Choosing a Mortgage Loan

Choosing the right loan requires consumers to review their financial objectives and ask a host of questions, such as:

  • How long do I intend to occupy the house?
  • What is my tax bracket?
  • How much money do I have for a down payment ?
  • Is paying the mortgage off early important?
  • Can I or should I make extra principal payments?
  • Do I want a level payment or a variable payment mortgage?
  • Should I finance the closing costs in the interest rate or the loan amount?
  • Is my income projected to remain stable?

These questions are important in the loan selection process and a loan officer or other financial advisor can help consumers make informed decisions.

Common Loan Types and General Characteristics

Fixed Rate Fully Amortizing Loans: The most common fixed rate loans are the 15- and 30-year mortgages. In these types of mortgages, the interest rate and monthly payments are fixed for the term of the loan. The payments are calculated so that upon maturity the mortgage loan is paid in full. During the early amortization period, a large percentage of the monthly payment is used for paying the interest. As the loan is paid down, more of the monthly payment is applied to principal. A typical 30-year mortgage takes 22.5 years of level payments to pay half of the original loan amount. Sample fixed rate note and deed of trust.

Balloon Loans: Generally, balloon loans have level monthly payments based upon a 20-year fully amortizing schedule, but mature earlier than 20 years. After the initial balloon period, the interest rate will adjust based upon the current market conditions. Sample balloon note and deed of trust.