How do you choose the best mortgage?

When it comes to purchasing your dream home, there are no shortage of lenders out there to choose from. Home loans come with lots of different terms and requirements, so it's important to understand what some of the most common features are in order for you to get a good deal. By doing a bit of research, you'll have a better chance of securing a mortgage that meets your needs.

What is a mortgage?

A mortgage is a loan you take out from a bank or credit union to cover the cost of buying a home. Mortgages consist of the principle, which is the amount of money you want to borrow, and interest, which is a fee charged by the lender. They can vary in length from 15 to 30 years.

You'll make mortgage payments on a monthly basis. Each payment is made up of a portion of the principle and interest. The amount you have to pay each month depends on a series of factors, including the size of your mortgage, its length, and the interest rate charged by the lender.

To get a mortgage, you'll usually need to make a down payment. Down payments are calculated as a percentage of the house's total cost. As an example, if you buy a house worth $200,000 and make a down payment of $20,000, you're putting down 10%.

What are the different types of mortgages offered?

The first type of mortgage is known as a conventional loan. These mortgages are suitable for buyers with good credit who can put down at least 3% on their home purchase. Conventional mortgages often include private mortgage insurance (PMI), an additional charge collected by a lender to insure against your inability to pay. Buyers who want to avoid paying PMI usually need to put down a minimum of 20% on their purchase.

FHA mortgages are designed for low- and moderate-income buyers who find it hard to qualify for a conventional loan. They require the buyer to put down a minimum of 3.5% on the purchase. The advantage of FHA loans is that they're open to people with credit scores as low as 500. They also include an insurance premium, known as the mortgage insurance premium payment.

Jumbo loans are mortgages designed for people wanting to purchase expensive properties. They're riskier for the lender than standard mortgages, so they usually require higher down payments. For instance, most jumbo loans call for a buyer to put down 5% or 10% at a minimum.

What mortgage term is best?

The length of mortgage you choose will depend on your future priorities. If your intention is to stay in the property for a long time, a 30-year mortgage may suit you. Your monthly payments will be kept relatively low, leaving you with extra money in your pocket for day-to-day spending.

If you can manage higher monthly payments, you may want to take out a shorter 15-year mortgage. One advantage of doing this is that you'll save money on interest payments, since the total interest you need to pay will be less than on a 30-year loan. Mortgages lasting 15 years are also a good option if you plan on selling your home relatively soon. The reason for this is that you'll want to have a higher level of equity in the home when it comes time to sell it.

What are the differences between fixed-rate and adjustable-rate mortgages?

In addition to deciding how long your mortgage should be, you need to consider whether you want one with a fixed or variable rate. Fixed-rate mortgages keep the same interest rate throughout their lifetime. By contrast, adjustable-rate mortgages have rates that vary in line with market conditions.

Fixed-rate mortgages

Buyers looking for stability over a long period of time are likely to prefer fixed-rate mortgages. For instance, a 30-year fixed-rate loan allows you to know exactly how much you'll have to pay for principal and interest each month. The cost of this stability comes in the form of interest rates that are usually slightly higher than the rates initially offered on an adjustable-rate loan.

Adjustable-rate mortgages

If you're willing to accept a little more risk, an adjustable-rate mortgage may help you save money. Many variable mortgages have a lower interest rate than fixed-rate loans for a set period of time. However, after this introductory period, their rates may rise higher than those paid by fixed-rate borrowers.

One option to counter the risk of variable rates is to pay off your mortgage quickly. Another option is to refinance or sell your home before the introductory interest rate expires and your interest payments increase.

One drawback to the strategy of selling your home before a higher interest rate kicks in is that you can never be sure how the housing market will develop in the future. 

Which mortgage products does Alliant offer?

We offer a range of traditional, refinancing, and jumbo mortgage products for you to choose from. If you pick one of our adjustable-rate options, you can benefit from our rate cap, which prevents your interest rate from rising above a certain level when the fixed-rate period comes to an end. This added security can help you better plan your budget.

Our refinancing mortgages can help you save significantly by shifting your mortgage debt to a lower-interest agreement. We offer refinancing for both traditional and jumbo loans.

Our Alliant Advantage mortgage is ideal for first-time buyers. This loan program allows you to avoid the additional cost associated with PMI, even when you make down payments as low as 0%. For non-first-time buyers, a down payment of at least 5% is needed to avoid PMI costs. You can save money with Alliant by repaying your mortgage early. We have no penalties for early repayment, which means you can save on interest while boosting your home equity.

Secure your home loan from Alliant Credit Union

We have a supportive process to help you access a mortgage. The first step is our preapproval procedure. This is great if you haven't found your chosen home yet, but want to be able to make an offer to a realtor as soon as you find what you're looking for. You just need to spend 10 or 15 minutes providing us with some basic information to secure preapproval.

Looking for the perfect home? Alliant has mortgage loan options to fit any budget.

Want to learn more about mortgages and home buying? Check out these articles:

• Six common mortgage myths, busted
• Condo or single-family home? How it can affect your mortgage
• How to find a real estate agent