Buying a new home is an exciting time in everyone’s life, but it can also be one of the most stressful. Unless you have done it before, it is important to know your options when selecting a mortgage in Oakland. There are many choices when choosing the type of mortgage that best suits you doing a little research first, can save you money in the future.

Looking for a Mortgage? Know Your Options

There are several things to consider when shopping for a mortgage:

• How long do you want to stay in this house?
• Can you afford to make mortgage payments bi-monthly?
• How is your credit?

Answering the questions above, will assist you in determining what type of mortgage is right for you.

How long do you want to stay in this house?

If your answer is 15 to 30 years, you may want to consider a non-variable rate mortgage. With this type of mortgage, your rate will be set from day one, and unless you refinance, the rate will never change. If your answer is 5 to 10 years, you may want to consider a variable rate mortgage. This type of mortgage, usually gives you a lower set interest rate for the first five years and then the rate becomes variable after that. With a variable rate mortgage you will benefit from the lower interest rate during your first years in the house.

Can you afford to make mortgage payments bi-monthly?

Some mortgage companies give you the option of making your mortgage payments either once a month or splitting it in half and paying it bi-monthly. By paying bi-monthly, you lower the total amount of interest paid on your loan and decrease the time to pay off your mortgage. A mortgage of 30 years may be shortened by quite a few years if you pay your mortgage bi-monthly.

How is your credit?

Many times people believe that having bad credit will make it impossible for them to obtain a mortgage. This is not true. There are lenders that specialize in developing mortgage programs for people with poor credit. Initially, you may pay a higher interest rate then someone with good credit, but over time, if you make regular payments and slowly improve your credit, your mortgage rate may be lowered.

The process of obtaining a mortgage can be simplified if you know what you are looking for. So good luck shopping!

Listed below are a few types of common mortgage loans

ARM (Adjustable Rate Mortgage Loans)

If you think that you are only going to be living in your home for a few years an Adjustable Rate Mortgage is the best. An adjustable rate mortgage is also referred to by the acronym "ARM". ARMS's have a set interest rate and steady monthly payment for a number of years. The mortgage loan payment is usually based on the amount to payoff the entire mortgage balance at the end of the term, which is usually 30 yrs.

The most common types of ARMS are 1 yr, 3/1 yr, 5/1 yr and 7/1 yr ARM, After the initial period is over, the rate and term of the mortgage will be adjusted annually to current market mortgage rate if you do not refinance the loan. Most ARMs have caps on how much the interest rate may increase after the loan expires. ARMS are very popular because the rates are usually about 2-3% lower that a fixed rate which means lower payments. The less number of years usually means the lower interest rate. A 1 yr ARM will have a lower interest rate than a 5/1 year term. ARM.

Fixed Rate Mortgage Loan

If you know that you are going to be in the house for a number of years then a fixed rate mortgage is best. A fixed rate mortgage is the most common home finance method and usually are 15 yr or 30 yr mortgage loan. A fixed rate mortgage loan is good if you know you will be living in your home for a long time and you don't have to worry about your payment ever increasing. Monthly loan payments will be the same for the entire life of the loan. The first payment will be the same as the last payment.

If home mortgage interest rates increase you have an advantage because your loan interest rate is locked-in at a lower rate which means your mortgage loan payment will not increase. But alternatively if interest rates drop your rate will not go down unless you refinance your mortgage. Rates went up to 18% at one time and as low as 4% recently so it is hard to tell what will happen in the future.

A 15 year home mortgage will have a somewhat lower interest rate but higher monthly payments than a 30 year fixed mortgage rate. The advantages to this type of mortgage financing is that you will get more home-equity by paying down the principal balance. You also will have the loan paid off faster and will not have paid as much total interest when the loan ends. It could save you $100,000 or more in interest.

A 30 or 25 year year home mortgage loan will usually have a higher interest rate than a 15 year and a lower payment. This is a good type of loan to get if you are short on money or cannot qualify for the higher mortgage payment. If you start to make more money and want to pay off the mortgage balance faster you can always set up bi-weekly payments with your lender. You also can just pay more money every month and apply it to the principle balance. Mortgage lenders rarely impose a penalty for this.

Interest-only mortgages

An interest only mortgage is where the borrower only pays the interest on the loan each month. This means property debt never declines. Many borrowers get this type of loan because the rates are real low and the payment is low. An interest-only mortgage may be good if you expect to earn a lot more in a few years and know you will be able to afford a higher mortgage payment later on where you can always refinance your loan. Oakland homeowners may choose interest only mortgages because they are going to invest funds and make money on the savings on the difference between an interest-only mortgage and a regular amortizing house mortgage loan with principle and interest.

You should always shop around for the best deal because it could save you thousands. You should also be aware of the fees, points and any other charges from the lender. The lenders want your business and their rates and terms are always negotiable.

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