Adjustable rate mortgages, or ARMs, arewith an that changes. These types of mortgages may start with lower monthly than other types of mortgages, but there are things you need to know.
- Monthly payments could go up, sometimes by a lot, even if interest rates don’t go up.
- Monthly payments may not go down much or even at all, even if interest rates go down.
- Even if you make all your payments on time, you may end up owing more than you borrowed.
- You may have to pay a penalty if you want to pay off your ARM early to avoid higher payments.
It would be in your best interest to compare adjustable rate mortgages to each other and with fixed-rate mortgages.
A fixed rate mortgage is a loan that requires you to pay a fixed total amount per month for a certain duration of time.
The most common types of fixed rate mortgages are 15 and 30 year mortgages. They are also available for 20 or 10 years.
30 year fixed rate mortgages take 30 years to pay off and is the easiest fixed rate loan to qualify for. It gives you the best chance to keep your monthly payments low because of the longer term.
15 year fixed rate mortgages take 15 years to pay off. These loans offer a lower interest rate than 30 year fixed rate mortgages, but your monthly payment will be significantly higher than the 30 year loan. Since more of your monthly payment will be going to the principal and less toward interest with a 15 year loan, you can build equity at twice the pace compared to the 30 year loan.
If you are planning on staying in your home for more than 5 years and want the security of a never changing mortgage payment, than a fixed rate mortgage is the way to go.
Reverse mortgages are available to customers who are 62 years old or older. These loans allow you to convert some of the equity in your home to cash without having to pay extra monthly bills or sell your home.
Basically, you get paid from the lender instead of you paying the lender every month. This extra money can be used to finance a, pay for healthcare, or pay off your current mortgage.
Generally, you don’t have to pay the reverse mortgage back for as long as you live in your home. The loan is repaid when you pass away, sell your home, or your home is no longer your primary residence.