3 Main Types Of Mortgages: Which One Is Right For You?
If you're looking to buy a home, you'll need to decide on the type of mortgage you want. There are various mortgage options available, and each has its benefits and drawbacks. Here's more information on the most common types of mortgages.
With a fixed-rate mortgage, the interest rate remains the same throughout the entire duration of the loan. Since you'll know what amount to pay every month, you can easily budget or set aside money for other expenses.
Keep in mind that mortgage rates can vary between states. So, if you get a fixed mortgage when the interest rates are high in your area, you'll be locked with these rates until you pay off the mortgage.
If you plan to stay in your home for a long time or want to avoid any potential increases in interest rates, then a fixed-rate mortgage could be right for you.
Adjustable-rate loans (ARMs) have an interest rate fixed for a certain number of years, which then adjusts up or down each year. For example, if you get a five/one ARM loan, the interest rate will stay the same for your first five years before adjusting up or down according to market conditions. The "five/one" part means the interest rate is fixed for five years and adjustable once a year after that.
ARMs are a good choice for homeowners who:
- Plan on living in their home for only a few years or less
- Plan on making extra payments toward their loan (which will reduce the amount of interest paid)
- Don't want to commit to a high long term mortgage rate
But remember, ARMs are riskier than fixed-rate loans because they could end up costing more money in the long run if rates go up.
If you're not sure whether an ARM is right for you, speak to a lender to learn more about your options. They can help you understand how the loan works and whether it would be a good fit for you.
Jumbo loans typically have high-interest rates and strict qualification requirements than other types of mortgages. The terms of a jumbo home loan can vary from one lender to another. Some lenders may require a large down payment on these loans, while others may not.
If you are looking for a larger loan amount to buy a high-end home, you can consider a jumbo loan. However, make sure to compare interest rates and terms from different lenders before you make your final decision.