Since for most people their home is their most important financial asset, it makes sense for potential homeowners to gain as much knowledge as possible about their options for financing and buying their homes. The vast majority of Americans benefit from the use of a mortgage loan, but few are considering, realizing and fully recognizing their options and choosing the mortgage term that best suits their needs and personal circumstances. . Keeping this in mind, this article will attempt to briefly discuss, discuss, discuss and discuss 5 options, and some of the possibilities, advantages and disadvantages , of each of these.
1. Traditional term of 30 to 40 years: The vast majority of fixed mortgages have a term of 30 to 40 years. This benefits most people because it generally offers a compromise between the interest rate paid and the affordability of the monthly payments. In addition, since most mortgages do not include prepayment penalties, additional amounts can be paid, which is very beneficial, and thus reduce the life of the mortgage. It should be understood, however, that if this term is used, the total of its principal and interest payments will be considerably greater than the amount borrowed. It is remedied to a certain extent because mortgage interest is tax deductible within certain limits!
2 15 to 20 years: Reducing term length normally creates a lower interest rate, billed. However, this also results in higher monthly payments and lower total payments.
3 7 to 10 years fixed rate / then adjustable rate / term: Those who plan to stay in their current home for a shorter period often benefit from this type of mortgage. It provides lower rates and often facilitates qualification for a given amount. The disadvantage, potentially, is that after the initial period, if one stays in the current house, their rate will change, according to predetermined terms, or they will have to refinance.
4 1 year – adjustable: These types of loans generally offer the lowest initial interest rates, but also the least predictable ones for the future. Of course, if we can only qualify at this time, using this form, or if it intends to move, very soon, this may be the best way to proceed.
5 Balloon / interest – only: There are sometimes interests – only loans are available, for a given period, and of course, since we do not repay the principal, the cost / monthly payment will be lower. However, you should know that you are not paying, what you need, which leads to risks of ramifications / undesirable results in the future. In addition, they are usually lump-sum loans because, for a fixed period, the total principal amount of the loan becomes due and the first must repay the full amount or secure a new mortgage. .
Depending on the situation and needs of each, it becomes possible to determine the best mortgage to guarantee. Do not forget that the more educated and competent you become, the more you will make good decisions / choices!