2 Types Of Home Loans For Todays Home Buyers

If your looking to refinance your home or even buy or build a home in the near future you may want to read this article.  In this article I’m going to be covering 2 types of home loans available to you.  I am also going to give you the good and bad of each of these options as well, and in the end help you make a more intelligent decision.

Fixed Mortgages

Fixed mortgages are called fixed because the interest rate stays fixed for the duration of the loan.  These loans typically range from as little as 15 years to as long as 30 years.

Now their are some up sides and down sides to these loans.  First off these types of home mortgage loans tend to have higher interest rates especially the 30 year home loan types.

However on the up side these loans are great because they stay at one interest rate the entire life of the loan.  This means that the payment and all of the terms will not change and any point and time.

Another down side is the fact that a mortgages like the 30 year fixed will end up costing you a lot more in interest payments.  For example, if you had a 30 year mortgage at 6%, with a loan amount of $150,000 and you paid that loan off month after month you would end up paying around $174,000 in interest when all is said and done.

However, on the up side of this if you made extra payments you could cut down the amount of interest owed dramatically over time.

Finally, this type of mortgage works great for certain situations.  If you’re buying a home and you are planning on living in that home for the next 20 to 30 years these types of home loan solutions would be prefect for you.

On the other had if are buying a home that you don’t plan to live in longer than 5 years this mortgage may not be for you since you will pay higher interest rates.

Adjustable Rate Mortgages (ARM)

Adjustable rate mortgages, also known as ARM loans, have an adjustable interest rate.  For example a 5/1 ARM has a 5 year fixed period and after the five year period is up the loan will be able to adjust once a year their after.

Their are many different types of ARM loans available,  they can range from as little as one year fixed to as high as ten fixed years in length, like the 10/1 ARM.

So you might be wondering what are the upsides and downsides to a loan like this?  First off, with adjustable rate mortgages once the fixed period is up the rate can move as high 2%.  Meaning if you had a 4.5% fixed loan and the time period expired your rate could jump to 6.5%

For example if you had a $150,000 loan at 4.5% on a 5/1 ARM you would be paying right around $760 a month, but if the rate jumped the full 2% to 6.5 % after the fifth year your payment would jump to $950.  This would add another $190 to your monthly payment.

So now you might be wonder why would someone what a mortgage like this, and the reason is because sometimes people don’t plan to stay in a particular place.  For example, if you were in between jobs and possible looking at moving further away, or maybe you just want a starter house cause your just getting married and plan to build some day, or maybe you are buying a home so you fix it up and sell it within a few years.  Whatever the reason if you are planning to stay at that property for a short period of time this may be the loan for you.

Which Mortgage Loan Is For You

Now that you’ve had a chance to hear the facts you need to figure out which mortgage is for you.  If your planning on living in the home for a long time the fixed loans are your best option, however if you plan on moving with in the next 5 years the adjustable mortgages may be for you.

Whatever you do take some time and talk to several lenders to get an idea of what you might get.  The important thing is that you get the loan you want.

Chris