Although it may not seem like today’s market offers much for buyers, there actually are great deals going on right now that can save money and help buyers get into their dream home cheaper than ever before. However, the mortgage industry is still tricky as always and choosing the right mortgage isn’t always easy. Anyone looking to buy a home or refinance a mortgage should get to know a few key points about the differences in mortgages.
The Right Mortgage
Not all mortgages are created equal and what may be the best mortgage for some, isn’t the best for another. The trick is knowing the different types of mortgages and how they will affect your long term success at home ownership.
Fixed Rate Mortgages — are those with an interest rate that is “locked in” or fixed for the duration of the loan. Often more difficult to obtain for some borrowers, these mortgages ensure that your interest rate will never increase and will, therefore, keep your monthly payment more stable over time. Traditionally the best type of mortgage, these are great for anyone who wants to keep predictability in their mortgage payment and away from the risk of unexpected mortgage debt.
Adjustable Rate Mortgages— are those with an interest rate that is flexible, typically rising or decreasing with the rate set by the market. Also known as variable rate mortgages, these are made up of a base rate set by the lender plus the rate set by the market. For example, the rate may be prime plus 2, which means the rate would be the prime rate set by the market plus 2%. In theory, these mortgages have the potential to carry lower rates than a fixed mortgage, assuming the prime rate dips below the fixed rate. However, the rates typically only inflate and end up costing the borrower more over time as the market strengthens.