what type of mortgage works best for you

Step 1: Figure out what type of mortgage works best for you

I have forever advised sticking with a 30-year fixed-rate mortgage, and paying extra on the principal every month to pay it down more quickly. Yes, the rate will be slightly higher than a 15-year mortgage.

A 15-year mortgage comes with lower rates and slightly higher monthly payments that will save you a fortune in interest if you plan to stay in your home. But if you want flexibility, you can get the same advantage by making extra principal payments on a 30-year loan.

Step 2: Understand fees, costs

While most people focus on the interest rate, your true cost must include all fees and charges. When comparing deals, you’ll need to make sure you’re comparing all the costs. Some brokers proclaim there are “no closing costs.” But you can be sure they’re not working for nothing!

Instead, they’ve rolled these costs — appraisals, title search and legal fees — into the interest rate you’re paying. So a loan with a 6.25 percent fixed rate and no closing costs might not be as attractive as a loan at a lower rate with modest closing costs. A lender should give you a “good-faith” estimate of all costs.

You can pay “points” upfront to lower the interest rate. Each point is equal to 1 percent of the loan amount. So on a $100,000 loan, one point is equivalent to $1,000. If you pay “points” to get a discount on your interest rate, that amount may be tax deductible. Given today’s volatile mortgage market, it’s probably not advisable to pay points to reduce your rate. If you decide to refinance at a lower rate in the future, you’ll have “wasted” the money you paid for the points on your old loan.

Step 3. Start your search

The radio advertisements are coming back — promising easy deals, no costs and low rates. But how will you know you’re getting a good deal if you don’t do some comparison shopping? That’s easier than ever today with online tools.

Just remember that every Web site makes money in some way by getting credit for your business. Some want you to register so mortgage brokers can contact you. Others are a source of “leads” for just one mortgage company. You’ll probably have to give some personal information to get a quote. But don’t give out your Social Security number until you are ready to make a deal.

Beware of online mortgage rates and services.  When making one of the biggest investments in your life you want to consider a local lender where you can meet them face to face.

Step 4: Get it in writing!

You should get  a “good-faith” estimate of all costs and fees. It’s a little late to reiterate this advice, but if you’re thinking of getting an adjustable rate mortgage, ask for a written example of how high the monthly payment could go, and when, if interest rates escalate in the future! If you have any questions, get the answers in writing. And if you’re doing a re-fi, check the wording of your original loan to make sure you are not subject to penalties for prepayment. As always, if you’re in doubt, consult an attorney who specializes in real estate law.