Buying a new home is one of the largest expenses of a person’s life, which is why there are so many different types of mortgages available that allow people to do so. It can be overwhelming to look into all of the options that potential homeowners have in making this purchase, which is why we’re helping to simplify the process by explaining the 3 most popular types of mortgages and how they affect your interest rate.
This is the most popular type of mortgage because it provides the most stability and predictability in what you’ll have to pay. The interest rate stays the same no matter how long the loan is set to last (typically 15 or 30 years), meaning that you’d be paying the same amount every month. This makes accurate budgeting much easier and is especially practical when interest rates are low, but you’ll typically be paying more in the long run than you would if you chose a mortgage with a variable or adjustable rate.
These types of mortgages have interest rates that change every so often, typically every year, three years, or five years. The initial rate is generally lower than it would be for fixed-rate mortgages, but whether or not that rate will go up or down is dependent on a variety of factors, so there’s more risk involved. You’ll often hear these referred to as 1/1, 3/3, or 5/5 ARMs. The first number indicates how many years the initial interest rate will last, and the second number indicates how often a new interest rate will replace the one before it.
These mortgages start at a fixed rate, then change into a variable rate after a certain number of years. For example, a common ARM is the 5/1 loan, where the initial interest rate remains the same for the first five years, then the interest rate changes every year after that. This way, a buyer can receive the benefits of having a lower interest rate while still having some stability during the first few years of owning their home.
While they may be less popular, there are a wide variety of other types of mortgages that help people save money in buying a home. The best way to pick the most appropriate and helpful mortgage for your specific needs is to discuss your options with experienced mortgage consultants.
Clearview Realty helps home buyers in Colorado understand the different types of mortgages that are available and provides loans to help people achieve the dream of homeownership. Since the specifics of which mortgage to choose is dependent on a variety of factors, we encourage you to call us for more information and find out which is right for you. Our number is (720) 217-5731, or you can send us a message.