Choosing the Best Mortgage for You
Choosing a mortgage depends on what your plans are. You will
need to consider how long you are planning on owning the home
before you move, what kinds of payments you are able to afford
and what kind of adjustments you can make, if you are willing
to refinance or not, and other factors related to these.
If you plan on living in your home for over ten years, you
have the most options available. If you are almost positive
you will be there more than a decade, a fixed rate is probably
the most sensible choice. It gives you payment stability,
as the interest rates and payment remain the same for the
entire time. However, if you do not care about stability in
payments, anticipate having less or more of an income, or
can specifically pinpoint when a change in funds may occur,
you may want to choose another plan that will suitably be
able to accommodate you.
Sometimes, even if you think you may be moving, it is good
to have a long term mortgage in the event that you do stay.
This way, you will be able to afford your house no matter
what, rather than scrambling to find an emergency loan later,
which may be a worse deal.
A 10/1 year adjustable rate mortgage is good for long term,
but it also gives you the flexibility of changing the rates
later on if you so choose. Interest rates and monthly payments
stay the same for ten years, and after that the interest rate
is readjusted each year.
If you do not want to have your mortgage readjusted every
year but you will be able to tolerate a one time adjustment,
you may want to consider the 7/23, also called the two-step,
or 30’ due in 7’ adjustment. With these mortgages,
interest rates and monthly payments are the same for seven
During the eighth year, there will be an adjustment made
on the payment depending on the interest rates, but after
the adjustment there will be no more changes. Similar to this
but with more adjustments later on, the 7/1 mortgage is the
same for seven years and is changed on the eighth year, but
also readjusted, thereafter, each year.
If you do not want to be making payments forever and are
pretty sure that you will be able to pay it off within seven
years, you will probably like the seven-year balloon option.
This is a mortgage where interest rates and monthly payments
are the same for seven years, but after the 7 years the loan
is due in full. If you need another loan at that time you
would have to purchase an entirely new one.
Like the mortgages that are readjusted at seven and ten years,
there are also similar mortgages like the 5/25, ’30
due in 5/5 and 5/1 that offer the same as those listed above,
but in five years time rather than seven or ten. Again, with
the five year balloon mortgage, payments are equal and steady
for five years, and the loan is due in full after five years.
Mortgages are also available with these same provisions for