How to Pick the Best Loan Type for Your Purchase
Big purchases can sometimes equal big risks, but that doesn’t always have to be the case. When you are purchasing a car, home or other large item, the loan type you choose can make a huge difference in the amount you eventually pay. By educating yourself about what’s out there in the lending world, you can be sure to choose the right loan type for you.
There are kinds of loan options when choosing your home loan or mortgage type. How long do you want the loan term to be? Do you want your interest rate to be fixed or would you like it to adjust with the market? A mortgage is an expense you can expect each month, so think about what you can afford. If the market has hard times and your budget can’t absorb a rate that adjusts much higher, you may want to join the 75% of people who opt for a fixed rate.
So, this big purchase you are making. Have you been thinking about it for a while? Have you started to save for a down payment? If you haven’t, it’s going to cost you. Most lenders charge PMI- private mortgage insurance. This is an insurance on loans taken out by buyers who have limited credit history and no down payment.
You’re financing that?
As a general rule of thumb, you don’t want to pay interest on things that are diminishing in value. So, buying your home is a great way to use a loan. However, buying a TV or couch makes less sense. If an items value isn’t going up, it should be purchased via financing. Instead, try saving upfront for these items.
You can’t rich if you spend all your money on interest! Watch your purchases closely and be careful about what items you allow to accrue interest. That way, your credit stays great and your checking stays full. Buyers who pay interest on day to day purchase could spend 20-30% more for all the things they buy. Don’t be that guy!