks like, and even the state of the economy. With that said, here are a few things that you should keep in mind when shopping around for loans to help ensure that you get the loan that best meets your needs.
Interest Considerations
With interest rate currently hovering around 7%, getting a good interest rate on a mortgage loan is obviously a big concern for most potential buyers, since even a small difference in interest rates can result in large savings when choosing between two mortgages. This is one of the big reasons we recommend that you shop around for your mortgage, comparing quotes from a few different lenders to find the one that offers you the best interest rate. The rate alone isn’t the only thing that you need to consider when comparing loans, however.
Interest can take multiple forms on mortgage loans. Fixed-rate loans lock in a single rate for the entire repayment period, while variable-rate loans can change over time (usually once per year and with the amount of change capped, but the exact details can differ between loan providers). Some mortgages even act as a hybrid between these two, locking in a low rate for a specific period and then changing it after that period has ended. Understanding the type of interest that a mortgage features and how it will work over the course of the loan can help you avoid unexpected payment changes down the line.
Loan Terms and Features
The term of your mortgage is another thing that you should pay careful attention to, since it can affect both your monthly payment and the amount that you pay in interest over time. Longer-term loans will probably cost you more in the long run, especially if you have a loan that will increase in interest over time. Likewise, shorter-term mortgages can save you money in interest, but might be harder to pay each month due to a higher overall payment. For example, a $500,000 loan will cost $3,326.51 per month for your mortgage payment, where a 15-year loan at 6% (reduced interest rate due to the shorter term of the loan) will cost you $4,219.28 per month. However, if you can afford the extra $900 per month, the interest on the 15-year loan will only total $259,471.15 vs. $697,544.49 for the 30-year loan. That's quite a difference!
Finding the Best Loan
The key to finding the mortgage that’s right for you is finding lenders that you can trust. Fortunately, experienced realtors know many reputable lenders. It's one of the reasons you should engage and employ a professional realtor in your home search. Contact us for more info.
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