In today’s economy and housing market, many individuals may feel discouraged by ideas that loans are only limited to certain individuals and carry extensive financial pressure. While the decision to purchase a house with the financial assistance of a home loan is a major one, it is also a practice that can prove rather helpful if approached with the right amount of education on the subject.
Vahe Hayrapetian is one professional who has worked in the home financing business for many years and understands how to help his clients obtain the type of financing that is right for them. Through his experience, Hayrapetian highlights the popular options of adjustable rate mortgages and fixed rate mortgages.
Adjustable Rate Mortgages
Although the decision to buy a home is one of the most significant purchases a person can make during his or her lifetime, it does not always mean that the buyer intends to live in the property forever. Adjustable rate options are ideal for those individuals who are looking to purchase a starter home or plan to move within seven years after buying the home. Since the length of the term of a home loan correlates to the overall cost of the loan, short-term buyers often benefit from the extra affordability offered through adjustable rate mortgages.
As the title suggests, adjustable rate mortgages will fluctuate throughout the extent of the loan, based on market conditions. Some of these mortgages are determined on an annual basis, meaning that the rate is recalculated each year. In rare instances, some buyers may prefer and qualify for a monthly adjusted rate that can often lead to lower interest rates under certain market conditions.
However, many find the annual approach unpopular, and prefer the factors provided by hybrid adjustable rate mortgages. These plans allow the borrower to accept a fixed monthly payment for a pre-determined amount of time, meaning that they may not become subject to fluctuating rates that an annual plan could entail. However, after the initial repayment term has expired, the borrower will enter into an annual adjustable rate mortgage.
These plans vary depending on the qualifications of the buyer, which means that the length of the initial repayment could prove different for several applicants. However, those who are purchasing with short-term intentions generally experience lower interest rates when compared to what they would have received through a fixed rate mortgage.
Fixed Rate Mortgages
For those that plan on living in their “dream home” forever, or for an extended period of time, the fixed rate mortgage plan may offer better consistency for the individual in terms of repayment. The appeal of fixed rate mortgages is that they offer a steady interest rate for repayment that will not vary over the years in the face of fluctuating market conditions. These mortgages are available to borrowers under terms that last either 15 or 30 years. However, considering that these plans offer a consistent repayment option with no interest rate fluctuation, most prospective home owners opt for the 30-year plan.
While the nature of a fixed rate mortgage is appealing to long-term homeowners, they are more difficult for individuals to qualify for when compared to that of an adjustable rate mortgage. However, those with stable credit who desire to purchase a home for more than seven years will want to explore the fixed rate option first, especially if their decision to buy occurs during a time of low interest rates.