When it comes to finding a mortgage, we all want one with the lowest interest rates. While rates matter when financing a new home purchase, you need to consider other factors that will affect your monthly payments. Your credit score and debt-to-income (DTI) ratio play a part in determining your interest rates and the amount of loan you’ll qualify for.
Fixed or Adjustable Loan
Lenders offer different types of mortgage, but there are two basic varieties: fixed-rate and adjustable-rate mortgage (ARM). The former locks in your rate for the life of the loan, while the latter has indefinite rates during the life of the mortgage. With ARMs, you’ll have a lower fixed-rate interest for a certain time, but this can rise or fall after the introductory period.
Assess Your Situation
Mortgage companies in Baltimore note that choosing the best loan involves an evaluation of your present circumstances, financial goals, and future earnings. If you plan to stay in your house in the year to come, a fixed-rate loan makes sense, particularly when the rates are low. If you, however, plan to sell the property in five years, a hybrid ARM can be a good choice.
Mind Your Down Payment
Many lenders require a down payment of a minimum of three to five percent. If you can put down at least 20%, you won’t need to pay private mortgage insurance (PMI), which protects the lender in case you default. It is good to know that the lender will offer you a more attractive interest rate when you put down a bigger down payment.
The Right Mortgage Term
The most common loan terms are 15 and 30 years. If you can afford a higher monthly payment, you might want to choose a 15-year term to pay off the loan before you retire. This can help reduce the total interest rates you will have to pay over the life of the loan. If you’re budget constrained, a 30-year mortgage might work well for you.
Contact a reliable lender to learn more about your mortgage options. Just make sure to choose a loan that fits your current lifestyle and financial situation.