This is it – your time to become a homeowner! Maybe it was your savings holding you back. Maybe it was your credit. Maybe it was just you not being ready to set down roots somewhere. Whatever your reasoning in the past for not doing it, you have decided that it is time to make home ownership a priority, so let’s talk about the type of loan term that may be the right fit for your current situation.
There are three options:
Fixed Rate: You can choose to select a 30-year or 15-year rate. If you go with a 30-year loan you can count on a set amount to pay monthly for quite some time. This will make your monthly payment lower, but your interest rate may be higher. If you choose a 15-year rate then you will be able to pay off your loan faster (assuming you have the cash flow to do so). This allows you to pay less interest over time because you are making higher monthly payments. There is also a 20 and 25-year option.
Adjustable Rate: Adjustable rates allow you to specify your fixed rate term (5, 7, 10 years). After that time period is over, the interest rate can be changed. The interest rate may go up or down depending on the market. Adjustable rate ARMs may not be for everyone, but if they are used correctly for reasons that match your goals then you may save thousands of dollars in interest.
Interest-Only (applies to adjustable rate mortgages only) – These loans allow homeowners to pay the full monthly interest due on the loan for the length of the loan. While these payments are made, there are no payments that go toward the principal. After the interest-only period expires, then payments are made on both the interest and principal. This may be enticing to those who have cash flow that fluctuates. When the interest-only period is over though, the mortgage payment every month will be higher.
Make sure you consult with a mortgage educator who can help you navigate your options and help select the best mortgage debt strategy for you!