It can be hard to know which of the various mortgages is the best choice for your situation. Before you start researching homes and properties, you must know what kind of mortgage you want. To get the most accurate information, you need to speak with lending experts at banks and other lending companies. This information is not intended to take the place of speaking with a lending specialist.
The vast majority of real estate buyers have historically gotten fixed-rate loans. This is the right choice for you if you will remain at the property for the entire loan length. Most fixed-rate loans have a repayment time of fifteen or thirty years.
If you choose a fifteen-year term, your monthly payments will be expensive. You will also pay less in interest charges as the debt will be paid back over a shorter time period. The other advantage to this shorter term is that the home is completely yours in a relatively short period of time.
The big advantage with a fixed-rate loan is that as the name suggests, its interest rate does not change. That may mean it has a slightly higher interest rate than other sorts of mortgages. This type of mortgage always has a two-part payment. Part of the money you pay each month goes toward the principal, or the original dollar amount of the loan. The second part is the interest payment you owe in the given month.
Another mortgage option many people chose is the Adjustable Rate Mortgage or ARM. The advantage to having an ARM is that the initial interest rate will be lower than that of most fixed-rate mortgages. Typically after the first five to seven years, the rate will slowly rise.
Many people are afraid to get an ARM. There have been horror stories written about them. The only time an ARM can cause you trouble is if you use it to try to buy more house than you can afford. Since the interest rate is lower at first, you might be tempted to buy a bigger house than you could afford with a fixed-rate mortgage. Unless you know you will make more money in the near future, this is a very bad idea. Never buy a house with an ARM that you could not afford any other way.
There are some circumstances under which getting an Adjustable Rate Mortgage makes sense. If you know you cannot stay in a home for longer than five to seven years, you can save money with an ARM. You will pay less on it than if you had a higher, fixed-rate loan. You might also prefer an ARM if you know for certain that your family income will rise by the time the rate goes up. For example, if your spouse will soon graduate from medical school, it is safe to assume you will be able to afford rising monthly payments.
Choosing amongst the various mortgages has little to do with how much real estate you want. It has more to do with how long you plan to live there and what your income will be like while living there. Fixed-rate loans are long and steady. ARM loans are cheaper at first and can vary. The right one for you depends on which one fits your lifestyle.