When financing a home, you have a lot of choices, including the term of your loan. It’s estimated that 80 percent of all home buyers elect to take out 30-year fixed-rate home loans. It’s a popular option because of the low monthly payments.
Less popular are 15-year and 10-year fixed-rate home loans. The big downside with these shorter-term options are the higher monthly payments. With a 15-year home loan, for example, you can expect to have a monthly payment that’s up to 28 to 30 percent higher than with a 30-year home loan. And, you’re locked into paying that higher payment over the term of the loan. The main advantage of a shorter-term mortgage is the earlier payoff and interest savings. You’ll pay your home off more quickly and pay significantly less in interest over the life of the loan.
In addition to fixed-rate mortgages, home buyers also have a variety of ARMs to consider. Today’s ARMs are often based on a 30-year repayment schedule with a period of five, seven or 10 years that the loan’s interest rate remains fixed. After that period, the rate adjusts. After the adjustment period begins, the loan’s mortgage rate — and the monthly payment — could go up or down.
Is an ARM right for you? Generally, if you plan on moving in the next couple of years and you are trying to keep your mortgage payment as low as possible while you’re living in the home, an ARM could be right for you. If you plan on staying in the home a long time, a fixed-rate home loan could be a better option. We can help review your individual circumstances and make a decision that’s right for you.