Fixed-Rate or Interest Only? Find the Right Mortgage
Gabriel TraversoLoanBiz Columnist
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.
