We are often confused with the terminologies, the advantages and the disadvantages of the different mortgages offered to us in our home loans which ends us up overwhelmed by the details and information that is presented to us and this might result to a wrong selection of mortgage that will affect us financially if not corrected.
According to the usda home loans rates campaign, there is a huge percentage of home owners are not that knowledgeable about the different types mortgages that is why we decided to make an article that will help us differentiate the difference between the types of mortgages to help us in making the right decisions.
There are two types of mortgages in adjustable-rate mortgages and the fixed-rate mortgages. These types of mortgages have a lot of differences and terms which makes them completely opposite to each other. Knowing these two types of mortgages is very important for people who are buying homes in order to make the right choice, we should learn each of its meaning, learn its pros and cons and a lot more.
Fixed-Rate Mortgage
This type of mortgage has an interest rate that has a permanent interest rate throughout the lifetime of the loan availed by the borrower from the lender. The payment should stay the same and must be paid from a monthly basis through the ration of the principal that was borrowed by the borrower and the interest which varies slightly to the monthly payment that is fixed already. This type of mortgage is preferred by many because of the fixed amount of the monthly payment which helps the borrowers to have predictability of the payment due. This type of loan can be paid up to 30-years while generally, the best option borrowers can have in order for them to stay in the home for a long period of time without changing the mortgage. This type of mortgage is recommended for first time home buyers and for people who aims to stay in the home for a long period of time.
Adjustable Rate Mortgage
This type of mortgage meanwhile, has an interest rate that changes through its pre-determined intervals throughout the lifetime of the loan. It is highly unpredictable knowing that the rate will regularly adjust through time. This type of mortgage however, have an interest cap which creates a limitation of how much the rate can change over the period of the time of the payment and the lifetime of the loan. This is often known as hybrid loan because of its constant change and this type of loan or mortgage is best for people who plans to stay in the home for a few years.
Now that you learn the difference between the two types of mortgages, have you decided to choose one? In order to get through this obstacle, you should think about the terms of your loans in order for you to choose the right loan for you.
If you plan to stay at your home for a long period of time or pass it to your children then you should choose the fixed-rate mortgage it’s that simple, or if you plan to move to another place in the near future then the best loan for you is the adjustable rate mortgage.
