What are My Mortgage Options?

Are you a first-time homebuyer hoping to take advantage of today’s mortgage rates but are unsure of the type of mortgage you should get? There are several types of mortgage options out there and you may only qualify for a certain kind. However, if you are eligible to choose your own mortgage, here are the main types there are so you can make a more informed decision.

Fixed-Rate Mortgages
These are probably the most common and secure types of mortgage. With a fixed-rate mortgage, you can expect to pay the same amount on your mortgage payments each month because the interest rate is locked in for the life of your mortgage. There are no surprises like higher monthly payments or fees that you may get with other mortgages. This makes it easy to plan and budget you money since you know how much you need to set aside for your mortgage payment all the time.

Adjustable-Rate Mortgages
These are fairly common types of mortgages these days, but you might otherwise know them as ARMs. With an adjustable rate mortgage, the payment each month fluctuates according to the general interest rate. When mortgage rates are as low as they are today, you would pay a lower mortgage payment each month. Unfortunately, when the general interest rates go back up, however, you would be stuck paying a much larger payment than usual. This makes it hard to plan and budget your money and you could be expected to pay a monthly payment that is more than you can afford. This is why many people have had to leave their homes in recent years because of foreclosures.

Hybrid Mortgages
With hybrid mortgages, you have a fixed rate for a certain number of months or years and then your mortgage switches to an adjustable rate. An example of this would be called a 5/1 ARM. With this hybrid mortgage, you would pay the fixed monthly payment for the first five years and then your rate would be adjusted each year after the initial five years. Your mortgage payment would change each year based on the general interest rate at the time it was modified.

Interest-Only Mortgages
With an interest-only mortgage, you pay payments only on the interest for a set number of years before you begin paying on the principle. Then, after the set time period is over, you will begin making full payments on both the interest and the principle. This is not very common but some new homebuyers choose it because the interest-only payments are fairly low compared to the full mortgage payments and they predict they will be in a better financial situation by the time the full payments begin.

Before making the final decision on a mortgage, consult with some qualified mortgage professionals in your area. It’s a major financial decision that will last for many years to come. Don’t take it lightly, but be realistic about what you can afford before signing any papers.