Selecting The Right Home Purchase Loan Can Save You Thousands

Selecting The Right Home Purchase Loan Can Save You Thousands


If you are shopping for a home mortgage loan, then weighing the different choices available to you can save you thousands of dollars over the course of the loan. These choices generally include the loan type, length of the loan, your down payment, interest rate charged, fees, and lender selected. Of course, you don’t want to make a snap decision with your home purchase loan options as a lot of money could be riding on the line. Please read on for some tips on how you can save money on your next mortgage loan.

Get Informed

home mortgageA little bit of research on your part can save you plenty of money on your next mortgage loan. If you plan on living in your home for the long term, then comparing the home purchase loans options available to you is essential to helping you save money.

Assuming that you qualify for and can afford home financing, you will find that the number of mortgage choices available to you are almost limitless. Your loan term can be for 15, 30, 40 even 50 years with some lenders offering 20 and 25 year term mortgages too.

Annual Percentage Rates are generally not that different from each other, although a savings of even just one quarter of one percent can result in a significant savings over the life of the loan.

Six Loan Types

The loan types, ultimately, can yield some of the biggest savings and generally fall under the following categories:

Fixed Rate Loans — The most popular mortgage lending option, a fixed rate loan means that your mortgage payment stays the same for the life of the loan. The amount you pay today will never change, but you will pay a slightly higher interest rate than the homeowner with a variable rate mortgage. Explore other options if you only plan on living in your home for the short term.

Adjustable or Variable Rate Loans — A lower rate and the ability to borrow more money are two of the chief reasons for homeowners to seek a loan with a variable interest rate. If you are planning to stay in your home for three years or less, than an adjustable rate mortgage is the best choice for you. On the other hand, long term homeowners may find that the constantly changing loan payments to be a source of uncertainty and discomfort.

Hybrid Loans — If you want the security of a fixed payment along with the lower cost of a variable rate loan, then a hybrid loan could be the best choice for you. With a hybrid loan, your interest rate stays fixed for a set number of years then adjusts yearly thereafter. Loans with a 5/1, 7/1 or 10/1 option means that they are fixed for the first 5, 7, or 10 years respectively and then adjust annually thereafter.

Interest Only Loans — Consumers seeking low monthly mortgage payments can turn to interest only loans to save money. With an interest only loan, your monthly payments reduce the amount of interest owed on the loan, but not the principle initially. For example, for the first five or seven years of the loan, the principle stays the same meaning that your $350,000 principle remains the same until the interest only time-frame has ended. The flip side of interest only loans is that you could lose money if your home’s value declines.

Minimum Payment Loans — The lowest monthly payment home mortgage loans are Minimum Payment Loans. Basically, you’ll make lower monthly payments for a certain length of time and afterwards pay a higher rate. Where housing prices are high, these types of loans have made homeownership a dream come true for consumers who might otherwise not be able to afford a home.

Zero Down Mortgages — In some cases, consumers can purchase a home with no money down. Typically government sponsored loans, zero down mortgages can be ideal for the consumer who cannot raise the capital to cover closing costs and the down payment. Variations of the zero down mortgage are those loans requiring 3 to up 20% down.

Get Empowered

Not every consumer is eligible for each loan type mentioned; restrictions apply and fees vary. Clearly, fully understanding the terms of your loan is important toward recognizing the advantages and disadvantages of your mortgage choice. An informed consumer is an empowered homeowner which is what you want to be when weighing your mortgage choices.


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Categories: Home Financing

About Author

Matthew C. Keegan

Matt Keegan is a freelance writer and editor as well as publisher of "Matt's Musings", his personal blog. Matt covers campus, consumer, business and financial topics on various websites and blogs, and has been published in the "Houston Chronicle", "Sam's Club Magazine" and "Wisconsin Golfer".