When choosing a mortgage or home loan, you're faced with two major choices - short term or long term, and fixed rate or adjustable rate.
To learn how to choose the best mortgage loan, keep reading.
Short Term or Long Term? When applying for a new mortgage, we're often stuck deciding between a 15-year mortgage with high monthly payments versus a 30-year mortgage with higher borrowing costs.
When deciding between long-term and short-term financing, first ask yourself what you can actually afford on a monthly basis.
Remember, your mortgage payment is only a fraction of your actual monthly expenses.
You still need to account for bills, heating costs, food and other general expenses.
For most first-time home buyers, a 15-year mortgage is next to impossible.
With a limited down payment on a first house, the monthly payments are simply too high to make it an affordable option.
But, if you have a healthy income and maybe extra money from the sale of your last home, you can often opt for a 15-year mortgage if you're hoping to be mortgage-free sooner rather than later.
Fixed Rate Mortgages (FRM) or Adjustable Rate (ARM)? There are benefits and disadvantages to both fixed rate mortgages and variable rates, but your decision should be primarily based on how long you plan to stay in the home.
For example, if you're young and buying a small condo but can see yourself moving into a family home within the next five to ten years, then you know you're not buying into this home for the long term.
Understanding how long you'll be in your home will help you choose between a fixed rate mortgage (FRM) and an adjustable rate (ARM).
The risk of interest rising is in the buyer's hands with an adjustable rate mortgage.
However, your initial rate will be significantly lower than the rate you receive with a FRM.
You see, if the interest rates rise, so will your monthly mortgage payments.
However because you're assuming the risk, the lenders are more likely to offer you a better rate.
If you know you're going to be in a home for the short-term, you can significantly reduce that interest rate risk.
However, if you're planning to stay in a home for longer than 12 years, you may want a fixed-rate mortgage that protects you against market changes and lets you budget your monthly payments with assurance and security.
To learn how to choose the best mortgage loan, keep reading.
Short Term or Long Term? When applying for a new mortgage, we're often stuck deciding between a 15-year mortgage with high monthly payments versus a 30-year mortgage with higher borrowing costs.
When deciding between long-term and short-term financing, first ask yourself what you can actually afford on a monthly basis.
Remember, your mortgage payment is only a fraction of your actual monthly expenses.
You still need to account for bills, heating costs, food and other general expenses.
For most first-time home buyers, a 15-year mortgage is next to impossible.
With a limited down payment on a first house, the monthly payments are simply too high to make it an affordable option.
But, if you have a healthy income and maybe extra money from the sale of your last home, you can often opt for a 15-year mortgage if you're hoping to be mortgage-free sooner rather than later.
Fixed Rate Mortgages (FRM) or Adjustable Rate (ARM)? There are benefits and disadvantages to both fixed rate mortgages and variable rates, but your decision should be primarily based on how long you plan to stay in the home.
For example, if you're young and buying a small condo but can see yourself moving into a family home within the next five to ten years, then you know you're not buying into this home for the long term.
Understanding how long you'll be in your home will help you choose between a fixed rate mortgage (FRM) and an adjustable rate (ARM).
The risk of interest rising is in the buyer's hands with an adjustable rate mortgage.
However, your initial rate will be significantly lower than the rate you receive with a FRM.
You see, if the interest rates rise, so will your monthly mortgage payments.
However because you're assuming the risk, the lenders are more likely to offer you a better rate.
If you know you're going to be in a home for the short-term, you can significantly reduce that interest rate risk.
However, if you're planning to stay in a home for longer than 12 years, you may want a fixed-rate mortgage that protects you against market changes and lets you budget your monthly payments with assurance and security.
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