The mortgage amount: What is right for you?

Don’t let yourself get buried under a blizzard of numbers (selling price, down payment, closing costs, terms, interest rate, etc). The size of your mortgage isn’t nearly as important as your monthly payment. That’s what you’ll have to meet, month after month, year after year. So, your first consideration in financing should be determining the monthly payment you can live with comfortably. Using that number as a base, we’ll help you determine the appropriate amount of your mortgage and down payment.

The mortgage type: Fixed rate or adjustable?

In a fixed rate mortgage, your interest rate remains constant for the life of the mortgage. With an adjustable rate mortgage, on the other hand, your interest rate is below-market initially, then adjusts to a current market rate in later years.
So, which is right for you? It all depends on your personal financial plan. If your plan is to live in your new home for five years or more, the fixed rate is right for you. It assures you stability of monthly costs. On the other hand, if you plan to move in a couple of years, the adjustable rate mortgage is preferable. The initial lower interest rate will result in lower monthly costs. And you’ll have sold your home before the mortgage becomes adjustable.

Home equity lines: How can you use them?

Your home is a valuable asset. The financial community recognizes this and will extend you a line of credit to draw on. It can be considerable -- as great as 100% of the market value of your home. You can use this credit to ease and enhance your life. (It can, for example, pay for education, travel, furnishings, investments, etc.) And you pay it back at a relatively low interest rate.. and only for the money you use.
There’s a side benefit, too. The tax laws* allow you to deduct the interest payments you make on a Home Equity Loan. *It depends, of course, on your specific situation. Speak with your accountant for details.

The down payment: Big, Small, or in between?

Again, it depends on your specific circumstance and your comfort level. If you want a smaller mortgage (and subsequent smaller monthly payments), make a larger down payment. If you’d rather preserve your capital for other purposes, make a smaller down payment. and we’ll work with you to achieve your goals.

Closing costs: What are they? and can they be avoided?

Closing costs cover a wide range of expenses involved in the transfer of property from the seller to the buyer (you). They generally include: discount points, appraisal fee, title search and insurance, survey taxes, deed recording fee, credit report costs. Closing costs, typically, range from 3% to 6% of the mortgage amount. Can they be avoided? Technically, no. but in reality, yes. Closing costs can be built into your mortgage amount.

Private mortgage insurance: Must everyone bear this expense?

In a word, no. If your down payment is 20% or larger, you can avoid it. On the other hand, if you have a low down payment (and some are as low as 3%), the financial institution will require you to buy private mortgage insurance (PMI) to protect its investment in your home. PMI usually requires a modest initial premium payment and monthly payments. In many cases where the homebuyer has good credit, the financial institution will offer a mortgage without monthly PMI payments.
(It may, in these cases, charge a one-time fee.)

The interest rate: Does it affect your monthly payments?

Dramatically! It is the major player in your budget scenario and determines the size of the mortgage you can afford. Let’s say you’re comfortable paying approximately $1,000/month in principal & interest. That $1,000/month at 6% interest would pay off in 30 years at $166,000 mortgage. At 7%, that same $1,000/month would pay-off a $150,000 mortgage. And at 8%, that same $1,000/month would pay off a $136,000 mortgage. So the real difference between 6% and 8% isn’t 2%; it’s $30,000.

Mortgage rates, of course, fluctuate based on market conditions. Rest assured, with our expertise in monitoring the financial markets, Beechwood Capital will find you the mortgage that’s best for you, and one with monthly payments you can live with easily and comfortably.