30 year fixed rate loans
Fixed rate loans are just what they seem to be. You
lock in a percentage rate and keep it for the term of
the loan. If you plan to stay in your home for a long
time and need a fixed budget, this is a good option.
The downside to a fixed rate loan is that you have to
refinance to get a lower rate if rates go down. 30
year fixed rate loans cost more than 15 year fixed
loans in the long-run.
15 year fixed rate loans
These loans can offer lower rates and are less costly
in the long run than 30 year loans. The monthly
payment is higher but you build equity faster. You
may not wish to consider a 15 year loan if you have a
very tight budget and no other savings.
Adjustable rate mortgages (ARM)
Adjustable Rate Mortgages start out with lower rates
and "adjust" later to current rates. This can be good
or bad, depending on the direction rates are going.
An ARM can be good if you don't plan to stay in the
home for a long period of time. The lower initial
payment can also help you to qualify. Some people
use ARMs to keep their cash for other uses.
Interest "only" mortgages
With these loans, you pay only interest for the first
few years of the loan and then pay toward the
principal later. Interest-only loans, therefore, are not
actually interest-only forever. These loans can end
up costing you more in the long run because of the
way loans amortize over time. Once the initial
interest-only term ends, the mortgage payment can
jump rather high. This type of loan can be good for
certain borrowers who have variable incomes but if it
is used to purchase a larger home than one cannot
otherwise afford, they can be very dangerous.
