How to Select a House Loan
Do you have plans to move out of your house soon? Was your job transferred to another location where you may live for only five years or less? Or, can you picture your family
staying in one house for 10 or even 20 years? These are important questions to ask yourself when you consider which type of house loan fits your needs.
You need to understand the different categories of house loans before you can select a term, interest rate, or down payment arrangement. The two top categories are fixed and adjustable. Fixed house loans start out at a predetermined interest rate that will not fluctuate throughout the life of the loan unless you purposely refinance. Adjustable house loans on the other hand do just that - adjust a set number of times each year throughout the term of the loan.
How much house you can afford depends on which loan you select and then on which term you pick. The most common terms are for either 15-year or 30-year. If you plan to hold onto your house for a long time, you may sway toward a longer term with payments that are lower.
Another important element in selecting a house is figuring out how much down payment is needed. Most loans want as little as 5% down and prefer 10% down payment. A first-time
homebuyer loan permits less down payment to encourage the American Dream. In theory, when you put down more on the loan, your monthly payments will be less and you have to pay
back less in the long run.
The more money that you have available for the down payment, the better are your chances for obtaining financing at a better interest rate. The best interest rates are given to
those with a good credit rating and down payment.
Once you figure out all these elements - type of mortgage loan, loan term, interest rate, and down payment, you can start to estimate household monthly payments. If you would like to accelerate your repayment schedule, you can make an extra monthly payment every year and pay off your house sooner for a lower amortized amount.
Your monthly payment is comprised of money for the loan interest and money for paying the principal, or the amount that you borrowed. The principal that has been paid plus your down payment is called your equity in the house. You can use this money, if you wish, by taking out a home equity loan or a second mortgage on your house. A second mortgage usually has a higher interest rate than a first mortgage.
While people may take out a home equity loan to finance a car or a trip, the best reason to take out a home equity loan is to make improvements to the house that will increase its value.
Selecting the right house and the right house loan is a complicated task. Learning about your financing options before you hunt for the right house will make your choices easier.
Copyright 2005 Maia Delfille. All rights reserved. (Printed with permission)
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Maia Delfille is the webmaster and operator for Fil House which is an infomation stop for those interested in house related topics. Click here for instant access to her archived articles: http://www.filhouse.com/
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