I wanted to take a different approach than some of the other articles I’ve read on the internet regarding mortgages. In this case my information is general enough to apply to individuals throughout the country, but a special message regarding the Phoenix home mortgage market. Arizona is a bit like California and Vegas as it relates to the mortgage crisis and the other issues that have plagued the economy over the past few years. Phoenix experienced a lot of double digit percentage increase in property value from the time the construction started on a home to the time when the home was ready to sell. Not too many other places experienced this type of rapid growth.
The area has since corrected quite a bit but the overall inventory of available homes has not equalized and has left the resulting area as a buyers market. I wanted this information to frame the ideas behind this article. I’ll be giving you some information on what to consider from a mortgage perspective including mortgage rates and the term of the mortgage.
If you are looking to purchase a home, you’ll most likely need a mortgage from a lender. Despite what marketing efforts would have you believe, the lenders and the loan products available to individuals are not stacked in your favor. These are products that give the lenders and the banks the greatest advantages. This article will hopefully give you enough basic information to be able to ask the right questions when discussing this information with your loan officer or mortgage broker.
The very first thing to consider is how long you plan on staying in the home you’ll be purchasing. I know you can’t always plan these things out, but having a good idea before getting into a long term commitment like a mortgage loan is always smart. If you plan on being in your Phoenix home for a long time, possibly even the rest of your life, your objective with the mortgage should be to minimize the amount of interest you’ll pay on the home. If you know you are there for a short term of 3-5 years or less even, your objective instead may be to get a loan with the very lowest possible monthly payment. The reason you’d want a lower payment is because the overall percentage of principle you’d pay towards your home over that span of time is relatively small because at the beginning of your mortgage, the majority of the amount you pay goes towards interest. Because of this, your first series of payments on your loan really aren’t making a dent in the overall amount you’d pay. So keeping your cash flow high during that short term period of time can be more important than the lowest possible rate.
Mortgage products come in all different types with different options. The most traditional is a 30 year fixed rate mortgage which is a bit self explanatory once you know the lingo. 30 years describes the length of the loan and a fixed rate means the rate over the life of the loan is not adjusted. There are also 15 year mortgages as well as 20 year, and even 40 and 50 year mortgage products that some lenders offer to their homebuyers. The term of the loan and the rate along with the loan amount will easily help you determine the monthly payments. Also calculating this in reverse may help you determine how much house you can afford given a specific rate as well as the term and monthly payment you’d be able to afford to make.
If nothing else, the mortgage crisis that we’ve been experiencing in the US has been specifically an issue with people making choices where they have lived beyond their means. As a loan officer, I’m in favor of people living within their means. It doesn’t mean you shouldn’t have a nice home, but make sure it is something that fits within your ability to meet that financial obligation month after month. The Phoenix home mortgage situation is a great example of how real estate can slip and through the mortgage industry for a loop.
