Choosing A Home Mortgage: Table of Contents

 

These days there is a home loan to fit every kind of homebuyer. To help narrow your search I have outlined the benefits and drawbacks of the most sensible types of home loans on the market today.

The 30 Year Fixed Rate Mortgage

A 30 year fixed rate mortgage is a home loan that lets you make monthly payments at the initial interest rate for the life of the loan.

For example, let’s say you are approved for a $200,000 30-year fixed rate mortgage. The current market interest rate is 6.12%.

You will then make monthly principle and interest payments back to your home mortgage lender for 30 years. Regardless of what future interest rates are (lower or higher) you will have to pay 6.12% interest for the life of the loan.

Is the 30 year fixed rate mortgage for you?

Until recently this was the go-to mortgage of the home loan market.

During the latest housing boom the value of homes increased, interest rates decreased and more people decided against locking their money up in long term relatively high fixed rate loans.

None-the-less Anthony Hsieh, president of LendingTree.com, contends that fixed rate mortgages are still right for homeowners who plan to stay in their homes for the long term and wish to avoid the anxiety of interest rate fluctuation. Interest rates rise and fall in the housing market and the 30-year fixed loan protects home owners against market conditions that may spike their monthly payments.

The 30 year fixed rate mortgage IS for you if:

  • You are worried about market trends that may increase your monthly payments.
  • You plan on being in your home for at least 10 years.
  • You don’t expect to refinance your mortgage.
  • You wish to know exactly what your payments will be for the life of the loan.
  • You don’t expect your income to increase significantly over the next several years.

The 30 year fixed rate mortgage is NOT for you if:

  • You believe interest rates will lower in the future
  • You want your initial payments be lower than your future payments
  • You plan on moving in the next several years

Other Types Of Fixed Rate Mortgages:

If you like the security of one fixed monthly payment but don’t plan on staying in your home for the long term then the 10, 15 or 20 year fixed rate mortgages may be for you.

These shorter fixed rate mortgages are a popular option for young or first time buyers who are looking to change homes in the future.

A shorter home loan time will increase your monthly payments but will also let you build equity and lower your overall interest costs. If you want to own your property soon, pay steady monthly payments and quickly shed your mortgage burden then this mortgage option is for you.

Shorter term (10, 15 or 20 years) fixed rate mortgages ARE for you if:

  • You enjoy the security of making steady monthly payments
  • You want to build equity
  • You want to own your property quickly
  • You can afford higher monthly principal repayments
  • You see yourself changing house in the future
  • You want to shed yourself of the mortgage burden

Shorter term (10, 15 or 20 years) fixed rate mortgages are NOT for you if:

  • You can’t afford higher monthly principal repayments
  • You plan on staying in your home for the long term

 

The second most popular type of mortgage is the adjustable rate mortgage. It may be for you if you don’t like the prospect of being in a home for 30 years.

Continue: Adjustable Rate Mortgage Loans