For home buyers looking to buy their first homes, it can be a little overwhelming. There are so many new things to learn about when you are shopping for your first home. If you do not take care to educate yourself, it could lead to problems down the road. In order to help simplify the process, make sure to read this guide to the five mortgage types for the inexperienced homeowner.
30-Year Fixed-Rate Mortgages
The original and still by far the most common type of mortgage is the 30-year fixed rate mortgage. This type of mortgage is very popular because it gives homeowners such a long time frame to pay back their loans. This allows them to lower their monthly payments, but it does mean that they will pay more in interest over the lifetime of the loan.
15-Year Fixed-Rate Mortgage
In recent years, there has been a big increase in the number of homeowners who decide to get 15-year fixed-rate mortgages. Getting this type of mortgage makes sense if you can afford the higher monthly payments. Homeowners who can pay off their mortgages in 15 years will save more than half the amount of interest that accrues on a 30-year mortgage.
Adjustable rate mortgages can be a bit of a risky proposition. An adjustable-rate mortgage has its interest rate periodically recalculated, depending on what a specific interest rate index shows. People who get adjustable-rate mortgages often have much lower interest rates and lower payments at first, but these payments can skyrocket if the market interest rate rises. Therefore, most people who get adjustable-rate mortgages are planning to sell or refinance their homes before the rate adjust upwards.
For homeowners who want to build a brand-new home, a construction mortgage from Mortgage Centre is right up their alley. While the home is being constructed, construction mortgage holders will only have to pay the interest on their loans. Once the home is fully constructed, the homeowners will have to start making full payments just like a regular mortgage.
Mortgages with Interest-Only Payments
Any type of mortgage can include a time period where the homebuyers only have to make payments covering the interest on the loan. This keeps the payments very low, but it will increase the payments once the interest-only period is over. This type of mortgage is generally only used by people who are looking to refinance or sell their homes before the interest-only period ends.
These are five common types of mortgages that all new homebuyers should know about. It is important to look carefully at your finances and decide what type of mortgage best suits your needs. There is always a mortgage type available that will allow you to achieve your dream of owning your own home.