|
MORTGAGE BASICS
Brush up on these mortgage basics to help you determine the loan that
will best suit your needs.
-
Mortgage terms.
Mortgages are generally available at 15-, 20-, or 30-year terms. In
general, the longer the term, the lower the monthly payment.
However, you pay more interest overall if you borrow for a longer
term.
-
Fixed or adjustable interest rates.
A fixed rate allows you to lock in a low rate as long as you hold
the mortgage and, in general, is a good choice if interest rates are
low. An adjustable-rate mortgage is designed so that your loan’s
interest rate will rise as market interest rates increase. ARMs
usually offer a lower rate in the first years of the mortgage. ARMs
also usually have a limit as to how much the interest rate can be
increased and how frequently the rates can be raised. These types of
mortgages are a good choice when fixed interest rates are high or
when you expect your income to grow significantly in the coming
years.
-
Balloon mortgages.
These mortgages offer very low interest rates for a short period of
time — often three to seven years. Payments usually cover only the
interest so the principal owed is not reduced. However, this type of
loan may be a good choice if you think you will sell your home in a
few years.
-
Government-backed loans.
These loans are sponsored by agencies such as the
Federal Housing Administration
or the
Department of Veterans Affairs
and offer special terms, including lower down payments or reduced
interest rates to qualified buyers.
Slight variations in interest rates, loan amounts, and terms can
significantly affect your monthly payment. For help in determining
how much your monthly payment will be for various loan amounts, use
Fannie Mae’s
online mortgage calculators.
The following calculation assumes a 28 percent income tax bracket. If
your bracket is higher, your savings will be, too. Based on your current
rent, use this calculation to figure out how much mortgage you can
afford.
Rent:
_________________________
Multiplier:
x 1.32
Mortgage payment:
_________________________
Because of tax deductions, you can make a mortgage payment — including
taxes and insurance — that is approximately one-third larger than your
current rent payment and end up with the same amount of income.
For more help, use Fannie Mae’s
online
mortgage calculators. |
