Choosing the Right Mortgage

Buying a house is an exciting time but it’s one of the biggest purchases people will ever make. Choosing the right home at the right price are very important first steps, but the next priority is choosing a mortgage. Making an informed decision can save you tens or hundreds of thousands of dollars. Before committing to a mortgage, educate yourself on your options to determine what works best for you. Need help? Book an appointment with me.

Common Mortgage Products

30-Year Fixed

big house

  • Interest rate is fixed for the 30-year life of the loan

  • Interest rate is higher than shorter-term fixed mortgage such as 15-year

  • Monthly payments are low because they are spread over 30 years

  • Total interest paid over the life of the loan is high because of the 30-year term



15 Year Fixed

  • Interest rate is fixed for the 15-year life of the loan

  • Interest rate is lower than 30-year fixed rate mortgage

  • Monthly payments are higher than the 30-year fixed due to the shorter term

  • Total interest paid over the life if the loan is lower than the 30-year fixed due to a shorter term and lower rate



Adjustable rate (ARM)

  • Also known as a variable-rate mortgage, an adjustable-rate mortgage is a mortgage loan with an interest rate that is periodically adjusted. Examples include the 5/1 ARM and 3/1 ARM, where the interest rate is locked in for 5 and 3 years, respectively, before it adjusts.

  • Interest rates and monthly payments for the locked period are lower than fixed rate mortgages.

  • The rate can adjust up or down after the locked period. An upward adjustment would cause a rise in the monthly payment.

  • Not a great option in a period of rising rates, but can be a good option if you expect to move or refinance prior to the rate adjustment period begins.


Jumbo

  • A mortgage for an amount above conventional mortgage limits. The limit is $548,250 in 2021 in most areas of the US though pricier areas have higher limits

  • Typically a higher interest rate than a non-jumbo alternative


Interest-Only

  • An interest-only mortgage is a payment option in which you pay only the interest for a number of years

  • Once the initial time frame rounds out, your loan is reamortized to include both principal and interest to have it all paid off by the end of the loan term

  • Keeps payments low during the interest only period

  • No equity gained from payments during interest only period

  • Risky option. If the property value declines, the borrower can find themselves ‘under water’ owing more on the home than it’s worth.


FHA

  • An FHA loan is a mortgage insured by the Federal Housing Administration. With a minimum 3.5% down payment for borrowers with a credit score of 580 or higher, FHA loans are popular among first-time home buyers who have little savings or have credit challenges.

  • For more information on FHA loans visit HUD.gov.


VA

  • VA Home Loans for servicemembers and veterans are provided by private lenders, such as banks and mortgage companies. The VA guarantees a portion of the loan, enabling the lender to provide you with more favorable terms.

  • No down payment required

  • Competitively low interest rates

  • Limited closing costs

  • No Private Mortgage Insurance (PMI)

  • For more information on VA loans visit VA.gov

Remember your mortgage is only part of your overall debt management strategy, but given the size of the purchase, it’s usually a large part of it. Making a smart mortgage choice is crucial to financial success.