If you're in the market for a mortgage, you'll want to hunt for the best loan -- interest rate, points, closing (processing) costs and, on adjustable mortgages, the most favorable adjustment features. However, don't pay much attention to who's originating the loan or where the lender is. Odds are your loan will be sold once or twice over its term and you'll end up making your payments to a different lender or loan servicer.
For most home buyers, the choices are these:
1. Do you want a fixed-rate or adjustable-rate mortgage?
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
If you plan to stay in your house for years to come or indefinitely, then locking in a fixed rate, especially when it's relatively low, makes sense (the 30-year fixed rate hit a the historic low of 3.35% in late 2012 and hovered between 4.0% and 4.4% throughout most of 2014, according to Freddie Mac). Look for the best rate you can get. Paying 4.0% rather than 4.5% on a $200,000, 30-year fixed-rate mortgage will save you $59 each month.
On the other hand, say you plan to put the home up for sale in three to five years. You’d be smart to choose a hybrid ARM with an initial fixed-rate period (typically three, five or seven years) that matches how long you plan to stay. In this case points and closing costs are more important than getting the absolute lowest available rate, because you'll have less time to recoup those up-front costs with the lower payments and home-price appreciation. If you expect to refinance or pay off the ARM early, avoid a loan with a prepayment penalty, or try to negotiate away the penalty before you agree to take the loan.
2. Will your down payment be small or large?
Most lenders require a minimum of 3% to 5% down. If you put down at least 20%, you won't be required to pay an additional monthly premium for private mortgage insurance (PMI), which protects the lender if you default. The more you put down, the better the interest rate a lender will offer you.
3. Do you want a term of 15 or 30 years?
On a $200,000 loan with an interest rate of 4.0%, the difference in monthly payment between a 15- and a 30-year term would be $525. But15-year loans typically carry a slightly lower rate and reduce the interest you pay over the life of the loan. Borrowers who can afford the higher payment might choose the 15-year term in order to pay off the loan before their children head off to college or before they retire.
-
AI Goes To SchoolThe Kiplinger Letter Artificial intelligence is rapidly heading to K-12 classrooms nationwide. Expect tech companies to cash in on the fast-emerging trend.
-
Where to Invest in an Uncertain MarketIn an uncertain market, you can still pocket juicy payouts ranging from 4% to 14%, depending on risk.
-
AI Goes To School
The Kiplinger Letter Artificial intelligence is rapidly heading to K-12 classrooms nationwide. Expect tech companies to cash in on the fast-emerging trend.
-
What To Know if You’re in the Market for a New Car This YearThe Kiplinger Letter Buying a new car will get a little easier, but don’t expect many deals.
-
Will Lower Mortgage Rates Bring Relief to the Housing Market?The Kiplinger Letter As mortgage rates slowly come down here's what to expect in the housing market over the next year or so.
-
Car Prices Are Finally Coming DownThe Kiplinger Letter For the first time in years, it may be possible to snag a good deal on a new car.
-
New Graduates Navigate a Challenging Labor MarketThe Kiplinger Letter Things are getting tough for new graduates. Job offers are drying up and the jobless rate is increasing. Are internships the answer?
-
When's the Best Time to Buy a Domestic Flight? The Kiplinger LetterThe Kiplinger Letter A new study by CheapAir.com has crunched the numbers.
-
Woes Continue for Banking Sector: The Kiplinger LetterThe Kiplinger Letter Regional bank stocks were hammered recently after news of New York Community Bank’s big fourth-quarter loss.
-
Anxious Flyers Take Note: The Kiplinger LetterThe Kiplinger Letter Whether it's the routes to avoid that have the most turbulence or the safest airline, we've got you covered.
