Personal Questions To Ask
The only way to answer this question is to know exactly what is going to take place with our economy in the next two to five years. When choosing a mortgage, you need to consider a wide range of personal factors and balance them with the economic realities of an ever-changing marketplace.
Individuals’ personal finances often experience periods of advance and decline, interest rates rise and fall, and the strength of the economy waxes and wanes.
Then you have to ask yourself:
The more information and financing you have in regards to the above, the easier it will be for you to make the superlative decision.
What Are The Main Differences Between The Two Financing Plans?
Fixed-rate mortgages and adjustable-rate mortgages are the two primary mortgages types. While the marketplace offers numerous varieties within these two main loan types, the first step when shopping for a mortgage is determining which of the two loan types best suits your needs.
The fixed-rate mortgage charges a set rate of interest that does not change throughout the life of the loan. Here the total payment remains the same, which makes budgeting easy for homeowners.
The main advantage of this loan is that the borrower is protected from sudden and potentially significant increases in monthly mortgage payments if interest rates rise. The downside to fixed-rate mortgages is that when interest rates are high, qualifying for a loan is more difficult because the payments are less affordable.
Although the rate of interest is fixed, the total amount of interest you’ll pay depends on the mortgage term. The trade-off for that low payment is a significantly higher overall cost because the extra decade, or more, in the term is primarily to paying interest.
The monthly payment of shorter-term mortgages offers a lower interest rate. This allows for a larger amount of principal being repaid with each mortgage payment, so shorter-term mortgages cost significantly less overall.
The interest rate for an adjustable-rate mortgage varies over time. The initial interest rate on the type of loan is set below the market rate on a comparable fixed-rate loan, and then the rate rises as time goes on.
If the adjustable-rate is held long enough, the interest rate will surpass the going rate for fixed-rate loans. These loans have a fixed period of time during which the initial interest rate remains constant, after which the interest rate adjusts at a pre-arranged time.
This initial rate can vary significantly anywhere from one month to 10 years. Also, this initial rate enables the borrower to qualify for a larger loan and allow for a lower interest rate to begin with.
The downside is your monthly payment may change frequently and if you take on a large loan, you could be in trouble when interest rates rise. Some of these loans are structured so that payments can nearly double in just a few years.
The home-loan dilemma continues to be personal and influenced by our economy.