Congratulations you are planning to buy a home! Now, you need to figure out how to finance this large purchase. Start by deciding how much of your savings you will need for a down payment and how much money you will have to borrow for the mortgage. Next comes choosing the right type of mortgage.
There are several different mortgage options on the market, but the two main types are a fixed-rate and a variable-rate mortgage. Utilize this mortgage calculator to help you stay within your means.
Fixed Rate Mortgage – has a fixed-rate of interest over the life of the loan and set monthly installment payments. The fixed-rate monthly installment loans are one of the most popular mortgage products available today. If rates are rising, then locking in a lower rate of interest can save costs over time.
Variable Rate Mortgage – is a home loan in which the interest rate is not fixed. Lenders offer borrowers variable rate interest over the life of a mortgage loan which means that rates during some portion of the loan’s length are going to be structured as variable. A variable rate loan work if rates fall over time but can be costly if interest rates continue to rise.
Decide how much risk you can afford when choosing between a fixed-rate and variable-rate. The initial payments on a variable may be lower and more affordable but keep in mind interest rates will fluctuate throughout your loan period. A variable-rate may potentially make your payments higher down the road. No one can predict exactly what our economy will do, but you can decide based on your financial situation what loan type is best for your future finances.
If you prefer a safe choice than a fixed-rate mortgage which has a locked rate for the term of the loan is a better fit for you. If rates increase you win and if they decrease dramatically you always have the option to refinance and take advantage of lower rates.
The bottom line is to know what your budget and income allow you to afford. Then decide if you want the certainty of a fixed rate or perhaps a variable rate fits your budget and projected revenue.
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