Shopping for a mortgage can be a pretty stressful and overwhelming experience, so it can be helpful to have a starting point to begin with. To help you out with that, here are some tips and general facts to keep in mind when browsing mortgages:
ARM's vs FRM's
The two biggest types of mortgages are ARMs and FRMs. Most other types of mortgages fall into one of these two categories, with the main difference between the two being the interest rate. With ARMs (adjustable-rate mortgages), the interest rate can fluctuate over time. With FRM' (fixed-rate mortgages), the interest rate is static and will not be adjusted.
As you might expect, FRMs are more reliable and safe, whereas ARMs tend to be a bit more volatile, yet potentially cheaper in the long run. If you get lucky with an ARM, the interest rate may stay low, which can result in an overall lower interest rate than an FRM. However, if luck is not on your side, then an ARMs interest rate can spike and result in a serious loss of money.
The interest rate of an ARM is often tied to a specific index, updating every few months. As the index does better and better, the interest rate rises, which means that your interest rate is slightly related to how the rest of the economy is doing in general.
A popular type of FRM is the balloon mortgage, which takes much less time than a traditional FRM. While an FRM may take 10, 15, or even 30 years to pay off, a balloon mortgage will generally take 10 years at the most. Balloon mortgages also tend to have monthly payments that are similar to a comparable FRMs.
The big difference between the two is that a balloon mortgage has a huge payment at the end of the repayment period where you will need to pay off the entirety of the remaining mortgage. This can be a good option if you think that you will be able to pay off your entire home in the amount of time given, but not many are prepared to pay off an entire house in under a decade. It can also be helpful in situations where you know that you are going to receive a lot of money in the future that can be used to go towards the final payment, such as inheritances.
Click here for a real estate agent or do an online search.