There are various kinds of mortgage loans out there, and each may appeal to a different type of borrower. For each mortgage listed below, you’ll see the advantages it offers as well as the kind of borrower it’s best suited for. Read on.
30-Year, Fixed-Rate Mortgage
The 30-year fixed-rate mortgage is a home loan that has an interest rate that’s set for the course of the loan term, which is, as you may have guessed, 30 years. This means you know what your monthly principal and interest payment will be month after month. It also means you can count on it to be a part of your budget for the next 30 years if you want, or you can pay off the loan a lot faster and save thousands in interest. This type of mortgage loan is most suitable for borrowers who want to stretch the loan term so they are able to afford the cost of homeownership.
15-Year, Fixed-Rate Mortgage
The 15-year fixed-rate mortgage allows the borrower to pay off the mortgage faster and typically has a low-interest rate. It comes with a higher monthly payment than a 30-year loan but protects you from rising rates and helps you build equity faster, which means more financial freedom when the time comes to sell your home or invest a lump sum toward something else. This loan will work great for homebuyers who can afford a slightly higher monthly payment and also for homeowners who are looking to refinance their original mortgage loans.
Adjustable-Rate Mortgage
An adjustable-rate mortgage (ARM) has an interest rate that will vary throughout the life of the loan. It’s popular because the initial interest rate is lower than on most fixed-rate loans — and borrowers get to lock in this initial rate for a period of one, five, seven, or ten years. After that initial period ends, interest rates can go up or down for the rest of the loan term. This type of mortgage loan is a great option for people who don’t plan to live in the house for too long.
