Which Mortgage Type is Right for me?
We know how complicated all of the different mortgage options can seem. From ARMs to HARP to FHA, lots of companies are making commercials based on just how confusing all the acronyms are.
American Freedom Funding is here to help clarify those ideas in simple terms. The most important thing that you’ll want to figure out is what kind of mortgage to actually apply for. It all starts here.
You’ve got fixed rate and adjustable rate to decide between, and then you have to decide on just how long each should run for.
If it feels confusing already, please don’t hesitate to reach out to us at info@americanfreedomfunding.com or through or contact form here. You’re not alone!
Let’s start by picking between fixed and adjustable. If you choose fixed, your interest rate will stay the same for the entire time you own your home. This means that you’ll make the same payment the entire time as well.
If you choose an adjustable rate mortgage, the interest rate can change. It might go up or down. This means that you payments can go up or down.
Why would someone take that chance? The nice thing about an adjustable rate mortgage is that it’s usually a lower rate than if you went with fixed. The lender doesn’t have to guarantee a rate for 30 years. This means there’s less risk involved, and they can offer that option. They’ll benefit in a big way if rates go up, because they can charge you more. Adjustable rate mortgages in times of seriously low interest rates, like the ones we’re in right now, are an incredible way to keep your mortgage payment low.
The most important thing to consider there is that if you have an adjustable rate mortgage on a house you’re planning to sell before the rate expires, it’s essentially the same thing as a fixed rate. You’re just paying less.
Picking your loan length is important too. Like we talked about—you don’t generally want to take an adjustable loan for longer than you plan to live in a house, unless it means you can afford payments you wouldn’t otherwise be able to afford.
But picking between a 15 year and a 30 year is different. Let’s break that down. We’ll use a $500,000 loan for the figures below.
Paying a 30 year mortgage monthly would cost $2,364.
Paying a 15 year mortgage monthly would cost $3,678.
You save money on the overall cost of the mortgage, but it’s definitely more per month.
We hope that we’ve been able to answer some questions for you about the different types of mortgages. There are dozens more options out there, but having these essentials down will be a big step in your journey towards home ownership!