Qualifying.
The first factor to be considered is qualifying for a mortgag loan, because the question is moot if you are not eligible for a loan program. As an example, the accelerated payment that occurs with 15-year amortizations means that a borrower is required to pay a larger amount each and every month during the full term or life of a loan. This increased financial burden may be too great for some borrowers.
Loan Term.
If a borrower can afford to make the payments on a 15-year amortization, the money saved in the long run will be substantial in the form of interest that will not have to be paid. If there are concerns of being able to continue making the payments at this accelerated manner, then a simple solution is to get a 30-year amortization loan, but figure the monthly amount that would be required on a 15-year amortization and make those payments instead, making sure to state on payment that the addition payment portion is to go directly to Principal payment only. This will lessen the overall interest paid out in the life of the loan, but you will not get the lower rate that is available for 15-year amortization. 10,15,30,40,50-year amortizations are the length of the payment period, or term, of a mortgage. The shorter the term, the lower the rate and the less over the life of the loan that you will pay in total on a mortgage. However, this means that you will accelerate the pay scale for your loan.
Adjustable Rate Mortgages.
If you are considering an ARM loan, a borrower should base their ARM term on their time horizon for the loan and/or home. If you are only going to live in a house for 5 years, then there is no reason to have a 10-year ARM because the rate will be higher for a 10-year ARM mortgage.
Mortgage Payment.
If you know that you are going to be in a loan situation for 3 and ½ years, it is advisable to pay a point on the mortgage at closing. The rate will be lower- typically by ¼ lower in rate for every point paid- and the 1% of the loan amount that a borrower would have to bring to closing takes the 3 and ½ years to pay off with monthly savings. After the initial 3 and ½ years, the borrower gets to take advantage of that lower rate that they purchased.
Rates.
The lower the rate, the less you have to pay each month. This is obviously a great factor to consider when mortgaging a property. It is important to make sure that you are comparing ‘apples to apples’ when looking at mortgage rates. A 15-year amortization will have a lower rate than a 30-year amortization, but you will have accelerated payments each month. A 3-year adjustable rate mortgage will have a lower rate than a 10-year ARM mortgage, but after the fixed portion number of years, you will be subject to interest rate risk during the adjustable portion of the loan. After year 3 in the 3-year loan, your loan could increase by as much as 5% in the first year of the adjustable term.
Prepayment Penalties. Most borrowers avoid prepayment penalties, however, if you knew that you were going to be in a mortgage for at least one year, than the prepayment penalty has no real effect. The bank is given an assurance that this loan will stay on their books for the length of the prepayment. Consequently, the rate can be lower if a prepayment penalty is protecting this time in the portfolio of the lender. The prepayments are included if 1) they lower the rate on the loan the loan, or 2) if the prepayment is required by underwriting guidelines of the lending bank to ensure that the borrower will not exit the lender’s portfolio. The lender takes a position and a risk with every loan that they assume, and sometimes the loan is riskier and to compensate that risk, a prepayment penalty is used similar to an insurance policy that places the burden on the borrower.
All of the factors need to be considered when looking for a loan.
1-800-217-8086 
