Mortgages: Different Products for Different Needs

Although real estate values can and do go down, history tells us that owning a home over many years can be one of the best ways to build wealth. If home ownership is still part of your American dream, here are tips for getting a mortgage that meets your needs and your budget.

Start by considering whether a fixed-rate loan or an adjustable-rate mortgage (ARM) is right for you. Fixed-rate loans offer stability in the payment amount, while ARMs generally offer lower initial payments.

A good rule of thumb, especially if you intend to own your home for more than a few years, is to consider a fixed-rate loan even if ARMs carry a lower initial interest rate. A fixed-rate loan can provide peace of mind over many years, especially given that other housing costs — such as real estate taxes, insurance and home upkeep — are likely to rise in the future.

As you comparison shop, be sure to use the Annual Percentage Rate (APR) as a key point of reference. The APR is the cost of the loan expressed as a yearly rate.

It includes the interest rate as well as certain other costs, such as "points." (Points are one type of fee paid at closing by the borrower to the mortgage lender. Each point equals one percent of the loan amount.

There are two types of points: those charged by the lender to recover some of the costs of making the loan, and those that the borrower agrees to pay to "buy" a lower interest rate.) Remember that with an ARM, the interest rate can and likely will change over time and may increase to a rate you can't afford.

Review the lender's "good faith estimate" of settlement charges, which will include some fees Read More>>