Selecting the right mortgage is essential to the home-buying process, that's why TAAF Mortgage is here to help you understand your options. Consider two things at the start: which loan type best meets your home-buying needs, and which loan term offers the best repayment schedule.
Loan Types There are two general categories that most home loans fall into: fixed-rate and adjustable-rate mortgages (ARMs).
Fixed-rate mortgages have interest rates that stay the same for the entire life of the loan.
You will have predictable monthly payments throughout the life of the loan.
You'll be protected from rising rates, so your principal and interest payments can never increase, no matter how high interest rates rise.
Adjustable-rate mortgages have interest rates that adjust periodically based on market conditions.
The initial rate is fixed for an introductory period (usually one to ten years), and is typically lower than for a fixed-rate mortgage. After that, the rate adjusts annually or semi-annually based on a market index, but it can't go above a predetermined adjustment cap.
Because of the lower initial rate, some borrowers may be eligible for a larger loan amount with an ARM than with a fixed-rate mortgage
Loan Terms The “term” of a loan is the length of time over which you agree to repay the loan. The most common mortgage loan term is 30 years, but 15- and 20-year mortgages are also common.
Whether you’re better off with a longer-term loan or a shorter-term loan depends on a number of factors, most notably your monthly income and your long-term financial goals. Comparing two fixed-rate loans with different terms:
The longer-term loan will offer lower monthly payments. This may be a good option if you’re on a tight budget or would prefer to direct your monthly cash flow toward other investments or expenses.
The shorter-term loan will mean higher monthly payments, but you’ll be repaying the loan faster and saving money on interest.
Other Considerations Besides the nature of the interest rate and the loan term, other important features of a mortgage loan include:
Whether the loan can be insured or guaranteed by a government agency, such as the FHA or VA.
FHA loans are backed by the Federal Housing Administration, and are designed to assist low-to-moderate income homebuyers by offering low down payment requirements and flexible qualifying guidelines.
VA loans are backed by the Department of Veterans Affairs (formerly the Veterans Administration), and are available to qualified veterans and active-duty military personnel and their spouses. They offer many of the same features as FHA loans.
Whether the loan has flexible qualifying guidelines, which may be able to accommodate borrowers with credit challenges, excessive debt, or previous bankruptcy, foreclosure or tax delinquency. If you’ve experienced financial challenges, TAAF Mortgage wants to help you build a secure future through our flexible credit solutions for homeownership.
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