If you’re like most homebuyers, you would probably pick a 30-year mortgage term, then decide between a fixed-rate and adjustable interest rate. With a fixed-rate, the interest remains the same throughout the life of the loan. With an adjustable rate, however, the rate stays the same for a specific period, then changes depending on the prevailing rates.
Why Others Choose ARM
Some choose the adjustable rate mortgage (ARM) because the starting rate is lower than the fixed mortgage. While it makes monthly payments more affordable in the initial period, the rate could also increase when the mortgage resets. This could be a problem if you’re not financially prepared. This is why ARMs work best if you don’t plan to stay in the home for the long-term.
Lowering the Interest on Fixed Rate
Mortgage lenders in Fort Myers note that with a fixed rate, you can lower the interest by shortening the loan term to 15 years. The downside, however, is your monthly loan payments will be higher. This is because you will be paying off the mortgage in a shorter time (with bigger interest rates). Some lenders also offer other terms like 10 years or 20 years, but you need to ask them about it.
Little to No Down Payment
Saving for a sizeable down payment is not a problem anymore, as there are loans that offer little to no down payment. The thing is you have to pay private mortgage insurance (PMI) to protect the lender in case you default. If you need to borrow more than the maximum for a standard loan, you will have to consider a jumbo loan, which has certain requirements.
The Deal with Interest-Only Loan
There is also the interest-only mortgage where you have to pay the interest rate for a specific term (for five or 10 years). The sad part is there is no money going on principal, so you’re not building equity in the property. The interest rates are also likely to increase after the initial period. This is a risky loan, but well-off borrowers choose this to invest the money somewhere else.
Choose a loan based on your income and lifestyle. Get in touch with a reliable lender to know more about the types of loan and decide on the right one.