- What is your current financial situation (including income, savings, cash reserves and debt-to-cash ratio)?
- How you expect your finances to changeover in the coming years?
- Have you plan to return the mortgage loan before retirement?
- How long you intend to keep your house?
- How comfortable you are with your changing mortgage payment amount?
The answers to these questions will give you the idea of your financial position. Now the next step is to decide two key options:
- mortgage length,
- type of interest rate (fixed interest rate or adjustable interest rate).
The length of mortgage loan can be minimum 15 years; can be 20, or at maximum 30 years. While selecting a fixed or adjustable interest rate you should be aware of the facts that the adjustable interest rate mortgage is more risky because the interest rate will change, while a fixed-rate loan offers more stability because of the locked-in rate. You will be able to pay off a shorter-term loan more quickly, but your monthly payments will be substantially higher. Long-term fixed-rate loans are popular because they offer certainty, and many people find that they are easier to fit into their budget. Although, in long run they will cost you more, but you will have more available capital when you need it, and you will be less likely to default on the loan should an emergency arise.
In the light of above mentioned aspects, it is clear that the key to select the right mortgage loan for your needs should fit comfortably into your entire financial picture, that is having payments within your budget and comfortable level of risk connected to it.