Choose the appropriate home and mortgage program!
Your life is constantly changing. You may find yourself moving because you were offered a better job opportunity, got married and had children, or have found your dream house at the beach now that you are retired. These are just a few examples that illustrate how with each life stage come different needs, and your priorities today may require different living arrangements than those from a few years ago.
Before getting into a mortgage program to finance your home, it’s important to consider every situation. Traditional loan solutions aren’t always the best! When does an Adjustable Rate Mortgage or a long-term Balloon make more sense?
When does an Adjustable Rate Mortgage or a long-term Balloon make more sense?
A 30-year fixed rate loan is not always the best option. Chances are that you won’t live 30 years in your next home. You’ll either sell it or keep it as an investment. In which case, the chances of you wanting to keep the same mortgage without refinancing are very low.
The price of your peace-of-mind
The interest rate on a 30-year fixed – and therefore its monthly payments – is normally higher than an Adjustable Rate Mortgage (ARM) or a Balloon Mortgage. While a 30-year fixed can provide peace of mind with predictable monthly payments, it may come at a higher cost.
Purchasing power – The lower monthly payments of an ARM or a Balloon Mortgage will help you buy a home that you couldn’t afford if you opted for a fixed-rate loan. This can be especially beneficial if you’re a first-time homebuyer or are looking to upgrade to a larger home.
Faster pay-down and savings – Applying the difference between the lower payments of an ARM or Balloon Mortgage and the higher payments of a 30-year fixed loan towards the principal can help you accelerate the term of the loan and result in tremendous savings in interest payments over the life of the mortgage.
Changing terms – If you choose a 30-year fixed loan for peace of mind, but sell or refinance your home before the end of those 30 years, you’ll be paying needless extra interest and monthly payments. With an ARM or Balloon, you have more flexibility to adjust your mortgage terms as your needs change.
Market rates and life-stages change
Interest rates fluctuate, and if you decided not to sell your home, there may be situations when, even a 30-year fixed should be refinanced, incurring you the expenses of a new interest rate and closing costs.
Rates drop – If rates fell dramatically and were lower than your 30-year loan’s, you’d refinance. On an ARM, when the initial term is over, your rate will lower automatically, potentially saving you money without the need to refinance.
Rates go up – If rates go up and the initial term of your ARM ends and it’s time for the rate to adjust, you can evaluate if it’s time to sell the property, pay the 2% increase for one year, or refinance to keep the property for at least 5 more years.
Cash out – Life circumstances may require you to use the equity you have built in your home to pay for your kids’ education, home improvements, a down payment on a bigger house, debt consolidation, etc. An ARM or Balloon Mortgage can provide the flexibility to access that equity when needed.
More income – 15 years from now, it is highly probable that you will have a higher salary (or even dual income) giving you a much larger purchasing power than the one you had when you bought your first home. At that point, you could purchase a home more adequate to that stage in your life –and your means– or obtain a new loan with advantageous terms.
Considering Your Unique Situation
When choosing a mortgage program, it’s essential to consider your unique circumstances, including your long-term plans for the property, your financial situation, and your risk tolerance. An Adjustable Rate Mortgage or a Balloon Mortgage may be a better fit than a traditional 30-year fixed loan, depending on your specific needs and goals.
Conclusion
Navigating the world of home financing can be complex, but by understanding the pros and cons of different mortgage programs, you can make an informed decision that aligns with your current and future needs. Whether you’re a first-time homebuyer or an experienced real estate investor, taking the time to explore all your options can help you choose the appropriate home and mortgage program that will serve you best throughout the various stages of your life.
Resource Center
Related Blogs
Free up some cash for the holiday season with OAS FCU
11/01/2021 Terry Inskip
We have several options that can provide you a bit of extra cash for the holiday season!
Virtual appointments with OAS FCU
02/01/2021 Terry Inskip
Here’s how to use the new virtual appointment service from the Credit union.
A tax deduction for new cars: What you need to know
11/05/2025 Terry Inskip
If you are thinking about buying a new car in the future, there is a new car loan tax deduction that could make the decision a little easier—and a lot more affordable.
Buying a car in 6 steps
10/23/2018 Patricia
Buying a car requires research. That’s why we’re here to help you figure out the important things, ensuring that you get the right set of wheels at the right price.
Sign Up for Updates & Insights
Be the first to know when we have a new insight or resource posted!
Article Title