What Length Mortgage Is Right For You?
You’ve found the home that is right for you,
and now you need to do the same thing for a
mortgage. There are several options for people out
there, each one designed for a different type of
buyer.
You need to ask yourself several questions when
searching for a mortgage type.
- How long am I planning on being in this
home?
- What monthly payment can I afford?
- What type of payment fits into my long-term
financial plan?
- What type offers me the best rate for my
situation?
Since most people like the security of knowing
what their payments will be long term, many will
get a 15 yr. Or a 30 yr. Fixed rate loan. But this
may not be what would work best for you. Below are
some things to consider when making your
selection:
Fixed Rate Loan-
This works
well for those with a steady income who like the
stability of knowing what their monthly payments
will be. If you have little or no down payment, a
30 yr. Fixed Rate loan is probably the best one
for you. If you have a larger down payment and can
afford a higher monthly payment you can opt for a
Fixed Rate loan for 15 yrs., or even in lengths of
10, 20, or 25 years. Some lenders offer 40-year
mortgages, which would allow some people to buy a
larger house without the larger payment. The
longer the loan terms, the more interest you end
up paying. You always have an option to pay
additional principal as the loan progresses. This
would decrease the amount of interest you pay on
the loan long term, and shorten the length of the
loan.
Variable Rate Loan-
Most
Variable Rate loans start out with a fixed rate
for a specified length of time and change to a
variable rate loan. These work well when people
expect their income to increase dramatically after
a few years, or those planning to move from the
house after a few years. The most common loan
lengths are 3/1, 5/1, 7/1, and 10/1. The first
number is the length of time in years the loan is
at a fixed rate. The second number is the length
of time in years that it would adjust in after the
fixed rate period. There is a cap on the amount of
percentage points it can go up after the fixed
rate period. It is usually 2% a year. With these
types of loans you may pay more principal and less
interest in the long run.
Biweekly Fixed Rate
Loan-
This loan type works similar to
the fixed rate loan, but essentially is a
guarantee that you will put extra money toward
your principal. You pay half your payment every
two weeks instead of monthly. You end up making 13
payments a year instead of twelve, thereby
reducing your principal early and reducing the
length of your loan.
With some careful consideration on your part
you will be picking the perfect loan for you in no
time at all.
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