Which Mortgage Is Best For You

Which Mortgage Is Best For You



Which Mortgage is​ Best For You.
Buying a​ home is​ probably the​ biggest decision you​ will every make .​
But deciding to​ buy is​ only the​ first step in​ the​ decision making process .​

Now,​ you​ must decide what type of​ mortgage is​ best for you,​ and if​ you’ve never bought a​ home before then the​ terms can be confusing.
Many factors must be considered when selecting the​ right mortgage .​
Most importantly,​ borrowers must understand how the​ different types of​ mortgages are structured .​

The three most common types of​ mortgages are adjustable rate mortgages,​ fixed rate mortgages,​ and balloon mortgages.
An adjustable rate mortgage (ARM) is​ structured so that the​ interest rate is​ not locked down .​

Usually,​ the​ introductory rate is​ set for about 5 to​ 7 years,​ at​ which point it​ will be adjusted either up or​ down,​ depending on​ the​ current interest rates.
After the​ initial rate adjustment,​ ARMs are usually adjusted every two years for the​ remaining length of​ the​ loan .​
Interest rate adjustment is​ usually capped at​ about 2 percent,​ meaning that the​ interest rate cannot be adjusted more than that each time .​

ARMs are also set with a​ maximum adjustment rate .​
If the​ maximum adjustment rate is​ 7 percent,​ that means that the​ highest rate the​ borrower ever pays is​ 7 percent above the​ initial interest rate on​ the​ loan.
Fixed rate mortgages (FRM) are just that: fixed .​
the​ interest rate will never be adjusted .​

These mortgages offer the​ lowest risk to​ the​ borrower,​ because they protect from rising interest rates .​
If the​ life of​ the​ loan is​ 30 years,​ then the​ borrower is​ protected for 3 decades from fluctuations in​ the​ market.
Drawbacks of​ FRMs are two-fold .​
If interest rates go down,​ you​ are locked into a​ higher rate .​
And often FRMs carry higher loan costs,​ because they carry high risks for the​ lender .​

If a​ lender signs you​ to​ a​ 30 year FRM at​ 6 percent interest,​ and then interest rates continue to​ rise,​ the​ lender is​ locked into accepting 6 percent interest for the​ life of​ the​ loan.
Balloon mortgages operate quite differently,​ and are structured so that there will be a​ balance at​ the​ end of​ the​ term – usually 5 or​ 10 years – that must be repaid .​

Some balloon loans only require that you​ pay the​ interest during the​ loan term,​ which means monthly payments are often very low,​ but at​ the​ end of​ the​ loan the​ original balance will be due in​ full .​

Another type of​ balloon loan calculates payments as​ if​ the​ loan were to​ be paid in​ full over 30 years,​ which does reduce the​ balance at​ the​ end of​ the​ term .​

Still,​ this type of​ loan must be refinanced after the​ loan term is​ up .​
Balloon loans can be beneficial if​ the​ borrower expects to​ resell the​ house at​ a​ profit before the​ ending balance comes due.
The type of​ mortgage you​ select depends largely on​ your plans for the​ house .​
Are you​ planning to​ live in​ it​ long term or​ short term?
Do you​ expect the​ property to​ appreciate rapidly? Keeping your long-term goals in​ mind will help you​ choose the​ mortgage that is​ right for your unique situation.




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