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Guidelines
for making a mortgage decision for purchasing property
in CITY |
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Planned
period of your stay in the new property: |
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For example, if you intend to live in the
house for 7 years or less, you may want to consider an
intermediate adjustable with a rate that is fixed for
a 5 or 7 year period. Why give the higher rate of a 30
year fixed when you don't have need of such long term
financing. Also if your time horizon of ownership is 7
years or less, it is advisable to opt for minimal closing
costs because your opportunity to recoup the price of
high closing costs is dramatically reduced. |
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List
your current financial priorities (i.e. cash flow, rapid
repayment of the home loan)? |
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For example, if cash flow is a top priority,
an adjustable with varied payment options may be your
best bet. Some adjustable products agree borrowers to
choose from 3-4 payment options each month (i.e. interest
only, allowing for negative amortization, 30 year fixed
rate fully amortized or 15 year fixed rate fully amortized).
This allows a borrower to prefer a different payment option
every month based upon his or her monthly cash flow. |
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For others, the purpose may be rapid repayment
in which case a 15 year home loan may be considered or
possibly an adjustable rate with a lower rate of interest
supplemented by extra principal payments to retire the
mortgage debt early. With an adjustable vs. a fixed rate,
your principal reduction payments will manage to pay you
a progressively lower required monthly home loan payment
as the mortgage is recast and interest is calculated and
your payment is based on the existing home loan balance
vs. the original balance. With a fixed rate home loan
your required payment will remain constant over the life
of the home loan, regardless of any principal reduction
payments you may make. |
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whether you anticipate any major changes to your financial
situation in the next few years. |
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For example, do you anticipate receiving
funds (stock options, inheritance, sale of an asset) in
the next few months or years that would sanction you to
pay down your home loan balance? If so you may choose
a home loan with an interest rate that is guaranteed for
a shorter term (i.e. an ARM with a rate fixed for 1-5
existence) reflecting the time frame from which you expect
to receive the funds. After this time you could refinance,
using these funds to pay down the balance on your existing
home loan or if you currently had an adjustable that is
scheduled to recast, you may just pay the balance down
and enjoy a lower monthly payment without refinancing.
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Check
recent credit history: |
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If you have outstanding credit, you may
have question about home loan products that are discounted
for individuals with high credit ratings. In addition
to credit, some lenders will also offer further discounts
to borrowers who have high equity in their property, usually
considered to be 30-35%+.
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For those having credit blemishes, it is
best to discuss your history openly and honestly with
your home loan consultant and to analysis your current
credit report together. The market for less than perfect
credit applicants (referred to as sub prime) has grown
considerably over the last few years offering competitive
interest rates and a greater variety of product options.
For those planning to improve their credit ratings, it
is greatest to take shorter term financing of 2 to 3 years,
after which one can refinance into "A paper"
(the best) financing. |
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