Mortgage Talk

Quick over view of Mortgage Types

Exploring and getting to know your mortgage (types) options can possibly save you thousands of dollars.  The following is a brief over view examining the major home loan types that are available today for your consideration.

• Fixed Rate Mortgages
• Adjustable Rate Mortgages
• The Convertible ARM
• FHA & VA (Government) Loans

Fixed Rate Loans

With a “Fixed Rate Loan” your interest rate does not change for the duration of the loan.  Therefore your principle and interest payment will not change over the life of the loan.  Your monthly loan payment will consist of principle, interest, taxes, insurance, and condo/association fees if applicable.  The only part of your payment that will float will be the property taxes.

That being said, a “Fixed Rate Loan” may not always be the best choice.  If interest rates are high at the time you take out your fixed rate mortgage, you will be stuck with that high interest for the life of the loan (unless you refinance).  Conversely, if interest rates are low, you will come out the winner with interest rates that will stay low no matter how high the rates go in the future.

The following are the advantages and disadvantages of the varying lengths of fixed rate mortgages:

15 Year Fixed-Rate:

• Pay off the loan in half the time of a 30 year loan.
• Equity builds up more quickly than in a 30 year loan.
• Payments are high (which may be a problem if you lose a job or become unable to work)

20 Year Fixed Rate:

• Pay off the loan in 2/3 the time of a 30 year loan.
• The overall interest paid is considerably less than a 30 year loan.

30-Year Fixed Rate:

• The most common choice, especially for the first-time homebuyers, as it’s the easiest of the fixed rate loans to qualify for.
• Monthly payments are lower than the 15 year and 20 year loans. This can prove especially helpful if you do not have a lot of “padding” between the amount you can afford to spend and the monthly payment for your desired property.
• More desirable if you plan on staying in the same home for years, since equity builds more slowly than for shorter term loans.