What Are My Mortgage Options?

What Are My Mortgage Options?
  • Opening Intro -

    If you are in the market for a home, your mortgage options go beyond the traditional 30-year mortgage.

    Fixed rate, variable interest rate and balloon mortgages are available today, with each one offering advantages and disadvantages that consumers should be aware of.

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1. 30-year fixed rate. More mortgages are written as 30-year fixed rate loans than all other types combined. This mortgage remains popular as it can give homeowners an affordable, fixed rate for the duration of their loan. If you plan to stay in your home for the long term, then this mortgage may be the best choice for you.

2. 15-year fixed rate. Some borrowers want to pay off their home loans faster and elect a 15-year fixed rate mortgage instead of a 30-year mortgage. This option means larger monthly payments, but also saves the consumers tens of thousands of dollars in interest payments. Choose this option if you want to own your home sooner or build up equity faster.

3. Adjustable rate mortgages. You’ve seen ARM or variable rate mortgages advertised with rates that come in under what fixed rate mortgages charge. With a rate adjustable mortgage, you’ll get a low fixed rate for a few years before the rate fluctuates from year to year. ARMs are typically marketed at 3/1, 5/1, 7/1 and even 10/1. The first number tells you the number of years your loan interest rate stays the same. The second number is how often your loan will adjust. In this case the “1” represents an annual adjustment, one that is typically tied to adjustments in the Treasury Bill rate. Some loans are set up to charge interest only for the first few years. ARMs make home ownership possible for some who might otherwise be shut out of the market. These loans are usually for 30 years.

4. Balloon mortgages. There are a handful of mortgage types that are considered “exotic” or at least uncommon enough that few consumers know about them. One such option is a balloon mortgage, where a loan with a low monthly payment and an attractively low interest rate is offered, typically for five or seven years. Although the loan is amortized over 30 years, the loan comes due after five or seven years. Balloon mortgages are attractive for homeowners that plan to sell their home before the balloon payment is due. These are also attractive for people that expect to be able to pay off their loan in one lump sum. If you cannot make your balloon payment your loan may include a refinancing provision. If not, you can seek a new loan yourself.

Mortgage Considerations

Weigh your lending options when buying a home. Some factors to consider are the size of your down payment, the affordability of your monthly payments and whether you plan to stay in that home for the long term. Make your decision based on the information you have and the option that is right for you.

See AlsoCautions About Taking a Reverse Mortgage

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Categories: Home Financing

About Author

Matthew C. Keegan

Matt Keegan is a freelance writer and editor as well as publisher of "Auto Trends Magazine", an online publication. Matt covers campus, consumer, business and financial topics on various websites and weblogs, and has been published in the "Houston Chronicle", "Sam's Club Magazine" and "Wisconsin Golfer".