Going Back to Basics

Buying a house or condominium involves not only finding the right property, but also finding the right mortgage. Fortunately, the choices are less confusing than in the recent past. Since interest rates are significantly lower, the types of mortgages commonly available have decreased. The biggest question is: Given the available options, which mortgage is right for you? The following descriptions will help you decide.

Fixed Rate Mortgages

  • 30-year term
    • Low down payment options
    • Low monthly payment
    • Monthly principal and interest payment remain the same
  • 15-year term
    • Build equity quickly
    • Substantial interest savings
    • Lower interest rate than a 30-year term mortgage

Fixed rate mortgages are currently the most popular. The interest rate you pay is slightly higher than on other types, but it remains constant for the life of the loan. People who believe interest rates will rise in the future find this feature appealing.

Should you take out a fixed rate mortgage? The two key issues are:

  1. A fixed rate offers security and stability.
  2. A fixed rate is best if expect level income in the future. As a rule, it makes sense to apply for a fixed rate loan when interest rates are relatively low, and an adjustable rate mortgage when rates are relatively high.

Adjustable Rate Mortgages

  • Relatively lower interest rates than other mortgages
  • Lower monthly payments in the early years of your loan
  • Disclosures are available for your review

It is tempting to lock in interest rates with a fixed rate mortgage, but an adjustable rate loan may still be right for you. With an ARM, you pay an initial rate of interest that is lower than that of a fixed rate loan. How much lower varies from loan to loan.

Should you take out an Adjustable Rate mortgage?