When planning for the financing of your first home, one of the things you need to think about is the type of mortgage you will be getting. With all the special options offered by lenders, this subject can be overwhelming to someone who is not too familiar with financial matters.
To give you a background, here are two of the common mortgage options you will encounter:
This fixed-rate mortgage accounts for as much as 90% of all home loans in the United States. This type of mortgage has the same interest rate for the whole term of your loan. For instance, your periodic payment will remain the same if you get a 30-year fixed-rate loan.
With this type of mortgage, you have an idea of how much you will be paying for the duration of your loan. This provides you more freedom in planning the budget for your home’s financing.
The adjustable-rate mortgage (ARM), or floating-rate mortgage, is the opposite of a fixed-rate loan. Under this type, interest rates can change during the loan term. This means your payment may go up or down, depending on the current rates. Borrowers may obtain lower rates at the start of the mortgage, which, in turn, allows them to qualify for bigger loans. Some mortgage companies in St. George may offer loan terms for one, five, or seven years.
An adjustable-rate mortgage also has variations. One of the common variations is the interest-only loan. In type of arrangement, a borrower may only pay for the interest during the initial period until it reverts to the fixed type.
The right mortgage will depend on a number of factors, such as your needs, current financial condition, and even your plans for the house. Each loan type has its own benefits, so you have to be thorough with your choice.