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Fixed-Rate or Interest Only? Find the Right Mortgage

Gabriel Traverso
LoanBiz Columnist

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Not all new home loans are the same. What's right for someone else may not fit your needs. Consider your new home loan options carefully before making a decision on your mortgage.

The Traditional Fixed-Rate Mortgage vs. Interest-Only Mortgages

Old is new again--the fixed-rate mortgage is a top new home loan pick for today's homebuyers. With this mortgage you get a set interest rate that doesn't change over the life of the loan, which makes it easier to budget. If you have a stable income with no raise in sight then it's probably smart to choose a fixed-rate loan. That eliminates the possibility that your payment will increase faster than your income.

So when might the interest-only mortgage make sense? The interest-only mortgage can let buyers skip that "starter home" step and move into the house they really want. If the homebuyers have good reason to believe they'll be able to afford a more expensive home within a few years, they might opt to buy it now. Considering what it costs to sell a home and move, this could be a smart way to go. 

Additionally, if your income is sporadic (sales, seasonal, or self-employed), or if you're expecting a lump sum soon, the flexibility of an interest-only mortgage could make it right for you. Just remember to pay down your principal when you're flush, and choose the interest-only option when you're strapped.

Sources:
FDIC
HSH Associates


About the Author
Gabriel Traverso is a freelance writer, professional musician, and artist. He resides with his family in Reno, NV.

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