You'll be paying your mortgage for 15 years or more, so it's important to select the right mortgage for you. When considering different types of mortgages, look at the total cost throughout the years. Some companies will lure you in with lower monthly payments, but the mortgage ends up costing more in the long run.
Fixed Rate Mortgage
A fixed rate mortgage is the most popular type of mortgage—the Lendersmark Financial Network states that almost 70 percent of mortgages are fixed rate. It's a "safe" option because there are no surprises. You will pay one monthly payment amount for the lifetime of the loan. If your income increases or you become more frugal, you can pay more money toward the loan to pay it off more quickly. You can get a fixed rate mortgage with a 15- or 30-year term.
Variable Rate Mortgages
In a variable rate mortgage, you pay a lower interest rate initially—resulting in lower monthly payments—but that rate increases after a certain period of time. In some cases, the new monthly payment can be so high that you struggle to pay it. This type of mortgage might be for you if you don't expect to live in your home for a long time. It can also be good if you expect a dramatic increase in income later on, but have a lower income now.
Certain organizations like the Veteran's Administration and the Federal Housing Agency insure mortgages through lenders. The lending standards on these types of mortgages are a bit looser than those from traditional lenders. For example, you may be able to get a loan with a smaller down payment. This can be a smart choice if you can afford monthly payments but are struggling to save for a down payment.
Most lenders will only loan you money up to the current value of a home. A fixer-upper home can be a good bargain, but you may not have the money that you need for repairs. A traditional lender doesn't want to lend you additional money because the home isn't worth it. Through a 203K mortgage—which is insured by the Federal Housing Administration—you can get a loan to cover the cost of the home and the cost of your repairs. A special 203K contracting consultant will estimate the value of the home after you make the repairs, and the loan will be based on this estimate.
Maggie McCormick is a freelance writer. She lived in Japan for three years teaching preschool to young children and currently lives in Honolulu with her family. She received a B.A. in women's studies from Wellesley College.