What to Look For in a Mortgage: How Much to Put Down, and How Long to Pay it Off

Knowing what to look for in a mortgage, how much to put down, and how long to pay it off can save up to thousands of dollars. Essentially, the greater the mortgage amount and interest rate, the higher the cost of the loan will be. However, deciding how much to put down and the term of the mortgage is also unique to the mortgage applicant as each applicants financial situation varies.

In light of this, understanding your financial situation is important when deciding what to look for in a mortgage. For example, how much capital you have available can help 1) improve your chances of getting the loan, 2) determine which loans you can apply for and 3) how quickly the mortgage can be paid off.

Some things to look for in a mortgage loan include i) no pre-payment penalty, ii) no broker charge and junk fees, iii) a low fixed rate of interest, iv) seller safety requirements and v) preferable default resolution terms. These mortgage features may be found with the right financial institution which means shopping around and researching mortgage lenders can be helpful.

These aspects of mortgages are not the only relevant considerations because in time, things like income level, family size, location of residence, property buying and selling decisions, and natural hazards can all potentially influence the decision of whether or not to pay off, refinance, or transfer a mortgage.

• Choosing a down-payment:

Since everyone's financial situation is different knowing how much to put down as collateral is a little subjective, but banks deal with this subjectivity with down payment minimums. Down payments less than 20% often require an additional mortgage insurance premium on top of the monthly mortgage amount so if this premium costs more than the additional collateral it may not be worth it to pay less than 20%.

Other factors to consider are market conditions, if the property invested in is expected to rise in value at reasonable to good rate, then a higher mortgage down-payment may be a good idea as it can help minimize monthly mortgage payments and the interest on them. This additional money that could have been marked for mortgage payments can then be reinvested elsewhere.

• Low down-payment programs

For mortgage borrowers with less expendable capital, programs exist that offer lower down payment requirements and fixed interest rates. In the U.S. the Federal Housing Authority (FHA), and the U.S. Department of Housing and Urban Development (HUD), facilitate numerous mortgage programs with various down payment options.

Additionally, depending on where one lives in the World, a mortgage rate can vary significantly. In Singapore rates are closer to 2% whereas in the U.S. rates are nearer the 5-6% range. The larger the mortgage, the greater impact these percentage can have on monthly payments so considering the size of the loan in terms of affordability is also prudent.

In addition to size of loan, interest rates and down payment is the term of the mortgage which cold be 15 years or 30 years. A pre-payment penalty may or may not exist in the loan contract so if one is expecting to pay the mortgage off early, being aware of these stipulations are important. Additionally, mortgage companies offer alternatives in frequency of mortgage payments. Bi-weekly, or one extra payment a year plans can have a positive impact on the long term pay off and interest expense of a mortgage.

• Mortgage items to be aware of

Things to look for in a mortgage include the type of mortgage i.e. adjustable rate mortgage (ARM), interest only mortgage, fixed interest etc., Additionally, the financial institution that originates the mortgage may or may not have competitive interest rates. Determining what interest one should pay on a loan involves assessing the mortgage borrowers capacity, credit, assets, debt etc. A mortgage borrower can also do this alone before applying for a mortgage to get an idea of their financial positioning and consequently be better prepared when selecting and speaking with a loan officer from a mortgage company.