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Take the Guesswork Out of Your Mortgage


Study Your Choices. What more can we say? Knowledge is Power! After reading this explore our site and visit our Library section for articles, definitions and links to other impartial sites.

Estimate Tenure In Your Home. If you plan on staying in a home for life, consider higher up front costs to obtain a lower rate. If you are moving within seven years consider an adjustable rate mortgage (ARM) with a low introductory rate or a zero-point loan.

Gauge Your Tolerance For Risk. ARMs (Adjustable Rate Mortgages) are relatively less predictable than fixed rate loans. However, ask what is the ARM is based on? [There is a new product that is based on the Certificate of Deposit (CD), it is more stable than typical indexes-haven't you always wanted to avoid putting your money into CDs when you could get a better return elsewhere? Ask about Associate Mortgage's ARM based on the average 12 month CD rate.]

Consider A Convertible. Convertible mortgages are special ARMs that give you the opportunity to bail out if rates climb to high, typically after the first year and before the fifth year. The conversion will cost you but you could lock in a fixed rate before your loan becomes unaffordable.

Learn The Two-Step. The flip side of convertibles, two-step mortgages give you a fixed rate for a fixed short term, say five or seven years. Then it becomes an ARM. If you sell or refinance within the initial term, you could avoid higher ARM rates.

Take A Graduated Payment. Graduated payment mortgages (GPMs) start out with a relatively low monthly payments which gradually increase, hopefully, along with your income. The loans can get you in a larger home than other loans would permit, but if your salary can't keep pace you could be in trouble. Make sure the initially lower monthly payments are high enough to cover interest otherwise your debt will increase each month. This is often recommended to recent graduates who have prospects of higher earnings after experience in the work force.

Give Yourself Credit. Pull your credit reports before you apply for a mortgage to avoid the lender alerting you to surprises. The preemptive examination of your credit report gives you time to correct errors, add consumer statements or otherwise clean up your credit act. [See our credit pages.]

Know Your Limits. Your real estate salesperson may tell you how much they think you can borrow, but your loan officer's pre-qualification and credit reports are a better indication of your credit and loan limit worthiness. Don't shop for a home you can't afford. You will be very disappointed!

Take Your Time. Unless you know you've got sufficient long term income to handle the higher monthly payments of a 15 or 20 year loan, stick with the conventional 30-year mortgage. You can always make extra payments as if it is 15-year loan and save a bundle, but know what your pre-payment penalties are before you agree to any type of mortgage program.

Tax Advice Is Good Advice. Taxes regarding mortgages and mortgage costs can be confusing. For example, if you write a separate check to the lender to pay the points on a first purchase mortgage you can deduct them all at once. If they are financed along with the mortgage, you'll have to deduct them over the life of the loan's term. Rules vary for second mortgages, refinancing and cash out loans for home improvements. Get professional tax advise.

Compare Everything. To truly decide which loan is best for you, you'll need to set up a table to compare all costs for each loan, including all the closing costs, points and yield spread premiums. Ask that a loan comparison be created for you by your mortgage broker.

Plan To Invest In Your Mortgage. Even small payments each month, in addition to your regular mortgage payment, can save you a bundle. [Just be aware of how much you can pay extra each year and over the life-of-the-loan to avoid pre-payment penalties.]