Shopping for the Right Mortgage

Following this advice can help you find the loan that meets your needs

interest in the first years of the loan. Allows borrowers to qualify for a higher loan amount than with a 30-year or 15-year fixed-rate mortgage.
Disadvantages: Monthly payments can increase significantly if rates rise, although most adjustable-rate mortgages have annual and lifetime interest rate caps.
Who should consider this type of mortgage: Good for those who know their income will increase over the coming years or those who are moving in a few years and aren’t concerned with a rate hike
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40-Year Fixed Rate
Benefits: Allows buyers to reduce their monthly payment and qualify for larger loans than with a 30-year or 15-year fixed-rate mortgage. Principal and interest payment remains the same over the life of the loan. Lender assumes risk of rising interest rates.
Disadvantages: The balance of the loan is paid off very slowly, and borrowers pay much more interest than with a 30-year or 15-year fixed-rate mortgage.
Who should consider this type of mortgage: Can help buyers in higher priced regions qualify for a larger mortgage, but the amount by which the monthly payment is reduced is often not very significant, compared to a 30-year fixed-rate loan.

Interest Only
Benefits: Lower initial payments. Allows borrowers to qualify for a higher loan amount than many other types of mortgages.
Disadvantages: Initial payments do not reduce principal. After the interest-only period, payments can rise significantly when principal payments kick in and the interest rate is adjusted.
Who should consider this type of mortgage: May be used by buyers who do not plan to stay in the home longer than the initial interest period and who have a tolerance for risk. If the home decreases in value, the owner is more likely to end up owing more than the home is worth.

Negative Amortization
Benefits: Allows for much lower monthly payments than many other types of mortgages and can help buyers qualify for higher loan amounts.
Disadvantages: The monthly payment is less than the amount of interest owed on the loan. The unpaid interest is added to the loan’s principal amount, increasing the total amount owed. The home must appreciate considerably to realize a gain or to break even at sale.
Who should consider this type of mortgage: Helpful for buyers who have considerable financial assets and would prefer to invest their money in other vehicles and can tolerate risk.

Option Payment Adjustable Rate
Benefits: Gives buyers flexibility in payments from month to month. Buyers may make a minimum payment, an interest-only payment, or a payment calculated to pay off the loan over either 30 or 15 years.
Disadvantages: If buyers make minimum payments, there will be negative amortization, which means the total amount of the loan will increase.
Who should consider this type of mortgage: Useful for buyers who are disciplined with their finances and for those with incomes that fluctuate from month to month (salespeople on commission, for example).

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