There are many factors to consider when choosing the right home mortgage for your purchase.
Fixed vs. Adjustable Rate
A fixed rate loan carries a higher interest rate than an adjustable, so it may be a more costly option if you don’t plan to stay in your new home for at least five years. Conversely, if you plan to remain there for many years it may be worth locking in a fixed rate – especially if interest rates are at lower than average levels.
Term – 30 Years or 15
While there are loan programs available with various durations, most home mortgages have a term of 30 years. There are some significant advantages, however, to choosing a loan with a 15 year term. Although the payments will a bit higher, the loan will be paid off in only 15 years – and you’ll save thousands in interest.
Points vs. No Points
Some loan programs require the borrower to pay points while others do not. Among competitive lenders, a no point loan will carry a higher interest rate than one with points. The no point loan is probably the best deal if you don’t expect to remain in your new home for more than 2 or 3 years. If you intend to remain for at least 5 years then it’s most likely worth paying the points to get a lower rate.
There are a variety of loan programs available for borrowers who want to borrow more than 80% of the purchase price. Depending upon the lender, the borrower, and the state of the market there are loans available to finance 95% or more of the purchase price. Most of these high loan-to-value mortgages require the borrower to purchase private mortgage insurance.