When it comes time to ask for a loan, finding the right one can be daunting. Unfortunately, there isn’t a step by step guide to choosing the right loan; it’s more dependent upon your specific situation. In order to narrow down your search, it’s important to take the time to ask yourself a few questions that will help determine which loan is the best for you. After all, buying a home is the single largest expenditure you will make.

1. Do you plan to occupy that property for an extended period of time? This is an important question because it will determine whether you get an adjustable rate mortgage (ARM), balloon, or fixed rate mortgage. An ARM is characterized by an adjustable interest rate that fluctuates up and down. A balloon loan is a type of loan that doesn’t fully amortize over its term requiring a payment of the remaining balance of the loan at the end of the term. A fixed rate mortgage simply means the interest rate on the note remains the same through the whole term.
   • 1-3 years: 1 or 3 year adjustable rate mortgage.
   • 4-6 years: 5 or 7 year ARM; 5 or 7 year balloon.
   • 7 years: 10 year ARM; 10, 15 or 30 year fixed rate mortgage.
2. What is your financial goal: equity buildup or minimize payment? Equity buildup is the gradual increase in equity due to the monthly payments bringing down the overall loan amount. Minimize payment simply means you want to make the lowest possible payments each month.
   • For an equity buildup you should choose a 15 or 20 year fixed.
   • For a minimize payment you should choose a 1, 3, 5, or 7 year ARM or a 30 year fixed.
3. How do you anticipate interest rates and your financial future will look? This question requires a little more thought because you will have to forecast the future and that’s not an easy thing to do considering things change daily. However, take a look at the trends and at your financials and then you can make an intellectual guestimate to set yourself up for success. If you think interest rates will:
   • Rise:30, 20, or 15 year fixed; 7 or 10 year ARM; 7 year balloon
   • Fall: 1 year ARM
   • Stay the same:1, 3, 5, or 7 year ARM
4. Are you comfortable with risk or changing mortgage payment amounts? This is specific to how you feel. There is no right or wrong answer, merely what you are and are not comfortable with.
   • Uncomfortable with interest rate fluctuations: 15 or 30 year fixed; 10 year ARM
   • Comfortable with potential changes: 1, 3, 5, or 7 year ARM; 5 or 7 year balloon

   With the influx of many different loan products available today, it is often difficult to choose the best one suited for your financial specifications. However, once you do a little research, ask yourself some questions and feel comfortable with your choice then you will be on the path the a successful financial future and a happy home.

   About the author:

   Compass Technologies is the company behind Kwik-Loan consumer finance software and Kwik-Dealer indirect lending software.