Let’s begin with fixed rate mortgages. This is the safest type of mortgage by far. Most homeowners with low rates today prefer it. You don’t have to worry that your interest rate will increase your monthly payments. As the years pass you will continue to pay down your mortgage principle. Having a fixed rate is your best move if you are planning on staying in the home over the span of many years. You always have the option of taking out a second mortgage for paying off your credit cards or getting extra cash.
Adjustable rate mortgages can be a wise move today if the fixed rate mortgages are 7.5% or below. Everybody knows that mortgage rates have just one way they can go, and that is up. If you are planning on refinancing again in a couple of years and you’re expecting the interest rates to hover around 7% or higher, an adjustable rate mortgage can give you a way to save some money, but it also forces you to have to refinance your mortgage with a specific amount of time.
Interest-only mortgages require you to pay just the interest and leaves the principle untouched. If you are planning on making some extra payments toward your mortgage then you need to stick with the fixed rate mortgage. It usually comes with a lower interest rate to begin with and helps you steer clear of having to refinance again should you make the choice not to make those extra payments. Usually with an interest-only mortgage once you have it for five to ten years you’ll be required to pay down your principle anyway. If you are bad to procrastinate, then you’ll see a substantial increase in the amount of your monthly payments if you have twenty to twenty-five years of payments left to make on your original balance of five to ten years ago.
If you are considering a refinancing option today then weigh your options carefully. Since the housing market slowed down so much, paying down the principle might be the best way to acquire equity over the next several years. Many homeowners today owe the total worth of their house and can just afford interest-only payments. Unless they have an increase in their income then they might end up in a really tough financial position.
Option arm mortgages are more like tools than anything else. You need to take a careful approach to these loans or you can get bit on the butt. These loans are for people who can get better returns for their money if they put it into the stock market, or IRAs, or some other investment opportunities. Using the option arm gives your four separate payment options every month. Thus the name ‘ARM’. You can make a payment that is a below interest-only payment. Secondly you can make an ‘interest-only’ payment. Thirdly you can get a fifteen year adjustable rate loan, and fourthly you have an option for getting a thirty year adjustable rate loan. When you begin making your below interest-only payments every month then soon you will see the balance on your mortgage increase. For this to actually make sense your investment you make with the extra money needs to make up the difference for this mortgage increase.