What Loan Option is Best For You?

October 12th, 2010

The Right Mortgage

What Loan Option is Best For You?

-For new buyers, the world of mortgages may be a little confusing and entirely overwhelming. If you are mortgage shopping for your first new home, you definitely want to get the lowest possible rate that your credit score will grant. While comparing rates and deals from various lenders, there are a few options and facts every consumer should consider.

“Percentage points are extremely important to consider, and buyers should absolutely seek the lowest possible rates they can find,” says Larry Flick, CEO of Prudential Fox & Roach.

A 30-year fixed-rate mortgage of $400,000 at 4.3% would cost $1,979 per month, while the same loan balance at 5.3% costs nearly $2,221, according to numbers from Bankrate – a difference of almost $250 per month. Over one year, that 1% difference equals out to $3,000. “Even small adjustments in mortgage rates can make a quite significant difference in monthly payments,” says Flick.

A 30-year fixed rate mortgage is a great starter mortgage for first-timers, but it is still recommended that consumers crunch the numbers to see what will work for them. A professional real estate agent can show you exactly how the numbers will play out; web-based mortgage calculators are also helpful.

If borrowers want to pay off their loans quicker than the standard 30 years, other options do exist, such as the 15-year fixed-rate mortgage. Adjustable-rate mortgages often have the lowest rates, but vary as the years go by. Most borrowers prefer the certainty of a fixed-rate.

Borrowers with a credit score is 740 or higher usually receive the lowest rates. Lenders also look at a debt-to-income ratio of applicants. “If you are not pleased with the rates you are receiving, work on raising your credit score and paying off some debt before applying,” says Flick. “Remember, every percentage point counts.”

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