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Planned
period of your stay in the new property: |
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For example, if you intend to live in the house for 7
years or less, you may want to consider an intermediate adjustable
with a rate that is fixed for a 5 or 7 year period. Why give the higher
rate of a 30 year fixed when you don't have need of such long term
financing. Also if your time horizon of ownership is 7 years or less,
it is advisable to opt for minimal closing costs because your opportunity
to recoup the price of high closing costs is dramatically reduced. |
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your current financial priorities (i.e. cash flow, rapid repayment
of the home loan)? |
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For example, if cash flow is a top
priority, an adjustable with varied payment options may be your best
bet. Some adjustable products agree borrowers to choose from 3-4 payment
options each month (i.e. interest only, allowing for negative amortization,
30 year fixed rate fully amortized or 15 year fixed rate fully amortized).
This allows a borrower to prefer a different payment option every
month based upon his or her monthly cash flow.
For others, the purpose may be rapid repayment
in which case a 15 year home loan may be considered or possibly an
adjustable rate with a lower rate of interest supplemented by extra
principal payments to retire the mortgage debt early. With an adjustable
vs. a fixed rate, your principal reduction payments will manage to
pay you a progressively lower required monthly home loan payment as
the mortgage is recast and interest is calculated and your payment
is based on the existing home loan balance vs. the original balance.
With a fixed rate home loan your required payment will remain constant
over the life of the home loan, regardless of any principal reduction
payments you may make. |
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whether you anticipate any major changes to your financial situation
in the next few years. |
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For example, do you anticipate receiving funds (stock
options, inheritance, sale of an asset) in the next few months or
years that would sanction you to pay down your home loan balance?
If so you may choose a home loan with an interest rate that is guaranteed
for a shorter term (i.e. an ARM with a rate fixed for 1-5 existence)
reflecting the time frame from which you expect to receive the funds.
After this time you could refinance, using these funds to pay down
the balance on your existing home loan or if you currently had an
adjustable that is scheduled to recast, you may just pay the balance
down and enjoy a lower monthly payment without refinancing. |
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Check
recent credit history: |
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If you have outstanding credit, you
may have question about home loan products that are discounted for
individuals with high credit ratings. In addition to credit, some
lenders will also offer further discounts to borrowers who have high
equity in their property, usually considered to be 30-35%+.
For those having credit blemishes, it is best
to discuss your history openly and honestly with your home loan consultant
and to analysis your current credit report together. The market for
less than perfect credit applicants (referred to as sub prime) has
grown considerably over the last few years offering competitive interest
rates and a greater variety of product options. For those planning
to improve their credit ratings, it is greatest to take shorter term
financing of 2 to 3 years, after which one can refinance into "A
paper" (the best) financing. |
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Check your
documentation: |
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If you will not be able to adequately document your income,
you may opt for a quick qualifier, easy qualifier or no income verification
home loan. These products usually offer a trade off though, the less
documentation you are able to provide the higher the interest rate
will be. Some of these programs also require a higher amount of equity
in the property. There are also programs that do not require authentication
of either income or assets (referred to as NINA mortgages). Each of
these mortgages could have higher interest rates and equity requirements
associated with them. |
