Knowing what type of mortgage program to apply, the advantages and disadvantages, are important during home purchase.
Not only buyer needs to gauge the affordability of the monthly payment, one should try to plan for the change in finances in the months and years ahead. Future large expenditures such as buying a car, going to graduate school, play an important role in determining the type of mortgage buyer should apply.
Traditionally, 30-yr or 15-yr fixed mortgage are popular. Paying off a loan over a shorter period of time obviously requires a higher monthly payment but it incurs less interest expense over time. Alternatively, adjustable rate mortgage or ARM programs are popular among younger home buyers. ARM is a hybrid program between fixed and variable mortgages. It offers an initial fixed rate over a period of time and then becomes variable for the remaining term of the loan. If the buyer does not plan to stay in the property for long or plan to pay off a loan relatively quickly, an ARM program maybe suitable since it offers substantially lower rate for the initial period, usually one to seven years.
Bottom line, understanding the loan terms and features help borrower to select the most suitable loan program.