Has your offer on a home been accepted, and now you need to secure a mortgage? You may be wondering which type of mortgage you should get, with there being so many available to you. Here are a few pros and cons of three different types of mortgages.
30-Year Fixed-Rate Mortgage
One of the most popular types of mortgage is a 30-year fixed-rate mortgage. This is because the mortgage will provide a consistent monthly payment that is affordable, and stretch those payments out over a very long period of time. It keeps your mortgage payment predictable and consistent and limits the risk of not being able to afford your mortgage in the future by making the monthly payment low.
Since a 30-year fixed-rate mortgage spans over such a long period of time, you will end up paying more interest in the long run than other types of mortgages if you go the full 30 years. However, you always have the option to make additional payments and pay off your home early.
15-Year Fixed-Rate Mortgage
The obvious difference between a 30-year and a 15-year fixed-rate mortgage is the length, with a 15-year mortgage being half the length. This results in a monthly payment that will be higher, but it is not going to be twice as much as a 30-year mortgage. That is because 15-year mortgages will have a lower interest rate than the 30-year counterpart, which is part of the rewards for taking on a mortgage with a higher monthly payment.
Keep in mind that a 15-year fixed-rate mortgage is also going to see some significant savings in interest compared to a 30-year mortgage. That's simply due to paying less interest over a shorter period of time, so less interest will accumulate.
An adjustable-rate mortgage is a bit different from the fixed-rate variety. They typically offer an initial term where you have a very low fixed rate, and then the rate will change according to market conditions that the mortgage is tied to. This means that your mortgage can suddenly increase or drop in price.
Many people seek out an adjustable-rate mortgage if they know they won't stay in the home for very long. If they plan to sell before the fixed-rate period of the mortgage is over, then they can end up with a very cheap mortgage where they pay as little as possible. The risk is that the rate will increase if plans change, and the borrower will either have to refinance, sell the home, or pay the mortgage as is.
For more information on a fixed-rate mortgage, contact a professional near you.Share