Choosing the Best Mortgage for You

Choosing a mortgage depends on what your plans are. You will need to consider how long you are planning on owning the home before you move, what kinds of payments you are able to afford and what kind of adjustments you can make, if you are willing to refinance or not, and other factors related to these.

If you plan on living in your home for over ten years, you have the most options available. If you are almost positive you will be there more than a decade, a fixed rate is probably the most sensible choice. It gives you payment stability, as the interest rates and payment remain the same for the entire time. However, if you do not care about stability in payments, anticipate having less or more of an income, or can specifically pinpoint when a change in funds may occur, you may want to choose another plan that will suitably be able to accommodate you.

Sometimes, even if you think you may be moving, it is good to have a long term mortgage in the event that you do stay. This way, you will be able to afford your house no matter what, rather than scrambling to find an emergency loan later, which may be a worse deal.

A 10/1 year adjustable rate mortgage is good for long term, but it also gives you the flexibility of changing the rates later on if you so choose. Interest rates and monthly payments stay the same for ten years, and after that the interest rate is readjusted each year.

If you do not want to have your mortgage readjusted every year but you will be able to tolerate a one time adjustment, you may want to consider the 7/23, also called the two-step, or 30’ due in 7’ adjustment. With these mortgages, interest rates and monthly payments are the same for seven years.

During the eighth year, there will be an adjustment made on the payment depending on the interest rates, but after the adjustment there will be no more changes. Similar to this but with more adjustments later on, the 7/1 mortgage is the same for seven years and is changed on the eighth year, but also readjusted, thereafter, each year.

If you do not want to be making payments forever and are pretty sure that you will be able to pay it off within seven years, you will probably like the seven-year balloon option. This is a mortgage where interest rates and monthly payments are the same for seven years, but after the 7 years the loan is due in full. If you need another loan at that time you would have to purchase an entirely new one.

Like the mortgages that are readjusted at seven and ten years, there are also similar mortgages like the 5/25, ’30 due in 5/5 and 5/1 that offer the same as those listed above, but in five years time rather than seven or ten. Again, with the five year balloon mortgage, payments are equal and steady for five years, and the loan is due in full after five years. Mortgages are also available with these same provisions for three years.