Houses on sale today require down payments that are more than a renter can afford. So how do you own a home when you do not have enough savings to cover down payment costs? The answer is a home mortgage.
A home mortgage is actually different from a home loan. A home mortgage is the contract that you sign in order to get a loan from a banking institution or lending company. The loan is the money that the lender provides for you.
There are many kinds of home mortgages available in the market. These home mortgages differ in their loan terms or their rate status. The advantage of each type of home mortgage depends upon the financial situation of the times. Some home mortgages fare better when interest rates are low. Others rise up to the challenge of high home mortgage rates.
Fixed Rate Home Mortgage
Fixed rate home mortgages are home mortgages whose interest rates remain set for the duration of the loan term. The monthly payments for a fixed rate home mortgage may either for a period of 15 years or 30 years.
Fixed rate home mortgages are considered stable. With fixed rate home mortgages, your interest rates are guaranteed and your monthly payments are predetermined.
A 30-year fixed rate home mortgage has its own advantages and disadvantages. Usually fixed rate home mortgages with 30-year loan terms give the consumers the opportunity to borrow money on a long-term basis. The amortization period for this type of fixed rate home mortgage is longer and the monthly payments are lower. One drawback, however of this home mortgage is its high interest bill and slow equity build-up.
15-year fixed rate home mortgages attract borrowers because of its relatively shorter amortization period. Equity in this home mortgage is quickly built up and interest bills are significantly lower. One disadvantage though is that 15-year fixed rate home mortgages have higher monthly payments and higher interest rates.
Adjustable Rate Home Mortgage
Contrary to a fixed rate home mortgage, an adjustable rate home mortgage is a home mortgage where the rates are adjusted regularly, usually after the first year is over. Adjustable rate home mortgages generally have lower interest rates compared to fixed rate home mortgages. But this low interest rate in adjustable rate home mortgages is only for a short period of time. After about a year, the new interest rate of an adjustable rate home mortgage will either rise or fall, depending on the movement of the lending company’s prime rate.
Knowing whether or not an adjustable rate home mortgage is right for you depends on your income status and the type of adjustable rate home mortgage payment you plan to make. In the long run, adjustable rate home mortgages might prove risky for the home buyer.
Since adjustable rate home mortgages rely on the interest rates of the market to adjust their own interest rates, monthly home mortgage payments for adjustables are uncertain. When interest rates in the market are low, you are sure to gain savings with an adjustable rate home mortgage. However, when rates are high, your adjustable rate home mortgage might cost you more than you’re willing to give.