FIND YOUR DREAM HOUSE WITH FIXED MORTGAGES

2007-03-08 10:33:40

( Financial )



Ready for a house you can call your own? You've looked at real estate advertisements, gone on open house tours and read all the promotional brochures. Now there's one more thing left for you to do - decide on your mortgage. There are many options available on the market, but these can be classified into two main types: fixed mortgages and adjustable-rate mortgages.

The Classic Approach: Fixed mortgages

You've probably heard of fixed mortgages before because they are the most common options. With fixed-rate mortgages, the principal and interest payments are pegged at the same rate for the life of the loan. This is advantageous for buyers who want to budget their money and have a predictable view of their future expenses.

The most popular options are 30-year and 15-year fixed mortgages. The 30 year fixed mortgage offers the lowest fixed rate mortgage monthly payments. In a 30 year fixed mortgage, rates remain the same for the whole term. However, you must remember that you pay more interest if the term of your mortgage is longer.

That's why, the 15 year fixed mortgage is becoming popular. The usual 15 year fixed mortgage rates are lower, allowing you to save thousands in interest over the term of the loan. However, you pay higher monthly payments, which could be several hundred dollars a month more.

Lenders also offer several other options like the 25 year fixed rate mortgage and even a 40 year fixed mortgage.

Being Flexible: Adjustable Rate Mortgages

Adjustable rate mortgages or (ARMs) are different from fixed mortgages, because the interest rates fluctuate, based on market condition. ARMs are attractive to prospective homeowners because they can come with lower initial interest rates compared to fixed mortgages, which make these loans good for periods when interest rates are high. However, people who choose this option must have a steady income to keep up with all possible rate changes.

Making the right decision

There are several things you should think about before choosing the right mortgage for you:

Examine your purpose in buying a house - if you intend to move into your prospective home permanently, fixed mortgages will suit you better. However, if you plan to stay only for a few years, ARMs will give you the option of paying lower monthly payments before you put your property on sale.

Be aware of the current financial climate - if interest rates are likely to go up, fixed mortgages may work for you. However, if rates are falling, ARMs will allow you to take advantage of lower interest payments.

Examine your financial capability - Determine how much you can afford to pay monthly and if your income is stable or expected to increase.

Lastly, remember to shop around for the best mortgage program first before you make your choice. Lenders have different rates which you can easily compare. Making a wise informed decision will bring you closer to your dream home.


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