Don’t Chase Rates, and Find the Right Mortgage, too!

For those who can qualify it’s a great time to get a mortgage. Last week, rates for 30-year fixed-rate loans dropped to 4.57 percent, the lowest levels on records dating back to 1971. And for some who missed out on the government’s home buying tax credit, the rates may more than make up for that lost $8,000.

But how do you decide which loan is right for you? The mortgage game has changed since the housing market slump and there are even more rules in effect. One thing is for sure – your credit score should be at least 620 or you’ll have a hard time getting a loan.

What really varies now is how much you have for a down payment. For example, let’s say you have a 20 percent down payment but plan to move into another home sometime in the future. You may want to consider a five, seven or 10-year adjustable-rate loan, which has a fixed rate for a set period and then adjusts higher after that time. These loans carry a lower initial interest rate than the 30-year fixed-rate, so you save money over the fixed-rate period.

After the fixed-rate period ends, borrowers often refinance into another loan to avoid the adjustable rate. Rates on five-year adjustable-rate mortgages averaged 3.75 percent this week. That was the lowest on Freddie Mac’s records, dating back to January of 2005.

Here is another scenario – let’s say you have at least a 20 percent down payment for a house worth more than $729,500. You need a so-called jumbo loan which is not backed by Fannie Mae and Freddie Mac. This means any lender who makes a mortgage above that amount will have to keep the loan on their books. To compensate for that risk, lenders charge higher interest rates than a conventional mortgage. The average rate for a 30-year fixed-rate jumbo loan fell to 5.48 percent this week, the lowest level ever in Bankrate.com’s survey.

So when you’re ready, make sure to shop around.  Consult with a good mortgage consultant. And of course, I can help with that!

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