These days, it’s just about impossible for most people to afford a house without a mortgage.
Of course, you can’t just walk into a bank and say “I’d like a mortgage, please” – there are a lot of different types of mortgages to choose from, each with their own set of pros and cons. Let’s take a look:
Fixed Rate
A fixed rate mortgage is just what it sounds like. The interest rate remains the same—fixed, that is—for the entirety of the mortgage.
The advantage here for homeowners is that they always know what they owe, which makes it easy to stay organized and plan out their finances for the future.
Adjustable Rate Mortgage
The disadvantage to fixed rate mortgages is that you might lock yourself into a relatively high interest rate for 30 years right before interest rates drop. The market can be hard to predict.
The interest rate that you pay in an adjustable rate mortgage (ARM) is tied to a major mortgage index, such as the Libor or MTA. When rates go down, you’ll pay less. But when rates go up, you’ll end up paying more, so there’s more risk involved with an ARM than with a fixed rate mortgage. However, the initial rate for an ARM will usually be significantly lower than that of a fixed rate mortgage.
Convertible ARM
A convertible ARM is a sort of middle ground between a fixed rate mortgage and an ARM. It starts out as an ARM but, for a fee, it can be converted (hence the name) into a fixed rate mortgage. This allows homeowners to abort an ARM when it looks like interest rates are on the rise.
Federal Housing Administration Loan
The Federal Housing Administration (FHA) insures more residential mortgages than any organization in the world, having done so for many millions of properties since its inception in 1934.
FHA loans are easy to qualify for, and the required upfront payment is relatively low, making them a popular option for aspiring homeowners who don’t have much money to spare. The disadvantage to a low upfront payment, though, is that it’ll make you pay a lot more in interest over the years than if you had put in a larger amount up-front.
Veteran’s Affairs Home Loan
Certain military veterans and spouses of military veterans qualify for home loans from the Department of Veteran’s Affairs (VA). There are a lot of perks to these loans: zero interest rates, no private mortgage insurance required, flexible interest rates, and more.
Some veterans are frustrated with VA home loans, though. They report that sellers will often turn them down if someone makes an offer with a more conventional payment method.
If you have any questions about mortgages, please do not hesitate to to contact the Law Office of Ray Garcia to discuss your options.
Law Office of Ray Garcia, P.A.
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