If you are planning to mortgage your house or property, this is a probably the most important financial decision you will make in a long time. This is not something you rush into or decide rashly, because the consequences of failure are too drastic. It is best to sit down and do a lot of thinking and research, because the decision is so crucial.
Depending on your financial situation, you can find a mortgage option that best applies to your case. It will take from 20 – 40 years before a mortgage matures. It is therefore important that you are aware of the implications of the mortgage agreement you will be entering into with the bank. You can get a good idea of what type is best for you if you look into some of the advantages and disadvantages of each type of mortgage agreement.
I have listed them below to help you make a choice.
First and foremost, you need to determine what your financial needs are, why you are applying for a mortgage. This should guide you in determining the type of mortgage that suits you.
1) Fixed rate or adjustable rate. A fixed rate mortgage is a loan that has the same interest for the entire duration of the mortgage. If you prefer the adjustable rate mortgage, you will be experiencing fluctuations in interest rates per month, but this has a cap so it won’t go too high. What suits you best, paying the same amount of money each month; or venturing on the possibility of lower interest rates because of adjustments?
Majority of people settle for a fixed rate mortgage than for an adjustable rate. For people who have no plans on staying long on the property, the adjustable rate mortgage is better; but for those who live permanently on them, fixed rate suits them best.
2) Will a government insured or conventional mortgage be best for you? Once you have decided on the interest rate, you need to decide on whether to get a government insured loan or a conventional loan. There is no government backing in conventional loans, but the advantage of government insured loans is that you get backed up by the government in case of mortgage failure.
3) The two types according to size are: Conforming or jumbo loan. The next step is to determine whether a conforming loan or a jumbo loan is ideal for your situation. How much money do you want to borrow, is it just a small amount or a very large amount? If you are only borrowing a small amount of money, then a conforming loan is enough, but if you plan to borrow a very huge amount, you need to apply for a jumbo loan.
Study your options and do your research in order for you to arrive at a safe and sound mortgage decision.