Mortgage Recommendations - Information and Advice
"Get the lowest mortgage loan rates and best home
equity loans."
Factors to Consider in Mortgage Selection
by Arnold Kling
The purpose of this exhibit is to give you some ideas to consider in selecting a
mortgage. The approach taken here is simplistic. It cannot possibly address all
of the issues in your particular situation. Use it to start your thought
process, but do not rely on this information alone to make a final decision.
The approach is based on your answers to three questions:
1. Does your job/career lead to an especially high degree of mobility?
Answer this question "yes" only if you are very likely to change locations as a
result of your job within the next four years. Examples would be military
personnel or professors on short-term contracts.
2. Are you in the "growing family" stage?
Answer this question "yes" only if you are at a stage where you need as much
house as you can afford. This is called the "growing family" stage because many
young families that are having children find themselves in this position.
Families that are beyond the "growing family" stage ought to focus less on
qualifying for the biggest house possible and more on building up equity and
other forms of saving.
3. Is your income trend especially favorable?
Many people have seen their incomes go up at the rate of inflation, say 3 to 4
percent per year over the past few years. Looking ahead, do you have reason to
expect your income to grow at a much faster rate (8 to 10 percent per year) for
the next two years? If so, answer "yes" to this question.
Here is how you might use your answers to the three questions above to help
guide you to consider different mortgage products.
|
Mortgage Recommendation Table |
| Answers To
Questions |
Mortgage Products To Consider |
| Job Mobile |
Growing Family |
Income Trend |
|
| Yes |
Yes |
Yes |
1-Year ARM |
| Yes |
Yes |
No |
1-Year ARM, 3-Year ARM |
| Yes |
No |
Yes |
1-Year ARM, 5-Year Balloon |
| Yes |
No |
No |
3-year ARM, 5-Year Balloon |
| No |
Yes |
Yes |
1-Year ARM |
| No |
Yes |
No |
3-Year ARM, 7-Year Balloon |
| No |
No |
Yes |
10-Year Fixed Rate |
| No |
No |
No |
10-Year Fixed Rate |
Explanation
Homebuyers with highly mobile jobs should select short-term mortgage products in
order to take advantage of low interest rates. Growing families will tend to
need short-term mortgages to help hold down monthly payments, but without a
favorable income trend a 1-year ARM could be too risky.
Homebuyers without highly mobile jobs and who are at the stage when they
should be building equity might benefit from the lower risk of a fixed-rate
mortgage, but they should be looking to pay off their loans in 10 years.
Click here to explore mortgage payments on a wide range of
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