Types Of Mortgages For Home Buyers
March 27, 2020
If you’re looking to purchase a home, chances are you’ll be getting a mortgage on your new home. In this case you’ll be contacting a local mortgage lender in Phoenix AZ to help you decide which mortgage is best for you. There are basically three types of mortgages for home buyers, according to Bankrate.com. Let’s look at each of them.
The Fixed Rate Mortgage
The fixed rate mortgage may be the most desirable of the mortgages as it locks in the rate of interest (hence it is “fixed”) and the amount you must pay is the same over time (with the exception of changes in taxes and insurance rates). Fixed rate mortgages can come in 10 year, 15 year, 20 year, 30 year, or some other number of years, depending on what your local mortgage lender in Phoenix AZ can offer you.
The Adjustable Rate Mortgage
An adjustable rate mortgage or ARM is a type of mortgage which can vary from year to year depending on the current interest rates. Some years may be higher and some may be lower, depending on what the current financial market is doing. Some adjustable rate mortgages actually are a type of hybrid mortgage, offering both a limited fixed rate combined with an adjustable rate mortgage. What usually happens is that the mortgage is fixed for a certain number of years (let’s say five), and then after the fifth year, the mortgage adjusts to the current market rate. These are often offered to people who do not have the credit necessary to obtain a fixed rate mortgage. The good news is that a homeowner can get this mortgage and then later refinance when the rates are lower, or when their credit improves.
Interest Only Jumbo Loans
Interest only loans, as the name implies, has the buyer pay the interest only for the first few years and then the full loan takes effect where the interest and the principle must be paid together. This type of loan is usually done as a jumbo loan, meaning that it is usually done for homes that cost more than $625,000. When the loan resets, it usually becomes an adjustable rate mortgage and the cost can be quite high compared to the initial interest. These loans may be good for people who have irregular income, who plan on refinancing or paying off the mortgage before the reset, or plan on selling the home before the reset.
Which Loan Makes the Most Sense for You?
Choosing a loan may be confusing and difficult, but it doesn’t have to be. You can talk with your financial advisor to find out what type of mortgage would be the best for you. If you’re a first time home buyer, a veteran, or have some other special qualifications, you may be able to take advantage of some special types of mortgages such as FHA or Veteran’s loans. Again, this is something to talk with your financial advisor and your mortgage lender on what loans would be right for you.