Knowing what sort of loan is suitable for your situation prepares you for speaking with your loan officer.
Each loan type is made for different
scenarios.
LOAN TERMThe longer your loan term, the longer you will repay your loan. Loans with terms that are shorter (15 years is common) usually have lower interest rates but higher payments than loans with terms that are longer (30 years is common).
Shorter terms will save you money but have higher monthly payments. There are two reasons shorter terms can save you money:
INTEREST RATE TYPEInterest rates come in two types: fixed and adjustable (ARM). This choice impacts:
FIXED-RATE MORTGAGEYour monthly payments are likely to be stable using a fixed-rate loan, so you might prefer this option if you value certainty about your loan costs. Having a fixed-rate loan, your interest rate and monthly principal and interest payment will stay the same. Your total monthly payment can still change if your property taxes, homeowner’s insurance, or mortgage insurance varies.
ADJUSTABLE-RATE MORTGAGES (ARMS)ARMs offer less predictability but might be more economical in the short-term. You might wish to consider this alternative if, as an example, you want to move during the fixed period of an ARM. In cases like this, future rate adjustments may not affect you. If you find yourself staying in your house you might end up paying far more. In the later years of an ARM, your interest rate varies depending on the economy, and your monthly principal and interest payment could go up a lot, even double.
Many ARMs have two periods:
LOAN TYPESMortgage loans are organized into categories depending on the loan’s size and if they are a part of a government program. This choice impacts: