With mortgage interest rates super low over the past few years, prospective homeowners have rushed to get financing. Since the credit crisis in 2008, lenders have made it more difficult to get a loan.
If you are in the market to buy a home or refinance, you'll have three options for a mortgage:
Fixed rate mortgages have an interest rate that remain the same over the life of the loan. These are a good option if you plan on staying in the house for several years to come. Basically you receive a fixed rate of interest for a certain period of time. The most common options are the 15 and 30 year mortgages. This loan does come in other varieties of term like 10 and 20 too. With historically low rates, this could be your best option for locking in a low payment.
Unlike a fixed rate mortgage, adjustable rate mortgages interest rates are fixed for a defined period of time, then start to adjust to current rates. Commonly the 5, 7 and 10 year options are the most popular. For example, with a 7 year adjustable rate your interest rate and payment are fixed, and then after 7 years they will adjust to potentially higher or lower interest rates available at the time. Adjustable rates are great if you plan on staying in the house for a shorter time. Typically adjustable rates will have a little lower interest rate than a fixed rate mortgage.
Interest only loans are for buyers that need the most rock bottom payments available. As the name implies, you will be paying payments consisting of interest only for a few years of the loan. Why would anyone want this type of loan? Some buyers know that their incomes will rise significantly after a few years. Examples could be medical or law professionals that are going to earn significantly more in a few short years. On the flip side, they are not good for people with flat earnings levels.
No matter what type of loan you get, do your homework first. So many borrowers get themselves in trouble by not researching appropriate options.
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