When people hear the word mortgage, they typically associate it with a 30 year fixed rate mortgage. Over time the 30 year fixed rate mortgage has become the most popular mortgage used. While it is a great option for mortgage financing, it is not the only one you have. Consider these 5 mortgage alternatives to a 30 year fixed mortgage.
15 Year Fixed Rate Mortgage
The 15 year fixed rate mortgage is a great alternative its 30 year counterpart. It is very similar to to a 30 year mortgage, the only difference is its amortization over 15 years. It has a fixed interest rate through the length of the loan. 15 year fixed rate mortgages have a lower interest rate because there is less risk for lenders than on longer term loans. There is a significant savings in interest associated with 15 year fixed rate mortgages. Homeowners can save thousands of dollars by opting to get a 15 year fixed mortgage with this mortgage alternatives.
Adjustable Rate Mortgage
Adjustable rate mortgages can have many advantages for homebuyers. An adjustable rate mortgage offers a lower interest rate in the beginning of the loan. The loan starts with an introductory period and then the interest rate fluctuates with the market index rate. Adjustable rate mortgages are great for homeowners who plan on selling before the interest rate is subject to change. It is also beneficial for anyone expecting a large increase in pay in the next few years. If a homebuyer knows they can afford the mortgage payment at the highest it can go, they can rest assured that they’ll always be able to make their payments and live comfortably. During the time before a potential rate increase they can enjoy a lower payment and gaining equity in their property.
FHA 203K Loan
The FHA 203k Loan is a renovation loan that is designed to provide borrowers with money to do home renovations and repairs on their home after purchasing it. It is a government funded loan program that is aimed toward revitalizing neighborhoods across the country. The loan is a great option for homeowners who are looking to buy a home and renovate the property. They can enjoy a fixed rate mortgage with low payments and get money for renovations. They can make a small down payment and save their cash by utilizing the proceeds from the loan to do repairs. If you plan to buy a fixer-upper consider getting a FHA 203k loan.
Things to Consider While Selecting a Mortgage:
Save up extra money in a savings account if you get a mortgage that has more risk. You can offset the cost of mortgage payment increases and pull money from this savings account.
Think of what your plans are for the future and plan accordingly. If you anticipate that your household income will drop for various life decisions, think about how you’ll be able to afford your home with less income.
Think of the different life events that may change your mortgage needs. These are not things that a mortgage lender can ask about or consider when looking at your mortgage application. They will only consider your current financial situation.
In order to protect yourself, your real estate investment and your goals for life you should anticipate the following life events:
- Starting a new career or business
- Returning to school
- Paying for your children’s college education
- Saving for a trip around the world
- Having a child
Consider resale of your home. The longer your mortgage term, the longer is takes to pay down the principal balance. If you are hoping to gain equity quickly a shorter term mortgage will help you achieve this. Having low mortgage payments each month is great while you are making them. However, you will want a substantial amount of equity when it comes time to sell.
The next time you are in the market to buy a house, think of the many mortgage options that you have. Don’t forget to consider the mortgage alternatives to a 30 year fixed rate mortgage.