Determining a Mortgage that Makes Sense to You

Buying a house is surely confusing especially for first-time buyers but with the right information, you can make an informed decision. The first thing that you need to familiarise is a mortgage.

A mortgage describes a legal agreement that expresses conditional right of ownership on a property by its owner (called the mortgagor) to the lender (called the mortgagee) as security for a loan.  There are different types of mortgages, which vary in length, terms, rates and other factors.

It is time to know more about mortgage if you do not want to walk blindly during the whole process of home ownership. Below are some of the most common types of mortgages:

30-year fixed mortgage
This is the most popular type of mortgage. When you consider this, it means the loan has a fixed interest rate – for the entire duration. To know if it is the right one for you, check the advantages and disadvantages first.

The main advantage is the fact that the monthly payment is affordable when compared to a shorter termed mortgage. Another advantage is that it can be obtained with small down payment. For instance, the FHA (Federal Housing Administration) mortgage loan can be obtained with a minimal down payment of 3.5%.

The biggest disadvantage of 30-year fixed mortgage is the length that you will pay. Another disadvantage is the interest rates. In 30-year fixed mortgages, the interest rates tend to be higher compared to shorter termed mortgages.


15-year fixed mortgage
The 15-year fixed mortgage is similar to a 30-year fixed mortgage in the sense that the interest rate is set for the duration of the mortgage. To know if it is the right one for you, check the advantages and disadvantages first.

Not all buyers qualify for this type of mortgage loan but if you qualify, there are several benefits that you can get from it. The biggest advantage is that you pay off the loan quicker. On top of that, there is a lower interest rate. Obtaining this mortgage can actually help you save thousands of dollars at the end of the day.

The main disadvantage of this type of loan is the higher monthly payments. Since the loan is paid back in half the time of the 30-year fixed mortgage plan, the monthly payments need to be bigger to cover the difference in time.

ARM (Adjustable Rate Mortgages)
The ARM is a mortgage that will allow you to adjust rate during the stipulated time and frequency. Here are the different types of ARM:
• Hybrid ARMs: this is a combination of fixed rate and adjustable rate mortgage. For

this mortgage, you will have a stipulated amount of time at the beginning of the term where the rate is fixed and once the time has passed, the rate can be adjusted.
• Interest-only ARMs: this mortgage allows the buyer to pay the interest for a certain number of years. This means that you will not pay anything after the principal mortgage balance.

Many buyers consider ARM attractive because of the initial rate. This works well for buyers who things that they will be making a move in the next five years. For this, the interest rate is only 1% compared to the fixed rate mortgage.