Choosing a Mortgage that is right for your needs
It is alright to avail of mortgage on your own if you are well familiar with it. But if your knowledge is a bit limited, it may be a good idea to seek the advice of a financial or mortgage expert so you can fully understand its different processes and terms, especially the fixed rate mortgage (FRM), adjustable rate mortgage (ARM), and interest only mortgage.
Before you avail of a mortgage, you first have to know what your purpose is for obtaining it. You also have to determine your stint in the home that you’re planning to buy. Are you moving in for good or only for a specific period of time? Will you vacate your home after your work assignment?
Or, will this be your retirement home? Sad to say, many forget to consider this or even ignore this. Your length of stay will help you determine what type of mortgage is ideal for you.
If you plan to stay in your home for not more than two years, the ARM is not recommended for you, but the FRM is. ARM is perfect for those who intend to stay in their homes for at least five years. This is because in the first two years in an ARM, the rate of interest and your mortgage repayments usually remains unchanged and this is actually favorable on your part.
To give you a clearer picture, let’s cite an example wherein you are planning to buy a $250,000 home. Let us apply it on an ARM and on a FRM based on a 3-year term and try to compare which one of them is better. Let’s assume that the adjustable rate is at 3.125% and the fixed rate is 5.125%. The payment, therefore, for the ARM amounts to $1,071.00 and for the FRM, $1,361.00. If we’ll try to get the difference, you will actually save $290 a month in a span of three years if you decide to choose the FRM.
Aside from the ARM and FRM, there’s also the interest only mortgage. This has some similarities with the ARM wherein the interest is fixed within a specific period of time. In the interest only mortgage, the interest may be fixed for 3 years, 5 years, 7 years or 10 years. What differentiates the two is that the payment in interest only involves the interest and not the principal amount. The interest only loan is harder to obtain as this has complicated processes. This is the most ideal type of loan for businessmen who do not have a standard monthly income.
Before you avail of a mortgage, you first have to know what your purpose is for obtaining it. You also have to determine your stint in the home that you’re planning to buy. Are you moving in for good or only for a specific period of time? Will you vacate your home after your work assignment?
Or, will this be your retirement home? Sad to say, many forget to consider this or even ignore this. Your length of stay will help you determine what type of mortgage is ideal for you.
If you plan to stay in your home for not more than two years, the ARM is not recommended for you, but the FRM is. ARM is perfect for those who intend to stay in their homes for at least five years. This is because in the first two years in an ARM, the rate of interest and your mortgage repayments usually remains unchanged and this is actually favorable on your part.
To give you a clearer picture, let’s cite an example wherein you are planning to buy a $250,000 home. Let us apply it on an ARM and on a FRM based on a 3-year term and try to compare which one of them is better. Let’s assume that the adjustable rate is at 3.125% and the fixed rate is 5.125%. The payment, therefore, for the ARM amounts to $1,071.00 and for the FRM, $1,361.00. If we’ll try to get the difference, you will actually save $290 a month in a span of three years if you decide to choose the FRM.
Aside from the ARM and FRM, there’s also the interest only mortgage. This has some similarities with the ARM wherein the interest is fixed within a specific period of time. In the interest only mortgage, the interest may be fixed for 3 years, 5 years, 7 years or 10 years. What differentiates the two is that the payment in interest only involves the interest and not the principal amount. The interest only loan is harder to obtain as this has complicated processes. This is the most ideal type of loan for businessmen who do not have a standard monthly income.
[posted by : OFP on May. 31, 2011]
TAGS: debt, mortgage