Kathy Kelley's Blog
Most homebuyers take out a mortgage when they purchase a house, and there are several different types of mortgages to choose from. Here are some of the more common mortgage options and the benefits of each one.
Conventional 30-Year Fixed Mortgages
Perhaps the standard starting point for a mortgage is the conventional 30-year fixed home loan. This mortgage is underwritten by a private lending institution but conforms to standards set forth by federal programs. The terms of the loan last for 30 years, and the interest rate is fixed so that it doesn’t change throughout this period.
A conventional 30-year fixed mortgage is a good option for many homebuyers. It lets you spread out the cost of a house across three decades, and you know what the interest and payments will be for the full duration of the loan.
Conventional 15-Year Fixed Mortgages
Conventional 15-year fixed mortgages are just like their 30-year counterparts, except these last half as long. Because the duration of these mortgages is half as long, homebuyers end up paying a lot less in interest.
You’ll have to pay more per month if you cram your mortgage into 15 years, but the interest savings are substantial. If you can afford higher monthly payments, this option will end up saving you a lot.
Adjustable-rate mortgages come in various durations, just as fixed-rate mortgages do. The difference between the two is that the interest rate on an adjustable-rate mortgage can adjust. The interest rate is set according to an index, and as the index changes so does the interest rate on the loan. Which index is used and how adjustments are made are detailed in the paperwork of a loan.
Most adjustable-rate mortgages come with lower initial interest rates than fixed-rate mortgages offer, although the rates on adjustable mortgages can end up being much higher. If you can financially manage an increase in your mortgage’s interest rate, this option might be a way to save a little bit of interest (although there is risk involved).
The federal government offers several guaranteed mortgage options for qualifying individuals. Some of the most common ones are VA and FHA guaranteed home loans.
In these programs, the government guarantees a mortgage if the homebuyer fails to make their payments. This reduces the risk to the lender, and many lenders relax their qualification requirements as a result.
If you can’t get a conventional mortgage and qualify for a federally guaranteed program, one of these could help you attain the dream of home ownership.