When financing a house with a mortgage, it’s normal to wonder what the best loan option is. Some believe that mortgages with low rates are the ideal choice, but this is not always the case. The right loan will depend on your individual situation and a number of other factors. You need to determine how much loan you can afford, while also considering your income and savings.
Money for Down Payment
You may be able to take out a mortgage with little to no down payment, but this may come with private mortgage insurance (PMI). This money protects the lender in case you default on the loan. PMI eventually goes away as you pay the mortgage and build enough equity. You can entirely avoid this if you can pay at least 20% down payment. This is also a requirement in most conventional loans.
Plan to Keep the Home
The right loan will also depend on how long you plan to stay in the house. An adjustable-rate mortgage (ARM), particularly a hybrid one, is ideal if you don’t intend to keep the property for many years. If you, however, plan to live in the house for many years or forever, a fixed-rate mortgage is a great choice. Primary Residential Mortgage, Inc. and other mortgage lenders in Oregon note that this offers stability, as the rates will remain the same throughout the life of the loan.
Income (for Monthly Payments)
Most loans are payable within 15 or 30 years. A 15-year fixed mortgage has more expensive monthly payments than a 30-year mortgage, as you’ll be paying the house sooner and building equity quickly. The total amount of interest paid over time is also lower. The expensive monthly payment is one of the many reasons borrowers choose a 30-year loan. This has lower monthly payments, but has a bigger total amount of interest over the life of the loan.
The right mortgage will depend on a number of factors. A home affordability calculator will give you an idea or estimate of how much home you can afford. You should also talk to a reliable lender to know more about your options, as well as loan qualifications.