Why Choosing The Right Mortgage Could Save You Thousands Over Thirty Years

When most of us buy a home, we need help from our bank or a lending institution to make that purchase. This loan is called a mortgage. For the vast majority of us a first mortgage will be the single largest loan we will take in our lifetime, and that means that finding the right mortgage first time is very important. The mortgage market is heavily regulated, particularly after the 2008 global economic crash and the subsequent revelations about irresponsible mortgage lending to unqualified buyers here in America.

So what do I need to know about mortgages before I get started with my research?

You should approach the ‘purchase’ of a mortgage just as you would any other big ticket item. Find out how and where you can get the best possible deal for your purchase. Over the course of a 30 year mortgage you will be paying your lender a significant amount of interest, so you need to be sure that you have secured the best possible interest rate.

What kind of interest rate arrangements exist for mortgages?

There are two basic mortgage rate arrangements. The first is a fixed-rate mortgage and the second an adjustable-rate mortgage. As the name suggests, a fixed-rate mortgage is a mortgage that carries a fixed interest rate for the lifetime of the mortgage agreement. An adjustable-rate mortgage by comparison is a mortgage rate that will track with the market index after an initial fixed period. The initial fixed period is usually 3 or 5 years and even after that period has expired there are caps on how much the interest rate on your mortgage can increase from year to year. If you are considering an adjustable-rate mortgage make sure you understand what the caps are. This is important because the monthly mortgage payments can increase quite significantly once they are tracking against the market index.

Which interest rate option might suit you will depend on your circumstances. If you do not plan to live in your first home beyond the period that the interest rate is fixed for, then you may prefer an adjustable-rate mortgage because initially the monthly mortgage payments will be lower. However if you are buying your home and plan to live in it for quite some time we’d recommend locking in a fixed-rate.

Are there any other types of mortgage available?

There are not other ‘types’ of mortgage available, but there are special mortgages available to American veterans for example, or FHA backed mortgages for borrowers who have no credit history or a low credit score. Talk to your bank or credit union for more information.