There are many kinds of mortgages, each with its own set of features and fees. Depending on how you live, picking the right kind of mortgage could not only make it easier to pay back the loan, but also save you thousands of dollars.
First, be honest with yourself about how much money you have. Do you have a stable job? If you have a business, do you always make money from it? Figure out what your gross income is. If you have a low income and can't save anything because of it, you should get a mortgage with a low or no down payment. If your income is high enough that you've been able to save for a down payment, it's best to put down 20% or more. The better it is, the less you owe.
Are you sure you can pay back your loan after losing your job suddenly? On the other hand, if you and your partner are paying back the loan together, what happens if one of you loses their job? Can you still pay it off? With a 30-year amortisation period, you would pay less each month, which would be easier on your monthly budget. Also, keep in mind that with mortgages that are spread out over longer periods, you pay more in interest and more overall. A shorter amortisation period (15 years) would mean that you pay more each month, but the interest rate would be lower and the house would cost less.
A job that gives you bonuses or retirement benefits in the form of a lump sum can help you pay for a big down payment or pay off a mortgage with a balloon payment.
Choosing between a loan with a fixed rate and one with a rate that changes over time is always a risk. If fixed rates are low right now, you should choose that option. The choice between an adjustable-rate mortgage (ARM) and a fixed-rate mortgage (FRM) depends on the economy as a whole, while the choice of mortgage depends more on how much money you have.
When choosing a mortgage, you should also think about how mobile you want to be. Will your job force you to move from where you live now to somewhere else? Do you think you'll be moving out of your home in 4–5 years? Or, you have no plans to leave the town or city where you live for the rest of your life. A short stay might not be a good reason to buy a house, unless rent is more expensive where you live and real estate prices are going up faster. If you want to sell the house and move out in 5 years, choose a mortgage with a lower interest rate in the first few years. Still better, get an interest-only mortgage, where you only pay the interest for the first five years. ARM mortgage loans are also good for owning a home for a short amount of time. ARMs have very low rates for the first few years. Definitely, the interest or interest plus principal you pay will be less than the rent you would have paid. These mortgages are also good for people who want to move to a bigger house in a few years.
We will assume that you have given the type of property you want to buy a lot of thought. Just make sure that you know all the pros and cons of getting into debt before you do it.
