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When it comes to getting a mortgage, there’s no one-size-fits-all solution. There are a number of different mortgage types, and the type that’s right for you will depend on a variety of factors, including your financial situation, goals, and background.
So, what kind of mortgage options are out there, and who are those options right for?
A recent article from realtor.com outlined different mortgage types, and who should consider each type of mortgage, including:
Fixed-rate. A fixed-rate mortgage is the most common type of conventional loan on the market. As the name suggests, this type of mortgage offers a fixed interest rate throughout the life of the loan (for example, 30 years). Fixed-rate mortgages are best for buyers who value predictability, and want to know exactly what they’ll be paying each month for their mortgage.
Adjustable-rate. An adjustable-rate mortgage (ARM) generally offers a lower interest rate than a fixed-rate mortgage, but only for a certain amount of time (for example, 5 or 10 years). After that, the rate of the mortgage adjusts based on current interest rates — typically once per year — and mortgage payments will change accordingly, either increasing (if interest rates go up) or decreasing (if interest rates fall). ARMs can be a good fit for someone who plans to sell a home before the adjustable rate kicks in. It can also make homeownership more accessible to people with less-than-perfect credit, as those buyers can struggle to get an accessible rate on a more traditional fixed-rate loan.
FHA loans. The Federal Housing Administration offers government-backed fixed-rate mortgages that allow buyers to purchase a home with a much lower down payment than conventional loans; as low as 3.5 percent of the home’s price. FHA loans are a good fit for buyers that don’t have a ton saved for a down payment. However, it’s important to note that FHA loans are typically capped at $417,000 and buyers will be required to pay mortgage insurance, which is about 1 percent of the total loan amount, paid either upfront or over the course of the loan.
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