Choosing the Right Home Mortgage

As you are preparing to buy a home or refinance your current mortgage you will get bombarded with mortgage offers from lenders across the country. A simple search for mortgages online can leave you scratching your head and wondering what should I do.

I am a big believer in paying off your home as soon as possible. I am actively working towards this goal myself. When you don’t have a mortgage on your home you can use that money to fund retirement and investment accounts, purchase rental property, etc.

That being said, there are two mortgages we will look at here; fixed rate and adjustable rate mortgages. In addition we will look at which mortgage may be the best one for you.

A fixed rate mortgages are the most popular option and is easy to understand. You have a fixed interest rate and fixed payments that do not change over time. A fixed rate mortgage is great for those who plan on being in their home for a long period of time.

Adjustable rate mortgages feature interest rates that usually start out low and then adjust up or down after a designated time period. The paperwork will summarize the adjustment intervals, interest rate caps, and maximum rate changes.

A variation on the adjustable rate mortgage is the interest-only mortgage. This mortgage works on the same premise as the adjustable rate mortgage except for the payments are interest-only with no credits to the mortgage balance.

Adjustable rate and interest-only mortgages are not considered to be wise choices by many financial experts. Some experts do recognize that these mortgages serve a purpose, particularly if you only plan to live in the home 5 years or less. Online tools like mortgage comparison calculators help you in the planning process.

Final Remarks

If you currently have an adjustable rate mortgage and decide to remain in your home longer than anticipated, you may need to consider refinancing the mortgage into a fixed rate mortgage. Tools like a mortgage refinance calculator can aid you in comparing refinancing offers.

Finance News Today is a free resource website on personal finance. We offer a free interest only loan calculator and a free refinance calculator to aid in your financial planning.