When To Use The Following Types Of Mortgage Options
Are you in the process of shopping for a mortgage, but feel a bit confused about which kind of mortgage to go with? It will help to know when each of these mortgage options would work best for you.
Fixed Interest Rate Mortgages
One of the most common types of loans that people get is a 30-year fixed interest rate loan. That is because this loan is offered over the longest term typically seen for a mortgage. Additionally, it offers the lowest monthly payment over the entire life of the loan. Many people pick this loan option when they want to keep payments low and see themselves staying in their homes for a very long time.
Selecting a 15-year fixed interest rate loan is going to cause the monthly payment to be higher than a 30-year loan, but cost the homeowner a lot less in interest over the years. If you have the income to pay off your home faster than 15 years then this mortgage product could be a great way to save money. However, you won't be able to lower payments later on unless you refinance.
An adjustable-rate mortgage (ARM) is offered for different durations, which typically indicate how many years the mortgage will be at a fixed rate before the interest rate starts to change. For example, a 5-year ARM means that the mortgage will be a fixed rate for the first five years. While these mortgages can offer fantastic rates for those looking to buy a home, it is possible that the payments could rise too much after the fixed-rate period ends.
If you are looking to buy a home and sell it within a specific amount of time, then an adjustable-rate mortgage may be best for you. You'll be able to lock in those low rates, and then sell the home before it starts changing.
An interest-only mortgage may seem a bit odd, but it may make a lot of sense for you. It essentially reduces the mortgage payment for the initial years of the mortgage so that you are just paying the interest. After the initial period is over, the monthly payment goes up so that you start paying principal and mortgage. This type of loan is best for people that can't afford the full price of their mortgage now, but can in the future. It can help avoid the process of refinancing as well if all you want to do is get in a home now for the lowest price possible. Contact a company, such as Lund Mortgage Team, for more information.