Fixed vs. Adjustable Rate Mortgages
Fixed Rate Mortgages: Throughout the term of the mortgage, the interest rate of the mortgage will stay the same. Fixed Rate Mortgages can be 10, 15, 20 or 30 years. A 30 Year Fixed Rate Mortgage will have the lowest payment.
1. 30 Year Fixed Rate Mortgage: Great for first-time home buyers. The pro is that you get a fixed mortgage and an interest rate that won't ever increase, even if there is inflation.
2. 15 Year Fixed Rate Mortgage: The pros are that there is security of predictable monthly payments, a locked interest rate and the mortgage payment and inflation will not affect your payments. The loan can also be payed off in half the time (which great if you are trying to pay off your home before you have to pay for college or are going to retire) and you build equity a lot faster than with a 30 Year Fixed Rate Mortgage.
3. Adjustable Rate Mortgages: The interest rate is adjusted periodically based on a pre-selected index. Periods are 5, 7 and 10 years. Pros are that with a lower interest rate and payments for your first year, you may be able to afford a more expensive home. The con is that, while you can get in with a lower interest rate, this rate is subject to uncertain changes over time.
Government-Insured vs. Conventional Loans
1. Conventional: This is not insured or guaranteed by the federal government in any way.
2. FHA Loans: A low interest loan by the Federal Housing Administration. The government insures the lender against losses from potential borrower default. This type of loan is available to all qualified home buyers, which covers most moderately priced homes. It is especially very popular for first time home buyers. The pros of this loan are that it can put down a down payment as low as 3.5%, it is easier to qualifying and has low closing costs. The con is that you have to pay for mortgage insurance.
3. VA Loans: Guaranteed by the Department of Veteran Affairs, this loan is long term with low or no down payment restricted to those qualified by military service. The VA will reimburse the lender for any losses from borrower default. The pros are that it has no down payment, there are negotiable interest rates and there are adjustable or fixed rate mortgage options.
The United States Department of Agriculture offers a loans program managed by the Rural Housing Service for rural borrowers with a certain income.
Allows the buyer to pay only the interest, which tends to be higher, in the first few years of ownership. Periods are 5, 7 and 10 years. This is a higher risk loan, best for buyers with excellent credit and those wanting to put down a large down payment.
I am a real estate professional, serving Boulder and Denver, Colorado. My extensive knowledge of the market, coupled with my commitment to provide extraordinary service, has resulted in hundreds of successful transactions. Let me help you buy or sell your home.