Home Mortgage Types

With interest rates at record lows, now may be a great time to apply for a home mortgage. If this is your first time buying a home, the different types of home mortgage on the market might be confusing. Here is a guide to the two most common types of home mortgage, fixed rate and adjustable rate mortgages.
The interest rate and monthly payment amount for fixed rate mortgages do not change over the course of the loan. Whatever rate you pay at the start of the loan, that is the exact same rate you pay until the end of the loan. Lenders usually charge marginally higher interest rates for fixed rate home mortgages as security against times when interest rates rise. This slightly higher interest rate is a premium you pay for the security of a fixed rate.
On the other hand, the interest rate for adjustable rate mortgages "adjusts" as national interest rates rise and fall. Your interest rate and mortgage payments are higher when national interest rates are higher, and drop when national interest rates fall. Because this kind of mortgage is less risky for banks, they set the interest rates for adjustable rate mortgages slightly lower than they do for fixed rate mortgages. They also offer a grace period, typically 36 months to seven years, during which your interest rate does not fluctuate and is locked at an appealingly low rate.
Which one is best for you? Avoid immediately being swayed by the lower rates offered by adjustable rate loans. Consider how long you plan to keep your house and whether rates are likely to go any lower. If you are buying a house during a period of record high interest rates, an adjustable rate mortgage is an excellent idea, since its likely that rates will go down. If you plan to resell your house within the grace period of an adjustable rate mortgage, then opting for an adjustable rate mortgage would be an economical way to get a low cost, short term loan. However, if you plan to stay in your house for a long time and national interest rates are low, then "locking in" a lower interest rate with a fixed rate mortgage may be your best move.
Consider not only your own financial condition, but national trends in interest rates, when you choose a home mortgage. Both kinds of home mortgage can offer you an excellent deal in the right economy.