What Mortgage Type Fits Your Lifestyle?There are, for the sake of this discussion, at least five primary types of mortgages you can choose from when making a home purchase (or refinance your existing mortgage). Each of these mortgage types offers different advantages and disadvantages. Which one fits best with your lifestyle and long term goals? We'll analyze each of them here. 30-Year Fixed-RateThis mortgage type comes at a set interest rate with a 30 year loan term. It's arguably the most common type of mortgage, and it's what most people think about when getting a mortgage. The advantage of a fixed-rate mortgage is that your interest rate will never change. This is a great eliminator of risk. You can definitely plan for your financial expenses since you will know how much your mortgage payment will be for the next 30 years. The disadvantage is that you won't be able to benefit from the lowest mortgage rates available. Fixed-rate mortgages never come at the lowest rates. This mortgage is best if you plan to remain in your home a long time and want a low monthly payment. 15-Year Fixed-RateThis mortgage type, again, comes at a set interest rate, but the loan term is significantly shorter than the 30-year type. The advantage of a 15-year mortgage is that you'll save a hefty amount of money in the long run due to fewer interest payments overall. The disadvantage is that your monthly payments will be higher. This mortgage is best if you want to save as money much as possible over the course of your loan and don't mind a slightly higher monthly payment. Adjustable-rate mortgageWith an ARM, your interest rate will adjust up or down after an initial fixed period. This fixed period typically last anywhere from five to seven years, and after this, your rate is pegged to some kind of index rate of the mortgage market. Most of the time, borrowers with ARM mortgages see their interest rates and monthly payments skyrocket once the fixed period is up. This mortgage is best if you plan to refinance or sell your home before the fixed period has ended. FHA MortgageAn FHA mortgage is a unique type of mortgage offered primarily to first time home buyers. FHA mortgages have minimal down payment and credit score requirements. The advantage is that you can get into a home sooner. The disadvantage is that you won't get the best mortgage rates and you'll have to pay for mortgage insurance. This mortgage is best if you have no large cash reserves saved for a down payment. VA MortgageA VA home loan is a special type of mortgage provided to veterans of the American military. VA mortgages require no down payment, and you can qualify with a less-than-perfect credit score. The catch, of course, is that you must be a veteran. This mortgage is best for veterans who have minimal cash reserves. |
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