Oct 27, 2014
In February, Gladys Manion Real Estate reported on jumbo mortgages, and the news that their interest rates had reached a low unseen in the past two decades. A jumbo mortgage is an excellent home loan option, especially for anyone interested in buying luxury St. Louis real estate. Still, the jumbo mortgage is just one of many types of home loans available to homebuyers. Additional types include the popular 30-year fixed-rate mortgage, the 20-year fixed-rate mortgage, the 15-year fixed-rate mortgage, and the 5/1 adjustable-rate mortgage (ARM).
The go-to home loan for the majority of homebuyers is the 30-year fixed-rate mortgage. With this kind of mortgage, homebuyers have 30 years to pay off their loan, and over that time period, they will accrue interest at a fixed rate. With this type of home loan, homebuyers can be more flexible with their financial decisions knowing that their loan is free of interest rate fluctuations.
The 20-year and 15-year fixed-rate home loans are just like the 30-year fixed-rate mortgage, with the only difference being the loan duration. With a 20-year and a 15-year fixed-rate home loan, homebuyers will make higher monthly mortgage payments than with a 30-year loan. Though, with these higher payments comes the benefit of paying off the loan sooner.
Another type of home loan is the 5/1 adjustable-rate mortgage, or the 5/1 ARM. This type of mortgage has its benefits and potential disadvantages.
Homebuyers who choose the 5/1 ARM will see low monthly payments during the first 5 years of the loan. Once those 5 years are up, the home loan's interest rate is no longer fixed at a low percentage. It is then based on the prime rate, which can change every year. In addition, the interest rate for the 5/1 ARM can be subject to a 5% margin after the first 5 years. So, even if the prime rate is a certain number, the 5/1 ARM interest rate could be the prime rate plus 5 more percentage points, making for unpredictable interest accrual.
Whether to choose a fixed-rate or adjustable mortgage is entirely dependent upon the homebuyer's financial situation and future plans. Gladys Manion Real Estate is happy to provide you with reputable lenders to discuss mortgages with you to help you decide which type home loan is best for you.
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