Which Mortgage Plan Is The Most Reliable For Your Future?

If you’ve ever been around a group of people who don’t speak the same language as you, you know the confusion and frustration of trying to understand what they are talking about as it applies to you.

Well, there are thousands of people who know your pain: Homeowners experience the same frustration every time they have to make decisions about mortgages! Keep reading to receive basic knowledge for what to expect when applying for mortgages.

How Is A Mortgage Determined?

The amount of your monthly payments for a house is determined the same way regardless of the type of mortgage you decide works best for your future plans with the home. A mortgage is determined by the interest rate multiplied by the principal, plus a small amount of the principal itself.

Most Common Mortgages

The purpose of a mortgage is to, not surprisingly, pay for property. The amount you pay monthly is different depending on what type of mortgage you sign up for.

The two most common types of mortgages you will hear realtors and mortgage companies use are called Fixed-Rate Mortgage or Adjustable-Rate Mortgage. These two types are fairly self-explanatory, however, there are a couple of things you need to consider about each one before deciding.

Fixed-Rate Mortgage: This type of mortgage means that no matter what, throughout the life of your mortgage, your interest remains the same, and your monthly payment does as well. This type of mortgage is best if you are living off a specific budget, and need a consistent payment plan.

A fixed-rate mortgage can be set up in two ways: a 15 or 30-year mortgage. If you can afford a 15-year mortgage, your payments will be more expensive than a 30-year mortgage, but you will cut through your interest much faster and then own your home in a shorter amount of time. However, if budgeting is your main goal, a 30-year mortgage is your best option for the lowest monthly payment.

Adjustable-rate Mortgage: As you probably already guessed, an adjustable-rate mortgage (also known as an ARM) comes with an adjustable interest rate. The best part of the ARM is that the interest rate starts out lower than the average market rate. Adjustable-rate mortgages are the way to go if you are planning on paying off your home as fast as possible, and can afford to do so.

Keep in mind that if you choose an ARM, your interest rate will fluctuate, and that doesn’t always mean it will fluctuate in your favor. If the interest rate rises above more than you can afford, you will still be responsible for your monthly payment.

So, again, paying off your mortgage quickly sounds amazing–especially if it’s mostly now interest!–but make sure you are capable of handling those adjustments as they come.

Get Help Deciding Today!

Obviously, mortgages and looking for houses go hand in hand. Because of that, reliable, knowledgeable, and friendly realty agents such as Kim Clark in Kosciusko County, Indiana, is more than willing to sit down with you and discuss your questions about mortgages. Call her today!