4 ways to choose your perfect mortgage
June 1, 2015 at midnight
Committing to a 30-year relationship is a big deal. For many people, a home is the biggest investment they will make. In most cases, that purchase will require a mortgage. Here's a look at a few different types to help you find the one that's right for you. Of course, the best tip is to talk to a professional to find the mortgage that fits your needs, but here's what you need to know as you get the process rolling.
This means you choose how long you want to pay on the mortgage and the payment will be steady over the entire length of the loan. It's predictable and helps people plan for the long haul. If you lock in at a low rate, all the better. On the downside, if rates fall after you buy, you're stuck with a the higher payment unless you plan to refinance.
Sometimes called a variable-rate mortgage, payments start low — usually lower than with the fixed-rate mortgage — and fluctuate with interest rates over time.
While a traditional mortgage pays mostly for the interest, some of the payment goes toward principal. An interest-only loan does not apply any money to the principal. Interest-only loans are appealing because of the low interest rates to start with — but after the initial period, the rest of the loan is due. If you are considering a balloon payment loan or an interest-only loan, have a plan for after the initial period and be sure you understand what you're getting into to avoid payment shock.
Federal Housing Administration and Veterans Administration
Traditional mortgages require a sizable down payment. A loan for the FHA helps people who can't pull that initial investment together, but still qualify for the loan. It's good for people who are buying their first home. VA loans are a pretty good deal, but you have to be an eligible veteran to qualify. Both of these government-backed loans limit the amount you can borrow.
People are at different stages of their lives and financial situations. It's important to get the right type of mortgage for each situation. A trusted guide on the mortgage journey is an important first step.