Are you planning on applying for a new mortgage or refinancing soon? If so you may be wondering which type of mortgage program is right for you. With so many different options available it’s hard to know what is right, so in this article I will be walking you through the process of applying for a mortgage and showing which one is right for you.
What Mortgage Is Right For You?
To understand which mortgage is right for you we need to know more about your situation. For example, maybe the house you are planning to buy is only a starter house and you only plan to live there for the next 3 years. In this case it would be best to go with a 3/1 adjustable rate mortgage. This means you will have an interest rate locked in for the next 3 years and after that the interest rate can adjust on an annual basis.
The reason this would be better is because a 3/1 ARM will have a lot lower interest rate than say a 30 year fixed mortgage. Adjustable rate mortgages range the 3/1 ARM to 10/1 ARM’s typically. However, I suggest not going over a five year adjustable rate mortgage since interest rates will not benefit you much at that point, in fact they will be very close to a 30 year fixed rate.
So when would it make sense to apply for a 30 year fixed mortgage? If you plan on owning your home for over 5 years or more a 30 year mortgage will be better since the rates won’t be much different. I also suggest that if you are thinking about refinancing your 30 year mortgage to another 30 year mortgage with a lower interest rate that you don’t. The reason being that if you refinance to another 30 year mortgage you will start the interest rate clock all over again. This means you will be paying the bank a lot of interest of the payments you send them.
Finally, there are a few mortgages you should never apply for. This would be interest only loans, and option ARM loans. In fact, lenders may not even let you apply for these loans anymore since they have gotten a lot of people in hot water financial. Interests only loans are a mortgage were you don’t pay any principle off on your mortgage. An option ARM is similar but they even allow you to pay less than the interest owed which will can add more to your principle balance.
What Mortgage Is For You?
Of all the mortgage programs I’ve mentioned your refinance cost will be typically the same depending on where you go. However, this doesn’t mean your interest rates will be the same so get quotes from several different places to find the best rates, also make sure you discuss all of your options with your loan officer before you decide.
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