Two Psychological Factors You Must Consider When Choosing a Mortgage2/02/2011 A home loan is a unique financial instrument. It allows you to purchase and own a home or property that you wouldn't otherwise be able to purchase, but it creates a burden of debt that you must live with until it's fully paid off. If you're a first time home buyer and you've never had to live with this amount of debt before, take your personal feelings into account before you decide to make a home purchase. The way you feel about debt and react to it will affect the type of loan you should pursue. This is true in many ways. As an extreme example, if debt causes you to experience stress or lose sleep, home ownership through a mortgage may not be for you. Find a way to purchase a home without a mortgage. At the other extreme, if you feel that debt isn't a problem at all and you don't take your mortgage obligation seriously, you may end up damaging you credit score or losing your home. Take these psychological factors into consideration when selecting a loan. Predictability. Some homebuyers want to know what their mortgage payment will be for the entire length of the loan term. They prefer stability over short term savings. If this is you, get a fixed rate mortgage. With a fixed rate, the payment amount you'll make at the start of the loan will be the same as the payment amount you'll make at the end. These loan types are highly predictable. Unfortunately, they don't come with the lowest mortgage rates. These rates are tied to adjustable rate mortgages, or ARMs. Risk. Some homebuyers are risk averse. Others are willing to accept risk in exchange for higher financial returns. If you fit the latter category, an ARM loan with a low short term rate may fit your needs and allow you to save significant money on your mortgage. In order to continue saving money, though, you'll have to bet on the expectation that market rates will decrease once the loan rate begins to adjust. Your psychological preferences are important. Don't ignore them when picking out a loan for your home. |
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