When you want to buy a home, the first step is to get qualified for a mortgage. But what's also essential is to understand the types of mortgages that are available to the home buyer, and choosing the right mortgage for your current needs. Your mortgage options will depend on your current credit score, your income capacity, and the type of loan you are hoping to secure.
Fixed vs. Adjustable Rate Mortgages
A fixed rate mortgage remains the same throughout the life of the loan. With mortgage rates currently quite low, people are locking into fixed rate mortgages more frequently than adjustable rate mortgages. The payments stay the same, and home owners can budget for their housing costs every month. Most home buyers that can get a mortgage at a low fixed rate will take this type of traditional mortgage when they buy a home.
The adjustable rate mortgage goes up and down with the economy. When interest rates go up, so do the payments on an adjustable rate mortgage. This is a good mortgage choice for people who can't lock in at a low fixed rate, or for those buying at a time when mortgage rates are high. When mortgage rates go down, the payments on an adjustable rate mortgage will go down too. It is harder for people living on a fixed income to handle an adjustable rate mortgage, as the monthly payments can become unpredictable.
The Balloon Mortgage
This mortgage is a great option for people who can't qualify for a fixed rate mortgage but, can afford to pay a mortgage on a new house. Balloon mortgages are generally short, and at the end of the term of the loan the entire mortgage is due to the lender. This means that after paying a balloon mortgage for the length of the term (usually 5-7 years), the buyer must either refinance the balance, or pay off the entire loan amount. This is a good choice for people who don't have excellent credit, but are on their way to building up their credit. At the end of the term, buyers generally refinance the remaining loan into a fixed rate, or adjustable rate mortgage.
Now is a great time to purchase a new home as mortgage rates have remained quite low. For buyers with good credit, buying a home can be cheaper than renting an apartment. To learn more about your mortgage options, talk with a lending specialist (like Premium Mortgage Corp).