Finding a mortgage can be a strenuous process. It can seem as though there are dozens of different types with different interest rates, different lengths and other terms. To find the "right" mortgage not only should you consider those items, you should also consider your objectives:

• How long do you expect to live in the home?
• Do you see the mortgage just as a "financing vehicle" or do you have anxiety about being in debt with a desire to pay off the mortgage as fast as possible?
• What is your tolerance for increases in monthly payments?

Your evaluation should include types of mortgages (fixed rate, adjustable variable rate and balloon) along with the lengths and other terms. Here is a calculator that will help you determine monthly mortgage payment levels with different types of mortgages.

As you look at these results, there are be a few things that you will probably notice:

• Even though the interest rates on shorter term fixed rate mortgages may be lower, the monthly payments are probably higher. This is because the amount of principal payment each month is larger. You are paying down the mortgage faster.
• Usually, Arms with shorter term initial rate periods (for example, 1 and 3 years) usually have lower rates and lower monthly payments. This is due to the "yield curve" sloping upward with longer maturities. Longer term loans have higher rates.

Even though shorter term Arms and potentially balloon mortgages offer lower monthly payments, it is important that to understand that rates on Arms can increase after the initial period and that the entire balance of a balloon mortgage comes due at the end of the mortgage period. If you are considering an ARM or balloon mortgage, be sure that you would be able to afford a higher monthly mortgage payment if your rate increases. Here is a calculator that can help you evaluate the impact of increasing mortgage rates.

Consider Increasing Your Down Payment
One of the easiest ways to reduce your monthly payments is to simply borrow less. A larger down payment will reduce the interest you pay and may help you qualify for a lower rate. It can certainly improve your chances of having your mortgage application approved. Increasing your down payment, especially if your planned purchase is in the future is easier with an automatic savings plan. Decide how much you want to save and over what period. Then find out how much you need to put aside each month to have the larger down payment you want.

Start Your Automatic Savings Today
There is no easier way to save than with an automatic savings plan. If you are already using direct deposit for your paycheck, have Forest Bluff Financial Services transfer the amount each month. Here is an Automatic Transfer Authorization form to help you enroll. You can also have your employer deduct the amount each month and deposit into the account of your choice. Here is a Payroll Deduction Direct Deposit form.

If you are not already using direct deposit for your paycheck, here is a Payroll Direct Deposit form to help you get started. You can also call a service representative at 800/723-7237 or email for more information.

Other Issues to Consider

• The size of your mortgage payment should only be one part of your mortgage decision making process.
• If "paying off" your mortgage or significantly reducing your total debt level is important, a shorter term fixed rate mortgage with a 20 or 15 year term may be right for you.
• If you plan to live in your home for only a short time (for example, five years or less), you may want to seriously consider an adjustable rate mortgage with an initial rate term that matches your moving plans.
• Balloon mortgages are usually less attractive than a similar term ARM. With a balloon mortgage, you will need to secure a new mortgage at the end of the term subjecting you to not only to changes in rates, but also the costs and process of getting that new mortgage.
• Be sure that you can afford your mortgage payments - both at the time you get it and in the event that you get an ARM and rates have risen when the initial rate period expires.

Summary

Choosing the mortgage that is right for you is critical. Consider what you want your mortgage to do for you. Factor in your plans for how long you anticipate needing the mortgage (how long you are going to live in the home) and be sure that you can accept the risk that your monthly payments may rise if you choose an adjustable rate or balloon mortgage.

Take Control of Your Financial Future

Articles from our library about buying and owning a home.

Evaluating mortgage types

Tax implications of home ownership

Home equity loans

Consider refinancing regardless of rates

Buying your first home

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