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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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List 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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