You've just found a home in a nice neighborhood and you plan to stay there
until your kids are through high school. Or maybe you're 65 and are buying your retirement
home. In either case, you know you're not moving for at least a decade.
What You Want: No doubt about it. In the current environment, you want a fixed rate
mortgage. Rates on a 30-year fixed-rate loan are low, and though a fixed rate still costs
more than an adjustable-rate mortgage, the difference between the two is not that great. The
price of stability, in other words, is relatively affordable. If your monthly cash flow
permits it, you might consider a 15-year loan. The monthly payment is higher, but you pay
less interest over the life of the loan. You might pay even less for a more exotic loan --
one that stays fixed for seven years, for instance, and then adjusts. But the difference in
cost is so minimal it's hardly worth it.
As rates ease up, so will the gap between the price of a fixed rate and the price of an
adjustable. Chances are, even if the price is up somewhat, the long amortization of a
30-year fixed will make the effect negligible.
Where to Shop: Your first stop should definitely be a mortgage banker such as
Countrywide Funding. Unlike mortgage brokers, with which these outfits are sometimes
confused, mortgage bankers are not intermediaries between you and a lender; they are
lenders. Mortgage bankers don't write a lot of adjustable-rate loans, because it's harder to
package those for sale to organizations, such as Fannie Mae and Freddie Mac. Thus, because
mortgage bankers make their money on fixed rates, their prices tend to be the most
aggressive around.