Newspaper article THE JOURNAL RECORD

Right Mortgage Deal Vital to Homebuyers

Newspaper article THE JOURNAL RECORD

Right Mortgage Deal Vital to Homebuyers

Article excerpt

EDITOR'S NOTE: This is the first of three articles by Los Angeles Times Syndicate economics columnist Kathy Kristof on home mortgages.

ou would probably be willing to walk away from your dream house if its price is $5,000 or $10,000 over your budget. After all, savvy consumers know that paying too much is the best way to turn a good investment into a bad one.

But are you equally careful about the type of loan you secure to buy the property?

You ought to be.

Over time, the interest paid on that loan is likely to triple the cost of your original investment. In other words, if you borrow $100,000 at 9.75 percent, over 30 years you will have paid more than $348,000 for your house and its financing.

Each tenth of a percentage point _ the difference between 9.5 percent and 9.6 percent _ will cost you hundreds of dollars. And, in some extreme cases, the wrong kind of mortgage can even put your property at risk.

With today's dizzying array of choices, picking the right mortgage is not easy. Do you want a fixed rate or an adjustable? Do you want a 30-year mortgage or one with a 15- or 20-year term?

Some institutions even offer 40-year mortgages for those looking for lower monthly payments. Can you handle a mortgage with a balloon payment?

Are you interested in a hybrid, such as a loan that starts with a fixed interest rate, but reverts to an adjustable rate after a few years?

To choose a loan, homebuyers need to do some soul searching. Consider how long you realistically expect to live in the home you've chosen and weigh the likelihood of being transferred or otherwise forced to move earlier.

Then take a look at your income. Is it steady? Do you receive relatively predictable raises each year? Is there a possibility that you or your spouse will opt out of the work force sometime soon to raise a family or to pursue some other personal goal?

The answers to all these questions are pivotal to what kind of loan is going to be best for you and your family.

Those who expect to be in a home for a long time and have a steady, but not rapidly rising, income might prefer a fixed-rate mortgage.

The advantages of these loans are clear. …

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