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Buying Your Home: An
Important Financial Decision...
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If you foresee moving in your future, then you might want to investigate the adjustable rate mortgage (ARM).
This type of mortgage is less costly at first than the traditional fixed rate mortgage. However, it is adjustable,
which means that the interest rate on the mortgage will move up and down with the market rate of interest. As a
result, your monthly payment will change during the life of the mortgage - probably many times. When interest
rates are high, then ARMs make a lot of sense since, as they drop, your house payment will also drop. However,
when interest rates are low as they are now, ARMs make less sense as just about the only way for interest rates
to go are up!
Lenders don’t only make money on mortgages through the interest rate! There are many hidden, and not so hidden,
costs associated with obtaining a home mortgage. Your best bet is to get pre-qualified and pre-approved for a
mortgage, as these actions will minimize the fees associated with your mortgage.
Before you begin shopping for your dream home, ask your lender whether or not you would qualify for a loan. It’s
a good idea to ask several lenders this question and let them give you quotes. This will allow you to only look
at homes that you would qualify to buy. You can also try to get pre-approved for obtaining a mortgage. Watch the
fees, however, because some lenders charge a fee for pre-approval and/or pre-qualification!
Locking in an interest rate is a popular tactic that potential homebuyers use. Before you lock in a rate, ask your
lender if your rate can be lowered if interest rates drop during your lock-in period. And be sure your lock-in
period is long enough as it takes awhile to find that perfect home and complete all the paperwork - usually a
minimum of 45-60 days.
Ask your lender to prepare an estimate of closing costs that you will pay when the loan is finalized. Be prepared
to try to negotiate those closing costs down! Some of the fees may be dropped if you do some of the work yourself.
Last, be sure there is no prepayment penalty associated with your mortgage. If you move and want to buy another
home after paying off your current house, you do not want to have to pay a penalty because you’re paying off your
mortgage early.
Comparison shop for a home mortgage and do your research and you won’t go wrong!
Copyright © 2000 Rosemary Carlson.
Rosemary Carlson is a freelance
columnist and feature writer in personal finance, investments and the
financial markets. She has been a Professor of Finance at Morehead State
University for 18 years and worked extensively in the online learning
area in finance. Visit Dr. Carlson's homepage at http://www.carlsonwriterprofessor.com
or email her at rcarlson@mis.net. |
