Buying a home is at the core of the American Dream. Purchasing a home that you can afford, is also very important for a good financial discipline. Home buying requires you to make a down payment which is usually 20% of the purchase price. Of course, you can make a bigger down payment if you want to reduce your monthly mortgage payments. Access our Fixed Rate Mortgage tool to estimate monthly payments for a fixed rate mortgage .... Show details

This tool also helps you calculate your monthly loan payment to see if it is affordable. You may change the down payment, number of years to repay the loan and the annual interest rate. Note that when you own a home, you need to pay property taxes to your local authority. This tax typically ranges between 1.0% to 1.5% of the assessed value of home. Outside of mortgage and tax payments, you will need to consider homeowner's insurance into your calculations. In fact, your mortgage company is going to make sure that you have insurance on the house to protect their investment should anything unforeseen happen. Sometimes, when you are paying less than 20% down, the mortgage company may require you to buy Private Mortgage Insurance (PMI) which means an additional monthly payment for you. The Fixed Rate Mortgage tool only calculates your loan payments. To estimate the full monthly cost of home ownership, you need add property taxes, insurance, and PMI (if applicable). Typically you do not pay these three items monthly; the mortgage company may collect them in advance from you which is also known as "escrow".
Your interest rate may decrease if you elect to pay closing costs and points (% of loan amount). It is recommended that you compare all your options before you close on your mortgage. Ask your mortgage broker if purchasing points wind hinder your ability to refinance in the future.

There are several types of home loans. One, as stated above, is the fixed rate loan which has a fixed interest rate for the life of loan. This offers a predictable payment no matter how the financial markets behave. Another type of loan is an Adjustable Rate Mortgage or ARM. An ARM offers a fixed rate for a specific time period, and then the interest rate increases or decreases annually depending on the prime rate. The interest rate will not exceed a certain maximum interest until the loan is fully paid back. As a result, the initial interest rate for an ARM is lower as compared to the fixed rate mortgage.... Show details

Before you get attracted to ARM loans due to their lower interest, here are a few things that you should consider:

  • How long you plan to stay in the house? If you know you're going to live in this house only for 5 years, then 5/1 ARM may be worth looking into.
  • How well do you follow the interest rate in the market, e.g. will you know when to take action if interest rates were to jump significantly? Note: Rates may decrease also, and therefore, so may your payments may go lower after the fixed rate period.
  • Will you have big expenses (education, car, family, etc.) when the fixed term of your ARM expires?
  • What is your expectation about your family income? Will it go higher?
  • Emotionally, will you be able to handle the uncertainty of the loan repayments or will this worry you?

Here is a list of typical ARM mortgages:
ARM TypeDescription
10/1 ARMInterest rate fixed for first 10 years and thereafter adjust annually for the loan period.
7/1 ARMInterest rate fixed for first 7 years and thereafter adjust annually for the loan period.
5/1 ARM Interest rate fixed for first 5 years and thereafter adjust annually for the loan period.
3/1 ARM Interest rate fixed for first 3 years and thereafter adjust annually for the loan period.
1 Year ARM Interest rate fixed for first year and thereafter adjust annually for the loan period.

The Mortgage Refinance Planner allows you to decide whether you should consider refinancing your current mortgage given the current interest rate environment. You may enter the quote which you may have received from your mortgage broker and check if it makes sense to refinance. This tool provides you the estimated benefit of refinancing. Additionally, it provides you a break even interest rate, i.e. if the interest rate that you are being offered is above this interest rate then it is not beneficial to refinance your current mortgage.

  • If you are buying a home, first determine the price of home you can afford.
  • Once you have decided to buy a house or you have decided to refinance your existing home mortgage, shop around for the best interest rate. Your local bank may not be the best option.
  • Don't wait to shop for mortgage until you find a house. You may want do your homework in advance.
  • Check your credit history and credit score and make sure it is clean.
  • Gather your last two years of tax documents (1040), employment verification, and bank and brokerage account statements for past few months.
  • Lock the interest rates in advance and check how long they're available. Some mortgage brokers take a deposit for this. This deposit is generally refundable should you complete the financing.