How to Pick the Best Mortgage for You

Looking to buy a home?  When house hunting, you’ll want to keep your financing options top of mind.

Figuring out the right mortgage for you can be complicated, as many variables exist. What’s the interest rate? How does your credit rating affect it? Are you eligible for any low-cost government programs? Should you get an adjustable-rate mortgage (ARM) or a fixed rate? What are your total costs likely to be? 

Whether this is your first home loan, you’re looking for a better mortgage as you transition to a new home, or you want to refinance your current mortgage, here’s an overview of the different types of home loans and how to choose the one that will save you the most money. 

Questions to Ask When Shopping for a Mortgage

Because mortgage types, costs, and individual circumstances vary, it’s important to know what to keep in mind when shopping for a mortgage. 

Remember that interest rates can change day-to-day, so if you want to make sure you get a specific rate once it’s available to you, you’ll need to lock it in and put an offer on a home during the timeframe given to you by the financial institution. 

When looking for a mortgage, shop around and see where you can get the best value for your money. You’ll want to consider the interest rate on the loan, as well as what fees the financial institution will require you to pay. PSECU’s mortgage rates can always be found on our rates page so that you have the information you need to make an informed decision as quickly as possible. 

When rate shopping, some financial institutions will give you an estimated interest rate upfront, while others will do a hard inquiry on your credit before they give you information about the interest rate you qualify for. Keep in mind that credit inquiries can impact your credit score, but there are some protections built in for consumers who are rate shopping. Be sure to do your research and make sure you’re having all inquiries done within the right time period to reduce any negative impact on your credit.

To keep track of who gave you the best offer, prepare a table or spreadsheet that includes column headers for the financial institution, down payment, interest rate for that specific down payment, Private Mortgage Insurance (PMI), if you plan on a down payment of less than 20% of the home’s value, and other fees such as origination or appraisal costs. 

Here is a list of questions to ask when you speak with a financial institution about getting a mortgage:

• What would my interest rate be if I locked in the rate today?

• Does the interest rate vary based on the down payment I have? This will let you know if it’s worth it to try and save for a higher down payment.

• What is the monthly cost for PMI, if needed?

• If PMI is needed, will it be eliminated after there’s a certain amount of equity in the home? What does that process entail?

• Are there any other costs or fees that I should be aware of with this type of loan?

• What are your loan origination fees?

• What are your appraisal fees?

• What is the approval timeline for a mortgage?

Things to Consider

Conventional loans are the most common type of mortgage since they have the most flexibility and often offer the lowest interest rates. At PSECU, we offer both fixed- and adjustable-rate conventional mortgages with an interest rate determined by term length and any points purchased.

Conventional loans are the most common type of mortgage since they have the most flexibility and often offer the lowest interest rates. At PSECU, we offer both fixed- and adjustable-rate conventional mortgages with an interest rate determined by term length and any points purchased. 

Points are paid upfront to the lender and are not part of the home loan amount. One point is equal to one percent of the loan amount, and you can usually buy up to three points. Discount points are in addition to your mortgage costs. 

In the chart above, for example, buying three points was worth the expenses since it ultimately lowered the monthly payment and saved several thousand dollars in interest over the life of the loan. For details on how points affect a PSECU mortgage, you can speak with one of our mortgage consultants.

We’ve mentioned PMI a few times but now, let’s do a deeper dive. PMI, if needed, will affect your monthly mortgage payment. This type of insurance is different from homeowners insurance. PMI protects the lender from losing money if you end up in foreclosure. With a conventional mortgage, homeowners become eligible to request cancellation of PMI once they have 20% equity in the house. This can be a consideration since it can affect your overall costs. 

Homeowners should calculate how much they would save by eliminating PMI. PMI is assessed partly on the loan-to-value (LTV) ratio, which is a measure of how much outstanding loan you have relative to the value of your home. If you pay off a mortgage faster than anticipated or increase the value of your home by remodeling, for example, your LTV ratio falls. That can help eliminate PMI. 

You may find taking time to save for a 20% down payment with a conventional loan will save you the most money over the life of the loan. 

Several government agencies offer loans to eligible prospective homeowners. While these loans may have fees, lifetime mortgage insurance, and higher interest rates, they do offer families a chance to own a home when they don’t have a large down payment. 

Government Agencies with Mortgage Programs:

• Federal Housing Administration (FHA) programs are for anyone.

• S. Department of Veterans Affairsoffers a home mortgage program for veterans, military personnel, and surviving spouses. 

• S. Department of Agriculture (USDA)has a loan program for those who live in rural areas and have lower credit and incomes.

Applying for a Mortgage

Before applying for a mortgage, be sure to research which option best meets your needs and speak with a qualified lender for more information. Remember that while there’s a variety of products to choose from, not every financial institution offers all options. 

PSECU has free resources to help you decide what type of mortgage is best for you. Look at and calculate both ARMs and fixed-rate mortgages by scrolling down to the bottom of our mortgage page to see the current rates. Our mortgage page also has a link to a calculator so you can see your possible monthly payment. 

Own Your Future with PSECU 

If you’re ready to take control of your future as a homebuyer, PSECU's First-Time Homebuyer program* can help make the process easier and less costly. Our First-Time Homebuyer program helps credit-worthy borrowers achieve their dream of home ownership by eliminating the need for a large down payment and the additional monthly cost of PMI. Learn more about our First-Time Homebuyer program or apply today!

*Additional options for first-time homebuyer products/terms available. PMI may be required. Contact one of our mortgage consultants to find out which one is right for you.