New Rules of Home Mortgages

Historic lows in the home mortgage market have been a windfall for many homebuyers in recent years. However, home mortgage rates are now on the rise and there's a new sense of urgency among some would-be homebuyers. Before rushing out to lock in lower rates, consider these few tips if you're about to make one of life's bigger investments.

The big picture

Too often homebuyers don't consider how a mortgage will impact their entire financial portfolio. Using too much of your income may not leave you enough money to put aside for other financial goals, such as retirement or a college fund.

According to Richard Musci, vice president, loan products officer at Charles Schwab Bank, a monthly house payment (including mortgage, taxes and insurance) should hover around 28 percent of gross income. SmartMoney recommends total debt payments (mortgage, car and credit-card payments) should be under 36 percent of your gross income. Look for a mortgage provider that understands your current financial position and works to ensure that your mortgage fits in with your long-term financial goals.

Understand your options

Along with the traditional fixed mortgages, there is an array of adjustable-rate mortgages available, including traditional ARMs, hybrid mortgages and interest-only mortgages. According to Musci, the wrong mortgage can cost significantly more than necessary.

"The right mortgage depends on your income stream, financial situation and how long you plan to stay in your home," said Musci. "Be wary of providers who are incented to push certain kinds of products. Ask lots of questions and if an offer sounds too good, it probably is."


When mortgage rates rise, timing can be crucial in terms of maximizing buying power. All mortgages take time to apply for and close on, but not all mortgage providers work on your schedule. Ask your provider how long it will take to process your paperwork and make certain it can provide the kind of service that guarantees you will not miss out on a great deal. You don't want to wait two weeks for what could take 24 hours.

Compare price, not just interest rates

When factoring in lender fees, third-party fees, points and other considerations, sometimes the lowest rate doesn't always mean the lowest-price loan. Make sure all fees and costs are disclosed up front so that there are no surprises later.

Know your provider

Choose a provider that will work with you throughout the borrowing process without trying to lock you into a mortgage that doesn't fit your needs. And for peace of mind, you may want to ask if your provider will service the loan for the entire duration or if you are likely to be dealing with another company farther down the road. You'll save time and worry by going with a provider that understands your short- and long-term financial situation and considers you a long-term customer, not just a one-time win.

For more information, visit or call Schwab Bank's loan experts at 877-6-SCHWAB. Schwab Bank is an equal housing lender.

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