When shopping for a home, the chances are that you are also looking for a suitable mortgage. Nowadays, there are a few different types of mortgages available to potential homeowners. You have to decide which one suits your particular needs the most before applying. Some of the factors you have to consider to help you choose the right mortgage include the location of the home, the duration that you plan to live there, and many others. Making the right choice will save you quite a lot on the interest, fees, and down payment.
Fixed-Rate Loan
A fixed-rate loan is the most common conventional loan type, which is offered with a single interest rate covered in the monthly repayments that have to be paid each month until the loan is cleared. Some fixed-rate mortgages can take up to three decades of monthly payments to be cleared. It is an excellent option for homeowners with high predictability, who are not planning to move houses any time soon. The terms are as simple as you have to pay X amount for the agreed number of years. Changes in interest will not affect the terms of your mortgage. This mortgage type will require you to put a significant down payment.
Adjustable-Rate Mortgage
The adjustable-rate mortgages usually have lower interest rates compared to the fixed-rate mortgages, but that is for a specified duration, typically around five to ten years. After that, the lender will adjust the interest rates, which will affect your monthly repayments, to correspond to the current prevailing rates. If interest rates shoot up, your monthly repayments will also become higher. The adjustments are usually made once per year until the full loan amount and interest are repaid. This type of loan is suitable for homebuyers who have low credit scores as it is difficult for them to get reasonable interest rates on fixed-rate home loans.
Federal Housing Administration
Typically, mortgages require a down payment minimum of 20% the buying price of the home. With FHA, the down payment minimum requirement can be as low as 3.5%. The reason for that is the government usually backs the loans. FHA loans are an excellent choice for homebuyers with too little savings to make larger down payments. The FHA mortgage loan does have several requirements, including a cap to the highest amount that can be borrowed. It also has very little flexibility compared to other mortgage loan types.