Finding the Best Mortgage

The excitement of home buying involves not only the hunt for the right house but also the search for the right mortgage, sometimes any mortgage that will fit your budget. Now that interest rates have come tumbling down from their peaks in the early 1980s, millions of families are finding ways to finance a home of their own. You should be able to do it too if you are willing to explore the ever changing world of mortgages.

It is a good time to get a mortgage, but it is up to you to find the right one. Mortgage lenders have a large supply of cash and they are eager to lend it to you, and they are offering many new kinds of loans. You will find analyses of different types of mortgages in the following chapters. Here is a quick guide:

If you are buying your second or third home and plan to stay a few years, you may well want a fixed rate mortgage. Its virtue is predictability. The rate you pay will be slightly higher at first than those you would get with other kinds of mortgages, but it will remain constant, and the equity from your previous home should help You afford it. Rates on fixed rate 30 year mortgages in mid 1989 were available at 101/2%. On a $75,000 loan, for example, the monthly payments worked out to $686, excluding taxes and insurance.

Then there is the initially more affordable adjustable rate mortgage, or ARM. It is inviting for younger buyers who expect their salaries to grow rapidly. The interest on it goes up or down, usually every one to three years, in line with an overall index of interest rates that you and your lender agree on. To draw customers, lenders generally offer adjustable mortgages at interest rates below fixed rate loans. This enables you to start off paying low rates. But after the first interval, the monthly payment will change.

If you cannot decide between an adjustable rate or a fixed rate loan, the solution may be the increasingly popular offering called a convertible mortgage. It starts out with an adjustable rate that is usually several percentage points lower than that on a fixed rate mortgage. But if, for example, interest rates drop in the future, you can convert to a fixed rate mortgage at the then current rate for such loans. Say that you took out a convertible mortgage on which the interest rate might have started at 8%, which was far lower than the available 10.5% on a fixed rate loan. After three years your adjustable rate drops to 7.5% but your lender is offering fixed rate mortgages at 7 %. You would be able to convert to that 7 % fixed rate loan. There is a price for convertibility, of course. If you convert, lenders commonly charge a fee of between $100 and $250.

When you go shopping for a mortgage, start by looking in your newspaper to see what local lenders are offering. Then look for a real estate broker who uses a computerized service, which can make comparison shopping a lot easier and faster. In many cities and suburbs, a broker will punch into a desktop computer the size of the loan you are looking for, the amount of your income and other details of your finances. The computer then displays on its screen descriptions of different mortgages that are available from various lenders. It also displays the latest interest rates being offered and tells you if you are likely to qualify for a particular loan. In some cases, these services permit you to apply for the mortgage electronically. You never deal with the lender in person and the papers are simply mailed to you for signing.

The most valuable matchmaking services are clearinghouses for mortgages from many lenders, including those in faraway places where money may be more easily available and interest rates more competitive than in your own area. One big computerized service is the American Financial Network in Dallas. The service enables local, regional and national lenders to display their mortgage plans in real estate brokers' offices and allows you to make an application directly with the chosen lender. Currently, the Network is available at 65 real estate brokerage firms throughout the United States. For information call 800 447 3898.

Among other services are Compound, which you can find at 67 mortgage and real estate brokers in southern California, 30 in northern California, 18 in Dallas and 8 in Seattle; and HSH Associates (1200 Route 23, Butler, New Jersey 07405; 800 UPDATES, or 201 838 3330 in New Jersey), a mortgage search service that you must contact directly. For $18, you can get a kit for homebuyers that include the two latest HSH weekly reports on the terms of loans from dozens of institutions in your state. HSH publishes regional editions for 36 states and 50 major metropolitan areas. Before you send your check, call and see if HSH covers your area.