Articles & Information Resources The most obvious question that any person opting for a mortgage loan has is ‘Which is the right mortgage plan for me?’ However, it’s not very easy to answer this question, as choosing a mortgage loan is not as simple as finding the lowest interest rate.
First, you have to determine the length of stay in a home. That can often dictate the choice of your mortgage. For example if you anticipate that you will sell or refinance your home in 3-4 years, then, a 5/1 adjustable rate mortgage may be ideal. However, if you anticipate to live more than 10 years in a home, a 30 year fixed rate mortgage may be the loan for you.
Third, mortgages are risky. You have to assess your appetite for risk. Typically, shorter the fixed period of a mortgage (not to be confused with the mortgage term), smaller is the interest rate as compared to that offered on mortgages with longer fixed terms, however, this lower interest rate, typically referred to as ‘teaser rate’ carries the risk of resetting to a higher rate in the near future. For example, a 3/1 adjustable rate mortgage will typically have a higher interest rate than a 30 year fixed mortgage, however, the interest rate will reset after 3 years, whereas, the interest rate on the 30 year fixed mortgage will remain the same for the duration of the loan. Different mortgage terms also carry higher or lower mortgage payments. Mortgages with higher loan terms have lower mortgage payments as compared to those with lower loan terms, however, the total interest you pay over the life of a loan on mortgages with longer loan terms is far higher than that on loans with smaller loan terms. If you are risk averse, stick to a fixed rate mortgage, else, opt for an adjustable rate mortgage or a mortgage with an interest only option
