Pick the Right Mortgage for You

There are many different types of home mortgages that buyers use to purchase their homes. Since everybody's situation is unique, it is important that you learn about your mortgage options in order to make the best choice for you. When you have picked out your Phoenix home and are trying to decide upon a mortgage to pay for that home, consider these methods of payment.

Fixed-Rate Mortgages

Many people have been facing foreclosure recently. Some of these individuals have lost their homes after their adjustable rate mortgages reset and they were unable to make the higher payments. With a fixed-rate mortgage, you will always pay the same amount of interest. You will pay a higher initial rate for your mortgage, but if interest rates go up, you won't have to worry about your mortgage payment going up as well. If interest rates go down, you would have to refinance to take advantage of the lower rates. Fixed-rate mortgages make sense for a lot of home owners that are planning on staying in their homes for a long period of time.

Adjustable Rate Mortgages

When you purchase a home with an adjustable rate mortgage, your interest rate will vary over the life of the loan. You will usually get a teaser rate that lasts anywhere from three to seven years, and then your loan will adjust as the interest rates change. If the interest rates go down, that is good for you, but if they go up, you will have to pay more money. If you think that interest rates will stay low for most of the time that you are paying off your loan, or if you only plan on owning your home for a short period of time, an adjustable rate mortgage might be right for you. Keep in mind that if you decide to stay in your home longer than expected and interest rates go up, you might find it difficult to refinance your loan to get a fixed-rate loan.

Balloon Mortgages

A balloon mortgage has a lower interest rate than a traditional fixed-rate loan, but you will have the same rate for the life of your loan. The catch to this type of mortgage is that balloon mortgages have shorter payoff terms. Your interest rate will typically be good for seven to ten years. After this time, you will have to find some way to pay off your home in full. In most cases, people take out another mortgage to pay for the balloon, or move out before the balloon comes due. There is always a risk to this kind of strategy. Job losses, the inability to sell your home when you want to, and the changing credit market add a bit of instability to this type of loan. If you are willing to make the gamble, you can save yourself quite a bit of money.