A Fixed Rate Mortgage is one in which
the rate remains the same across the life of the loan. The
advantage is that monthly payments will remain the same.
However, if you lock into a higher interest rate, the rate
will not change, even if interest rates go down in the
future.
In my opinion, this is the best type of loan to get.
A fixed rate mortgage offers more stability by keeping your
payment the same for the duration of the loan. The lowest
monthly payments come from 30-year fixed-rate mortgages.
However, these mortgages also take longest to build up
equity in your home. Experts recommend a 30-year mortgage if
you are planning to stay in your home for several years and
want a stable rate.
Also common are 15-year fixed-rate mortgages. These loans
spread the principal and interest across a 15-year period,
after which you have paid off your loan. Because of the
shorter term of the loan, you can build up equity in your
Utah County home at a much faster pace. However, monthly
payments are higher than for a 30-year fixed-rate mortgage.
I stongly recommend getting a 15 year loan if you can
afford the payment. The saving are substantial compared
to a 30 year loan. Just imagine paying off your home in
half the time.
Experts recommend a 15-year fixed-rate mortgage if you
are planning to sell your home in a few years and want a
stable rate. If you can afford a 15-year mortgage you
should do it. You will own your home in half the time as
a 30 year mortgage. A 15 year mortgage offers a lower
interest rate.
Adjustable-Rate Mortgages, or ARMs as they
are commonly called, are ones in which the interest rate
changes periodically according to a fixed index. A
1-year ARM adjusts the interest rate annually. Monthly
payments will increase or decrease along with the index
rate, which is specified by the mortgage. Common indices
include 1-year Treasury notes, Federal funds rate and
the national cost of funds index. A margin -- usually
one or two percentage points -- is added to the index
rate.
Adjustable-rate mortgages include two caps on the amount
the rate can increase or decrease. One cap limits the
interest rate adjustment in any one adjustment period
(e.g. one year in a one-year ARM), and the second cap
limits the interest rate adjustment across the lifetime
of the loan.
The advantage of an adjustable-rate mortgage is that
monthly payments can decrease when the index goes down.
However, monthly payments will increase when the index
goes up. I am not familiar with anyone offering
adjustable rate mortgages since the housing meltdown. I
don't recommend this type of loan even if it becomes
available in the future.
One way of shortening the length of your mortgage is to
purchase a balloon mortgage. It works like an ARM or a
fixed-rate mortgage for the first several years. After
that period of time has expired, you owe a large payment
-- sometimes the remaining balance on the loan. The
advantage of this type of loan is that it keeps monthly
payments low.
Experts recommend this type of loan for people who are
planning to sell their homes within a few years, and can
pay off the balloon payment from the proceeds of the
sale of the house.
Adjustable rate mortgages are very difficult to find.
This type of loan was very popular prior to 2006. The
problem with an adjustable rate mortgage is that your
mortgage can take a jump when your income has not. It is
just to risky and this time of loan liens in the favor
of the banks. I would suggest getting a 15 year fixed
loan if possible.
Team Teasdale Realty will help you find an affordable
loan and help guide you to a good lender for your next
home
