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-----------MEMBER
BENEFITS-----------
Choosing
a Home Loan
Editor’s Note: Given the tumultuous nature of the current housing market,
it is extremely important for NEA members to gather all the facts before
making a home loan decision.
Selecting the mortgage that is right for you is
central to the home buying process. That's why it's so important to
understand your options. You'll need to consider two things at the outset:
which loan type best meets your home buying needs, and which loan term
offers the most advantageous repayment schedule.
Loan Types
Most home loans fall into one of two general categories: fixed-rate and
adjustable-rate mortgages (ARMs).
-
Fixed-rate mortgages
have interest rates that stay the same for the entire life of the loan.
- You will have predictable
monthly payments throughout the life of the loan.
- You'll be protected from
rising rates, so your principal and interest payments can never
increase, no matter how high interest rates rise.
-
Adjustable-rate mortgages
have interest rates that adjust periodically based on market
conditions.
- The initial rate is fixed for
an introductory period (usually one to ten years), and is typically
lower than the rate for a fixed-rate mortgage. After that, the rate
adjusts annually or semi-annually based on a market index, but it
can't go above a predetermined adjustment cap.
- Because of the lower initial
rate, qualified borrowers may be eligible for a larger loan amount
with an ARM than with a fixed-rate mortgage.
Loan Terms
The “term” of a loan is the period of time you will spend repaying it. The
most common loan term is 30 years, but other options are also available. A
40-year term is available for buyers who want lower monthly payments than
those available from a 30-year term. There are also 20-, 15- and 10-year
mortgages for those who want to repay their loans faster.
Whether you’re better off with a longer-term loan or
a shorter-term loan depends on a number of factors, most notably your
monthly income and your long-term financial goals. Comparing two
fixed-rate loans with different terms:
- The longer-term
loan will offer lower monthly payments. This may be a good option if
you’re on a tight budget or would prefer to direct your monthly cash
flow toward other investments or expenses.
- The shorter-term
loan will mean higher monthly payments, but you’ll be repaying the loan
faster and saving money on interest.
Other Considerations
Besides the nature of the interest rate and the loan term, other important
features of a mortgage loan include:
- Whether the loan amount is
above or below what is known as the “conforming loan limit,” which for
2007 is set at $417,000 for single-family homes ($625,500 in Alaska and
Hawaii). Mortgages larger than this amount are termed “jumbo
loans” and require higher rates than similar conforming
loans.
- Whether the loan can be insured
or guaranteed by a government agency, such as the FHA or VA.
-
FHA loans are backed by the
Federal Housing Administration, and are designed to assist
low-to-moderate income homebuyers by offering low-down-payment
requirements and flexible qualifying guidelines.
-
VA loans are backed by the
Department of Veterans Affairs (formerly the Veterans Administration),
and are available to qualified veterans and active-duty military
personnel and their spouses. They offer many of the same features as
FHA loans.
The NEA Home Financing Program®
offers a wide variety of product options to meet your unique home buying
needs. Our home mortgage consultants can help you find the right
combination of loan features to support your financial goals. Call today:
1-800-632-4968
The NEA Home Financing Program® is
provided by Wells Fargo Home Mortgage.
Wells Fargo Home Mortgage is a division of Wells Fargo Bank, N.A. ©2008
Wells Fargo Bank, N.A. All rights reserved. An Equal Housing Lender.
MEMBER BENEFITS
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