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Countrywide Home Loans Shares Tips for Choosing a Mortgage

Calabasas, CA (PRWEB) June 25, 2007 -- Whether buying a home or refinancing an existing mortgage, it is important that home buyers and homeowners determine which type of home loan best fits their household's financial situation. To help simplify the decision-making, Countrywide is sharing 10 tips for choosing a mortgage loan. These helpful insights are just a few of the many valuable ways consumers may arm themselves with the knowledge needed to help achieve and maintain home ownership.

"When it comes to choosing a home loan there are some basic principles everyone should consider. Two of the basics are, first, stay within your financial means, and second, never commit to anything without being 100% sure that it is in your best interests," says John P. McMurray, chief risk officer for Countrywide Financial Corporation (NYSE:CFC), a diversified financial services provider and member of the S&P 500. "There are a number of points to consider when making a decision about taking out a mortgage loan."

Here are 10 tips to consider when deciding which type of mortgage loan best fits your household's personal and financial situation.

1. Low Payment Now = Higher Payment Later. A lower payment now will almost always mean a higher mortgage payment later. Interest-only loans, "hybrid adjustable rate mortgages" (ARMs) and "option ARMs" are a few examples where the initial payment is typically lower and later payments are higher. It may make sense to have a home loan with a lower initial payment, but it's important to understand that a "really low" payment now most likely means a high payment later. If you want predictability in your mortgage payments without the risk of your home loan payment increasing, a fixed rate mortgage loan may be the right option.

2. Know Your Prospects. In order to properly evaluate various mortgage loan alternatives, you need to assess your own future prospects. Is your future income likely to be higher or lower? If you opt for a mortgage loan with an adjustable rate, you should have a solid expectation that your future income will increase enough to accommodate the higher payment if the interest rate increases. If you are not sure about your future income, a fixed rate mortgage that provides predictability in your monthly payments may be a better fit.

3. Know Your Time Frame. Time frame is another important consideration. Do you expect to move in the near future or will you stay in this house for a long time? If you plan to move soon, will you keep the house or sell it? Your time frame can, and probably should, influence several decisions you'll need to make about your home loan. Examples include the type of home loan (e.g. ARM v. Fixed Rate; fully amortizing v. interest only), home loan features (e.g. should you accept a prepayment penalty in exchange for a lower loan price) and rate/points combination (the shorter the period you plan to remain in your home, the fewer points you should pay).

4. Plan for the Unexpected. Virtually every family will unfortunately experience unexpected events such as job loss, divorce, illness, and/or death of family member. It pays to plan for these unexpected events by having adequate savings, so you don't compound the stress of such events with payments that you may not be able to afford.

5. Do Not Exaggerate Your Income. Low documentation loans are now widely available. Even with one of these "low doc" or "no doc" mortgage loans, it is still critical to put accurate information on your loan application for at least two reasons. First, you do not want to end up with a mortgage you cannot afford. Second, remember that you're signing the application "under penalty of perjury."

6. Real Estate as an Investment. Compared to other investments, real estate has high transaction costs. So you will likely need considerable appreciation just to break even when you sell. Besides the high transaction costs, real estate can go down in value. So it may not be wise to rely on expected appreciation to help you afford your home loan.

7. Ask About Broker Compensation. If you are using a broker, you should understand that the broker can get compensated either by you or by the lender. If the broker is being compensated in whole, or in part, by the lender, that usually means that you will be paying a slightly higher interest rate on your home loan. Make sure you understand how your broker is being compensated and the impact of such compensation on the price you are paying for your home loan.

8. When Shopping For a Loan, Compare Apples to Apples. Always ask about the three parts contained in the price of a home loan: Interest rate; points; and fees. For most home loan programs, borrowers can elect to pay discount points to receive a lower interest rate; or a borrower can elect to pay fewer or no discount points but then will be paying a higher interest rate. If the lender offers a "no cost" home loan, it generally means that you will not have to pay any discount points or fees, but your interest rate will be higher.

9. You will pay more for a low- or no-documentation loan than for a full-documentation loan. Low or no-documentation loans generally mean you will pay a higher interest rate for not providing full credit information.

10. Understand the Transaction. On any major financial decision, including a mortgage loan, it is prudent to not move forward until you are comfortable that you understand the transaction.

For more information about achieving and maintaining home ownership, Countrywide provides a no-cost, no-obligation experience online at www.HomeByCountrywide.com. The online program offers an interactive learning center which includes comprehensive information about: Basic Finance, How Credit Affects You, Preparing for Home Ownership, Steps for Buying a Home, and Life as a Homeowner. Also featured are tools and resources, including downloadable checklists, worksheets and quizzes that assist home buyers achieve and maintain home ownership.

About Countrywide Financial Corporation

Founded in 1969, Countrywide Financial Corporation (NYSE: CFC) - America's #1 home loan lender - (as ranked for 2006 by Inside Mortgage Finance, Feb. 2, 2007, Copyright 2007), is a member of the S&P 500 and Fortune 500. Countrywide is a diversified financial services firm primarily focused on real estate finance and related activities. Through its family of companies, Countrywide provides mortgage banking, capital markets, global operations and insurance, in domestic and international markets. The company is headquartered in Calabasas, California and has a workforce of more than 50,000 with over 900 offices. For more information about the company, visit Countrywide's Web site at http://www.countrywide.com

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