Hard Questions You Need to Answer Before Shopping Around for Mortgages

Model house with couple signing mortgage contract

Applying for a mortgage is an extremely personal decision. It is your key to finally having a place of residence that you can call your own. It is your ticket to having a piece of the community where you can raise your children. It is your chance to gain a foothold in the property market that can help build your wealth in the end.

Indeed, a mortgage in Sandy, Salt Lake City is a debt. However, it is necessary if you want to achieve the American Dream. In addition, you cannot find the right loan by simply chasing the lowest interest rate. You need to answer hard questions first before you can see which mortgage is best for your situation. With that in mind, here are the things that you have to ask yourself before going home-loan shopping:

Should I Get a Fixed or an Adjustable Rate?

Mortgage interest rates are either fixed or adjustable. Each has its pros and cons and is not for everyone. Fixed rates are generally higher (at least initially), but they offer security and peace of mind. Adjustable rates can generate tremendous short and long-term savings but might inflate your expenses at certain periods.

It is imperative to contemplate your choice because the interest is the most significant factor that makes your mortgage affordable or expensive. While you can always refinance down the road, it is essential to get it right because early mortgage payments go toward the interest, not toward the principal.

How Long Will I Keep My Mortgage?

Real estate agent and clients shaking hands

Most people do not wait for their mortgages to mature. Selling the property and getting a refi before the original term ends are both standard practices. However, the number of years that you intend to keep your loan matters on many levels.

Most of the interest is paid first before most of the principal balance. The length of time that you hold onto your mortgage determines its annual percentage rate (APR), which represents the real yearly cost of borrowing more accurately.

The APR consists of the interest rate along with other fees that you need to pay to get the mortgage. With less time, all costs are spread out over fewer years. The sooner you get rid of your mortgage, the higher its APR becomes.

Should I Lock or Float?

Locking your rate means that you will not suffer from any unfavorable market changes that can happen before your closing date. On the other hand, floating your rate is a gamble; it can go up or down as your loan is set to close.

Locking prematurely can be disadvantageous, but floating without any room for more debt in your monthly budget can actually be worse. Make your decision based on your grasp on how mortgage rates move, your current debt-to-income ratio, and your gut feeling.

There is so much to know about loans, and it is difficult to understand them all without proper guidance. Although your choice is personal, it will not hurt to seek the advice of an experienced mortgage planner to narrow down the best routes to take.