Homebuyers can select from various kinds of mortgages. The most common and popular are fixed rate mortgages and adjustable rate mortgages, also known as ARMs. Additional options are formed when lenders change the term of the loan, the way the principal amount you owe is paid off or amortized, or include elements such as a conversion option or prepayment privilege.
Nowadays, many other mortgage loan options are obtainable, from adjustable rate mortgages, to interest-only and negative amortization loans, to the conventional 30-year fixed rate mortgage.
The aspects that you should take into account while selecting your mortgage are what you can manage to pay every month depending on your existing earnings; whether you anticipate your income to increase, decrease or stay unchanged in due course; whether you intend to reside in the house for many years to comes relocate in a few years; your tolerance for risk; and whether you anticipate interest rates to rise, fall or stay about the same.
If your family income is high and you expect your salary to rise and do not have any long term plans for the property, consider the interest rates to stay about the same or even fall during that period, you might choose a five-year balloon loan.
A five-year balloon is a good alternative to a standard mortgage since the term correspond the length of time you look forward to own the house. You will have no early redemption penalty if you sell after five years. If you make a decision not to shift, you can refinance when the mortgage matures and perhaps pay down the principle at the same time.
Another scenario is if your income is low and fixed. If you plan to stay in your home for many years and expect interest rates to rise, it would be wise to choose a traditional 30-year fixed rate mortgage. The 30-year term and fixed rate permit you to lock in reasonable monthly principal and interest payments for the long term. In addition to this, your installments will be manageable and you will pay off the principal of the loan and building equity little by little.
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