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Mortgages are getting increasingly complicated;
however, there are some fairly simple strategies for getting the
best mortgage to fit your individual needs.
A recent MotleyFool.com article discussed some of
the different strategies you can employ in order to get the best
mortgage for you. It can often seem very complicated trying to
navigate through all the mortgage-related information out there.
There are, however, a few fairly simply tips to help wade you
through some of it.
Mortgage Types
There are a plethora of loan types out there, but before you start
considering 100% financing versus first-time buyer programs versus
interest-only loans, there are a couple of other more basic mortgages
types that you might want to consider.
• Seller Financing: There are many reasons
why a seller might want to finance the loan themselves, and there
are many reasons why you might want to go down this path, including
poor credit, the need to negotiate a better interest rate or the
desire to avoid mortgage insurance. The bottom line is that if
the seller is willing to do this, such a deal will normally only
be for a few years, after which time you’ll need to get
a regular loan.
• Assuming an Existing Mortgage: Rather than
getting a new mortgage, you can sometimes take over the existing
mortgage on the house. Some people like this option because it
can avoid some of the typical administrative fees charged by mortgage
brokers, and it can have a lower interest rate than the market
will currently offer. The only problem is that the existing mortgage
needs to be transferable, and you will need to somehow cover the
difference between the original value of the home, and the current
value.
Playing with the Details
There are two main ways to alter the details of your mortgage:
• Negotiate: Sounds obvious, but most people
tend to think that published interest rates are final. However,
as long as you are willing to negotiate, and your credit history
is in pretty good shape, then you should be able to get some slightly
better terms; a reduction of around a quarter percent of the published
interest rate should be doable.
• Adjusting the Points and Mortgage Length:
There are two big factors that will affect your mortgage payments:
(1) the interest rate and (2) the length of the loan. It is important
to understand what is right for your current situation by using
different loan calculators to see what would happen if you paid
points in order to lower your interest rate, or had a 15-year
rather than a 30-year loan. A good source of free mortgage calculators
is the Yahoo Finance Center, which can be found at: http://loan.yahoo.com/m/mortcalc.html.
Closing the Deal
Another thing to consider is a seller concession. This is essentially
where you add up to 6% of the agreed-upon house price, which the
seller then gives back to you. This money is then used to cover
your closing costs. Again, such an option is very dependent on
your situation. It does mean having to have a higher mortgage
payment, and the house has to appraise for the 6% higher value.
However, if the money you would have used for closing costs can
be put into savings that yield a decent return, then after the
mortgage period is up, you’ll most likely be ahead!
During the Mortgage Period
The way a typical 30-year mortgage works is that in the first
half of the mortgage, the vast majority of the mortgage is interest.
It may take over 20 years before you own as much of your house
as the bank does! One way to speed up the percentage of the house
that you actually own is to pay down the principal. Consider it
an investment, but rather than investing in stocks, for example,
you are investing in your house.
Keep these basic strategies in
mind, and you are much more likely to get a mortgage that fits
your unique situation, rather than something you are unhappy with.
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