There are many factors to consider when taking out a mortgage in Maryland. Three of the most important are the loan type, interest rate type, and loan term. For the loan type, borrowers can choose between conventional mortgages, government-sponsored loans, or special programs.
The above options charge interest rates either on a fixed or adjustable basis. Most borrowers prefer fixed rates due to their predictability and stability. Below are some factors to consider when determining the right loan term for fixed-rate Maryland mortgage programs.'
Your Financial Goals
If you're to reap its full benefits, a real estate investment should fit into your long-term financial goals. This will only be possible with a loan term that allows you to balance your monthly mortgage payments with other monetary commitments.
To this end, ask yourself the following questions:
Do you plan on staying in your home for a long time?
A longer loan term may be more appropriate for this scenario. It will help capitalize on the length of time you'll be occupying the property.
Are you planning to sell or refinance the property within a few years?
A shorter term may be more beneficial in this case. This will allow you to accumulate equity faster and pay off the loan balance sooner.
Your Current Financial Situation
As much as you're considering your long-term financial goals, pay attention to your current financial situation. The following questions should help guide your decision:
What is your current monthly income?
If it's on the lower end, a longer loan term may be more manageable, as it will stretch out the payments over a longer period.
What are your current financial obligations?
Your monthly mortgage payment should leave you with enough money to meet other financial obligations such as bills and savings. Only take out a shorter loan term if you have fewer financial obligations.
What is your debt to income ratio?
High debt levels may limit the amount you can put towards mortgage payments, making a longer loan term the better option.
How much do you have for a down payment?
If you can make a larger down payment, choosing a shorter term may be more beneficial, reducing the principal amount and overall interest paid over time.
Interest Rates
The whole point of a fixed-rate mortgage is to enjoy low interest rates for the life of the loan. As such, you'll want to choose a loan term to take full advantage of these low rates. Shorter terms typically have lower interest rates. However, they have higher monthly payments. Find a balance between the two to determine what works best for you.
Also, look at current interest rate trends and projections for the future. If rates are low and expected to increase in the near future, choosing a longer loan term may be more beneficial as it will lock in the low rate for a longer period. A shorter term may be more suitable if rates are currently high and expected to decrease.
Equity Buildup
Homeownership is supposed to provide a sense of pride, stability, and security. If you have an entrepreneurial spirit, it should also be an avenue for wealth-building through capital acquisition.
If you purchase a home through financing, the lender will have a mortgage lien on the property until the loan is repaid. The lien limits your ownership rights, complicating transferring property ownership or taking out a loan with the property as collateral.
If you wish to enjoy the full benefits of homeownership sooner rather than later, a shorter loan term may be more beneficial as it helps you build equity faster.
Your Risk Tolerance
If you are risk averse, a longer loan term may be more suitable. This way, your monthly mortgage payments will remain lower and the same for a longer period, thus making them more manageable. Otherwise, a shorter loan term will be the most appropriate as it will allow you to take on more risk at the prospect of significantly higher rewards.
Home Prices and Market Conditions
If home prices are currently high, loan principal will be high. Interest will also be high, as it's calculated based on the principal amount, and so will monthly payments. A long-term fixed-rate mortgage can offset this. Lower home prices may warrant more aggressive payments over a shorter term.
There are several valuable factors to be considered when applying for a mortgage. With this information, consider consulting with a professional to better understand which factors are most relevant to your situation.
Partner With Woodsboro Bank for Expert Advice on Maryland Mortgage Programs
The seasoned residential loan officers at Woodsboro Bank can help you understand the differences and advantages of Maryland mortgage programs. They can also help you secure the most suitable mortgage, whether conventional or government-sponsored. Contact Woodsboro Bank today for personalized advice on home loans.