When you're buying a home, the array of home financing types can be overwhelming. A home mortgage is probably the largest debts you will incur in your lifetime, so choosing the right one is important.
When you're buying a home, especially if it's your first home, the array of home financing types can be overwhelming. A home mortgage is probably one of the largest debts you will incur in your lifetime, and you will likely be making payments on your mortgage for many years, so choosing the right home loan is very important.
Although dozens of options are available, there are three basic types of financing. The first and most common home financing type is a fixed-rate mortgage. These loans typically have 10 to 30-year terms. These mortgages are especially beneficial when interest rates are low, because they allow you to lock in the low interest rate for the life of the loan.
With a fixed-rate mortgage, your mortage payments to remains only fluctuates with changes to insurance costs and taxes if they are included in your payment. A downside is that the interest is front loaded on these loans, so very little goes toward the principal during the first few years. It takes several years for you to build up equity in the home.
The second most common home financing type is the adjustable-rate mortgage. Adjustable-rate mortgages start with a very low interest rate, but then the rate adjusts according to the national lending index either annally or quarterly.
Adjustable-rate mortgages are a good choice when interest rates are high and expected to go down in the future. The downside to these loans is their unpredictability. Mortgage rates can fluctuate wildly from year to year, especially during periods of economic upheaval. Sudden jumps in the national lending index can cause a mortgage payment to become unmanageable with very little warning.
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The third financing option available is the interest-only loan, which can be very attractive if you need an extremely low mortgage payment for a few years. These loans are commonly fixed-rate loans with a set period at the beginning of the loan during which you make payments on the interest only with nothing going toward the principal. The downside to these loans is that the payment rises drastically when the loan switches from the interest-only to the regular rate.
Regardless of your current financial circumstances, you can find a home financing type that will fit your needs. Reply! is a great resource for finding a mortgage expert who can help you choose the right option for purchasing the home of your dreams.
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