When you decide to buy a home, you not only need to decide where you would like to live and what style home you would like, but you also need to determine how much home you can afford. Another important question is what type of home loan you would like. There are several common home loans, each of which offer their own pros and cons.
Remember, when searching for your home loan to compare rates at Heritage Home Loans and other banks that offer a variety of loans to find the best rate. If you don’t want to bother with comparison shopping, you can also work with a mortgage broker who can do this task for you.
Consider the following common loans:
1. Fixed rate, 30 year mortgage. This is the standard mortgage, and with the market as it currently is, this is a great way to lock in low interest rates. You’re also free to make additional payments, if you would like. The only down side to this mortgage is that you pay a great deal in interest over the life of the loan.
2. Fixed rate, 15 year mortgage. Again, you can lock in a low interest rate, but your monthly payment will be higher. This can be a problem if you experience a cash crunch later or are unemployed for any amount of time. However, you’ll save tens of thousands of dollars on interest over the life of the loan. This is also a good loan for those who don’t enter the housing market until their 30s or 40s.
3. Adjustable rate mortgage. An adjustable rate mortgage usually starts with a lower interest rate than a fixed loan, but that interest rate changes after a certain period, typically 1 to 5 years. The mortgage rate in 5 years when the loan adjusts may be much higher than when you first got the loan, and your monthly payment could increase by hundreds of dollars. This loan is a bit of a gamble.
A mortgage broker or a bank lender can help you decide which loan is best for you and your circumstances, but generally, fixed rate loans are the safer option.