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Choosing the Best Mortgage - What's Right for Me?

 Choosing the Best Mortgage - What's Right for Me?

15-year or 30-year?  Fixed or adjustable?  Coke or Pepsi?  Ok, so maybe that last one has nothing to do with buying a home, but there are a lot of important questions you have to ask yourself when thinking about taking out a mortgage.  Not only should you use your negotiating skills to get the best rate possible, but you should also make sure you are getting into the best mortgage possible for your situation.  With that in mind, let's take a look at some tips for choosing the best mortgage for your needs.

15-years or 30-years?  These are the two most common types of mortgages, with a majority of mortgages nowadays being of the 30-year variety.  The big think to keep in mind when deciding the length of the loan is that the longer the loan, the more interest you are going to pay.  This interest can run into the tens of thousands of dollars more for the longer loan - the benefit is your monthly payment is going to be less.  Generally speaking, if you are in good shape financially and can easily afford it you should go for the 15-year loan.  If you are just starting out, or have other financial obligations, a 30-year loan probably makes more sense.  You never want to be in a situation where you have to struggle to make your house payment every month!

Remember too, no matter if you chose 15-year or 30-year for your mortgage note, the interest rate you pay is going to play a key role.  30-year notes typically have higher rates than 15-year notes.  So, again, if you can afford it, the 15-year note may offer the best rate, and combined with a few points can really help you get your home paid off without incurring massive interest charges.

The next big question is fixed or adjustable rate mortgage?  I'm sure we've all heard the news about people getting into problems with ARM's (adjustable rate mortgages) recently.  What the news doesn't tell you is these people never paid attention to what lenders and real estate professionals have been saying for years.  ARM's are only worth is when you plan on staying in the house for less than 10 years (on a 30-year mortgage) typically.  It is something where you really have to compare side-by-side a fixed with an ARM to see where the break-even point is.  ARM's should never be used to buy a house you can't afford on the assumption that you will make more money in the future when they adjust.  None of us know what the future may hold and buying more house than we can easily afford now is always a recipe for disaster.

When you are shopping for a house and a mortgage you should always keep three things in mind:  1) What's the absolute best rate I can get?  2)  What length do I want that helps me minimize my total cost, but also doesn't stretch my budget too think? And 3) How long do I plan on being in this house?  Knowing the answer to these three questions can help you make a much better purchasing decision and help you get the mortgage loan that benefits you the most.