You want to buy a house. But, there are two important questions you should ask yourself before you decide on any type of mortgage.
How long do I plan to stay in this house?
How much money can I put down on the purchase?
Your answers to these questions can help determine the best mortgage for your short-term financial situation and long-term outlook.
Most home owners stay in their home less than 10 years. Buyers who do not plan to stay in their homes very long should consider a Two or Five-Year Adjustable Rate Mortgage (ARM). ARMs generally have lower initial rates than fixed rate mortgages. If a buyer knows they will likely own the home for a shorter period of time, the ARM they choose may have a lower average interest rate over the life of that loan when compared to a fixed rate mortgage during the same time period. Borrowers, who plan to remain in their homes for a longer period of time, generally more than seven years, may want to consider the traditional fixed-rate mortgage.
The amount of money you have available to put down on your home can impact your mortgage options and costs. It can also influence your decision on what home you are able to afford. One cost is Private Mortgage Insurance (PMI) which is insurance that protects the lender if you stop making payments on your loan. With an ARM, PMI is not required unless you borrow more than 90% loan to value, but with fixed-rate mortgages lenders typically require PMI when you borrow more than 80% loan to value. PMI is a cost that does not go towards the principle or interest payment of your loan. So, if you want to avoid PMI and have less to put down on your home, an ARM may be the right choice for you. Choosing an ARM may also allow you to buy more home with less money down.
The answers to each questions may not always be as easy as a “yes” or “no.” But your trained credit union lending team that can help explain the advantages of each mortgage option when it comes time for you to decide which one makes the most sense for you. Give us a call when you are ready to get started and we’ll help you figure out your best option.