As you are preparing to buy a home or refinance your current mortgage you will get bombarded with mortgage offers from lenders across the country. A simple search for mortgages online can leave you scratching your head and wondering what should I do.
I am a big believer in paying off your home as soon as possible. I am actively working towards this goal myself. When you don't have a mortgage on your home you can use that money to fund retirement and investment accounts, purchase rental property, etc.
Ok that said; let's dig into the information on mortgages. There are two basic types of mortgages: fixed rate and adjustable rate mortgages. Let's review each option.
The oldest and still most popular mortgage is the fixed rate mortgage. These mortgages feature a fixed interest rate and fixed monthly payments. These payments do not change over the years and are an excellent choice if you anticipate living in the home a long time.
Adjustable rate mortgages do just what they say they do. The interest rate changes up or down after set time intervals. The mortgage documents should be carefully read, Be sure that you understand the rate adjustments, caps, and adjustment intervals.
A variation on the adjustable rate mortgage is the interest-only mortgage. This mortgage works on the same premise as the adjustable rate mortgage except for the payments are interest-only with no credits to the mortgage balance.
Adjustable rate and interest-only mortgages are not considered to be wise choices by many financial experts. Some experts do recognize that these mortgages serve a purpose, particularly if you only plan to live in the home 5 years or less. Online tools like mortgage comparison calculators help you in the planning process.
Final Remarks
Those who have an adjustable rate mortgage and need to refinance to a fixed rate mortgage can use a mortgage refinance calculator to illustrate what to expect when you refinance your current mortgage.
