You have two general loan types to choose from when buying a home: fixed rate mortgages and adjustable rate mortgages (ARMs). Under these two loan types fall a wide array of loan programs and products, such as FHA loans, VA loans, and hybrid ARMs. It is important to understand how these two loan types work to ensure you make the best financing decisions.
Fixed Rate Home Loans
This type of mortgage locks in the interest rate for the life of the loan. Every month you pay the same monthly amount. If interest rates increase, your payments do not, since your rate is already locked in. The only drawback to these types of loans is when interest rates fall and you have to refinance the loan to get the lower rate.
Adjustable Rate Loans
As the name suggests, these mortgage loans have an adjustable interest rate. Even still, they do appeal to some homebuyers because the initial rate is often an “introductory” rate that can be lower than a fixed rate loan, which can be great if they only intend to keep the home for a short period of time.
After the “introductory” period, depending on the terms of the loan, the rate will adjust to reflect current market rates. One of the main drawbacks to ARMs is that rates on some loans could jump significantly at the end of the initial rate period, especially if interest rates have risen.
As you can see, there are benefits to both types of mortgages. For assistance in determining which loan programs are best for you, please feel free to contact Elite Financial at (800) 908-LEND (800-908-5363) or 805-494-9930 today!