To help determine the best loan program for you, consider the following:
How important is payment certainty? If knowing that your payment will be the same every month is important, consider a fixed-rate mortgage.
How important is rapid equity buildup? If rapid equity buildup is a factor, consider a shorter amortization period, such as a 15-year, fixed-rate mortgage.
Do you anticipate increasing or stable income? If income growth is anticipated, you could take advantage of a lower start rate on an ARM.
Other factors to consider include:
Ability to qualify at market rates for loan amount selected
Anticipated term of occupancy
Possibility of significant rate changes
Existence of up-front costs
Loan Programs
15 and 30 Year Fixed-Rate Mortgages
Interest rate does not change
Principal and interest (P&I) does not change
Fixed-rate mortgages fully amortize over a defined period of time and are paid in full at the end of the loan term
Different loan terms are available (15 and 30 year terms are most popular)
The shorter the term, the faster equity is built and the loan is paid off
Adjustable-Rate Mortgages (ARMs)
There is potential for the interest rate/payment to fluctuate
ARMs transfer to borrowers a portion of the risk associated with a changing economy
In exchange for sharing the risk, ARM offer borrowers initial interest rates that are substantially lower than fixed-rate mortgages
The lower interest rate may help borrowers qualify more easily; qualifying factors may vary