When sifting through all the various mortgage products offered to consumers, it can be a little hard to decipher which loans are the best mortgages. Since each borrower's situation and needs are unique, it is important to research the different lenders and the products they offer before deciding upon one particular loan.
Fixed Rate versus Adjustable
When first applying for a mortgage loan, many borrowers are immediately dazzled by the lower interest rates featured on adjustable rate mortgages (ARMs). Lenders will often attempt to nudge people towards ARMs because they have a real potential to eventually make more profit for the lender than a fixed rate mortgage would. Borrowers should be wary, however, about securing any sort of mortgage which has a fluctuating interest rate. A mortgage payment is usually one of the largest monthly payments for consumers, and if the payment amount suddenly starts to climb it can cause real problems with people's finances.
The best mortgage loans, in the majority of instances, are fixed rate loans. Although the initial interest rate may be slightly higher, it is worth it for the financial security of a consistent loan.
Long Term versus Short
Different lenders offer different terms. Thirty-year amortizations are quite common, but so are fifteen-year and forty-year terms. Generally speaking, the shorter the term of a mortgage loan, the less interest a person will pay over the life of the loan.
Consumers can request longer terms in an attempt to have a lower mortgage payment, but they will usually find that the longer the term is spread out, the higher the interest rate. Thirty-year terms are an industry standard, but a fifteen-year term will have a lower interest rate. It is best for homebuyers to choose a mortgage term which is the shortest term possible without the monthly payment being too high. The best mortgage loans leave a little financial wiggle room for the borrower each month.
Credit Unions and Banks
It comes as a surprise to many potential borrowers that their own credit unions and banks are in the mortgage business. Many people immediately flock to a mortgage lender that advertises on television or in the newspaper -- forgetting to check with their own financial institution. There are advantages to getting a mortgage loan through a bank or credit union with which a person already does business:
- Information: The institution has access to your financial records and other personal information and will not have to go search it out.
- Familiarity: The borrower is already familiar with how the bank or credit union works, and knows who to contact with questions or problems.
- Preferential Treatment: Some banks will offer lower interest rates to long-standing customers.
In general, credit unions offer lower interest rates, but every credit union has qualifying factors for membership. Some financial institutions offer mortgage products simply to round out their portfolio, and therefore do not offer the most competitive rates. If your current financial institution simply does not offer the lowest interest rates or the best loan terms, be sure to do plenty of comparison shopping.
The Best Mortgages for Consumers
The best mortgages for consumers are those which are not riddled with extra fees and complicated regulations. Before applying for a mortgage with a lender, ask about pre-payment penalties and fees for customer service interaction.
Pre-payment penalties are fees which lenders charge when a borrower pays a mortgage off early, and there are some lenders who actually charge customers a small fee every time the customer calls to chat with a customer service representative. Find out about these fees beforehand, so you are not stuck with a less-than desirable loan.