Most mortgages fall into one of two basic types: those with a fixed rate or those with a rate that changes over time. But even within these two categories, there are a lot of different ways to get a mortgage that fits your needs. If you are thinking about buying a house, here are some of the benefits of these two basic types.
With a fixed-rate mortgage, you can plan ahead because you know that your payments and interest rate will stay the same over the life of the loan. During the term of the mortgage, there are no changes or adjustments of any kind. The obvious benefit is when the economy changes in a way that makes interest rates go down. Since your rates are locked in, you won't be affected. On the other hand, if interest rates drop when the economy is doing well, a fixed-rate mortgage may not be the best choice. This could cause you to pay much higher rates than other people.
Fixed-rate mortgages are good because they give you stability. You always know how much your payment will be. There are a few things, like the length of the mortgage, that can change how much you have to pay each month. You can choose from mortgages that last 15 years, 30 years, and so on, all the way up to mortgages that last 50 years. The longer the loan, the more interest you will have to pay.
A mortgage with an adjustable rate gives you some benefits that depend on your situation and the economy as a whole. Most adjustable-rate mortgages have a part of the loan with a fixed rate. This part of the loan is usually for 1, 3, 5, 7, or 11 years. You can get a fixed rate on this part of the loan for the amount of time you choose. If the economy is doing well and interest rates are low, this can be a great thing. This feature could also make it possible for you to buy a bigger home than you might be able to afford with a fixed-rate mortgage.
Adjustable-rate mortgages lock you into the rate when you bought the house for a few years. Usually, this means that you have a lower rate than anyone else who buys a fixed-rate mortgage at the same time. At the end of the fixed rate period, however, there will be a change based on how the market is doing, whether it's good or bad. This means that you could suddenly see a pretty big jump. If the market is that good, it could be hundreds of dollars more or even less than what you were paying before. Most of the time, a mortgage with an adjustable rate will have a cap on how much it can go up each year. But this rise is just one of many. Depending on your contract, your changes could be made either once a month or once a year.
There are pros and cons to both, but they depend on the economy. The good news is that it's always possible to refinance, if needed. Make sure to compare all the offers you get so you can find the best deal for you. Get a few quotes from different companies to see what's out there. You may also want to talk to people outside of your company about whether a fixed rate or an adjustable rate would be best for you.
