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A first time home buyer has more financial options to choose from than ever before. There are now several home loan options available to fit the financial needs of almost anyone.
There are 3 categories of conventional home loans: Fixed rate mortgages, adjustable rate and balloon mortgages.
Fixed-rate mortgages are traditionally the most common mortgage for many homebuyers due to its low risk. A fixed-rate mortgage carries the same interest rate for the life of the loan, regardless of the length of terms. Even if interest rates increase, fixed-rate mortgage payments will not be affected.
Adjustable-rate mortgages (ARMs) usually start with a lower interest rate and a lower monthly payment. However, the monthly payment can change over the life of the loan because the interest rate for an ARM is tied to an index that may rise or fall over time. ARM loans usually have caps that limit any rate increases from rising above a certain amount between adjustments, as well as a ceiling on how much the rate can go up during the life of the loan. With these protective measures and low introductory rates, ARM loans have become the most widely accepted alternative to fixed-rate mortgages.
Balloon mortgages have monthly mortgage payments based on a 30 year loan, and you have a choice at the end of a 5 or 7 year term to either pay off the balance of the loan or reset the mortgage. This type of loan often appeals to homeowners who do not plan to stay in their house more than a short period of time.
Whatever home financing solution you choose, the most important factor to consider is the length of time you plan to own a property. If you plan to stay in a home for 10 years or longer, a traditional fixed-rate mortgage is likely your best option. But if you plan on owning a home for a short term period of 5 years or less, then the low introductory rate of an adjustable-rate mortgage may be your best financial solution.
Why not get started on your mortgage solution today, get a free quote now
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