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Financing 101

Maryland & Pennsylvania Home Financing Tips

Is a 15 or 30 year mortgage best?

There are a number of factors to consider here:

  • Monthly Payments - Will be higher with the 15-year loan (ex: $100K 7.25% mortgage for 15 years = $913/month and 30 years = $682/month).

  • Tip - If you take the 30-year mortgage and make payments of $913/month it will pay off in 15 years. Advantage? If you ever need to go back to the $682/month, you can! However, be aware there may be an interest rate advantage for taking the 15 year mortgage.

  • Life-of-Loan Payments – The above example of a 15 year mortgage = $165,000 and the 30 year mortgage = $246,000. WOW! An interest savings of $81K—right? Not quite, because you'll lose the tax savings that flow from deducting all mortgage interest (varies by tax bracket).

  • Since the average loan is only held for 7 years, the difference in payments isn't likely to be so dramatic. If you invested wisely with the $231 in lower payments, it could further reduce the difference. It's probably a good idea to consult with your accountant/financial advisor on this one.

So what are today’s mortgage rates?

Smart buyers keep up to date on rates—sometimes they can change quickly! Check out the latest info on a variety of different mortgage programs. If you notice rates increasing as the days go by, the best time to apply may be passing you by. It may be a good time to make your application.

What would my monthly mortgage payment be?

We can calculate any mortgage payment that you want. There are a variety of different mortgage calculators to choose from, just choose the one that fits your needs.

 

Adjustable rate (ARM) vs. fixed rate mortgages—which is best?

Whichever you feel best meets your needs! Consider the following:

  • Initial Interest Rates - Can be up to 2% lower with an ARM. But the early year savings can be eroded if the rate increases with an increasing market in future years. You need to decide how risk-tolerant you are.

  • Remember Rates Can Go Down - Since the early 1980's, borrowers with ARM's have saved thousands of dollars.

  • Term of Ownership - If you'll only own the property a short time (transfer, retirement, etc) an ARM can make more sense since the first adjustment period is typically several years away. This could be true even if rates rise.

  • Other Factors - What index is the lender basing the rate on (the more stable, the better)? What margin (add-on to the base rate) will the lender charge? Can you convert to a fixed rate later? When? At what cost?

Again, please consult your accountant/financial advisor!

Can I preview my credit and correct mistakes?

Absolutely! It is surprising how many credit reports are wrong—over 40% by some estimates! You may avoid de-railing your transaction with a time-consuming credit hassle by reviewing the report up front. This way, the seller has more confidence that you are a qualified buyer. You can order a copy of your own credit report by calling the three major credit reporting agencies:

  • Experian: 800-392-1122
  • Equifax: 800-685-1111
  • Trans Union: 312-408-1050

Can poor credit be repaired or overcome?

In many, if not most, cases the answer is YES! One of the keys is credit previewing, so you discover the irregularities upfront. This way, your explanation can be well thought out, documented, and packaged in the best way to allay the lender's understandable concerns. Some useful tools to repair or overcome poor credit are providing additional documentation, outlining new compensating factors, (ex: large down payment; substantial net worth; likely job advancement; etc); correcting mistakes, and letters of explanation.

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