Which Type of Loan Is Best for You?
Each type of mortgage offers advantages and disadvantages. Choosing the one that makes the most sense for you will depend on your particular situation.
If you are buying a home that you expect to live in for a long time, and if interest rates are low (or if you can negotiate a lower interest rate), a fixed-rate mortgage is likely the best loan for you. Though your initial costs might be slightly higher with this mortgage, you will pay significantly less in interest over the life of the loan with a fixed rate. The fixed-rate mortgage is a clear advantage if you expect to keep your house (and mortgage) for many years, and especially if you anticipate staying in one house until you've paid off the loan.
Points are fees charged by lenders for a mortgage. A point is calculated as 1 percent of the amount of the loan. Points (as well as interest rates) are negotiable. If you negotiate a lower interest rate, you may have to pay more points up front. If you choose to keep your initial outlay small, you may negotiate a higher interest rate and in return pay fewer points.
If you know you will be moving — because of a company transfer to another city or you anticipate buying a larger house to raise a family, for example — adjustable-rate mortgages can keep your monthly housing costs down. You are likely to pay less money up front, and you'll probably get an attractive initial low rate on the loan. Because you don't expect to keep the mortgage for the full fifteen or thirty years, you will not be hurt by a rise in interest rates.
Likewise, if you are certain of a move within the period of the balloon, a balloon mortgage may make sense. You can find attractive rates that will help keep your monthly costs down. However, balloon mortgages will probably cost you more in the long run if you keep the loan through the end of the balloon period. If you expect to be in your home for a significant period of time, this should be your last choice in mortgages.
