What Other Options Besides A 30 Year Fixed?

Many first time homebuyers are under the assumption that the only and best program out there is a 30 year fixed rate mortgage.

In some case a long term 30 year mortgage will make sense. However by opting for a shorter term arm, they may be able to save thousands on the interest of the loan.

Mortgages are no different than many of the other facets of daily life. Feel free to ask questions! That's what a mortgage professional is there for. "What are my options?" is a fantastic question to ask. 30 year fixed rates are looked at as the number one option, but who knows? Perhaps a shorter term fixed rate fits your needs. Maybe an option arm with different payment choices each month makes sense for you. There are no stupid questions when it comes to the biggest investment of your life.

Borrowers who can afford higher payments and want to pay off their mortgage faster should consider a 15 year fixed mortgage. Borrowers who intend to keep the mortgage for a shorter time frame and want a lower interest rate should consider a hybrid adjustable rate mortgage in which the interest rate is fixed for a shorter period (3 years, 5 years, 7 years, 10 years). Borrowers who want lower monthly payments may consider an interest only loan, where only the interest accrued each month is paid. Option ARMs give borrowers the lowest monthly payments, but may result in negative amortization, where the loan balance grows each month.

One option to a 30 year fixed mortgage is the 15 year fixed. If you are able to make higher payments each month you could pay off your mortgage in half the time. One alternative to this would be to put the extra money into an interest bearing account. Within 15 years you would have enough money to payoff the 30 year with an additional $25,000 from added tax savings.

One of the most popular options for homeowners across the country is the minimum payment mortgage, available in both fixed and adjustable varieties. By allowing you to pay even less than the interest due each month, you can borrow $500,000 for as little as $1,264.00 per month, and you can pick and choose when and how much you pay to cover total interest or make payments directly to principal.

Many companies are now offering 40 and 50 year mortgages. These mortgages will have slightly higher rates in most cases, but will stretch out payments to ease the monthly costs. However, since the loan is over a longer period of time, the interest you will end up paying is significantly higher, so it is important to weigh the overall value of having a lower monthly payment if the cost is having to pay more dollars over time.

Another very popular feature is the "Interest Only" payment option on the traditional 30-year or 15-year fixed rate mortgage. A mortgage loan with the interest-only feature requires monthly payment of only the interest accrued for the prior month.

If borrowers are have discipline, they can get an option ARM and control their amortization schedule much better than a 30 yr fixed program.

Borrowers choose the 30 Year Mortgage because they want to pay down the principle. You have to consider that at the beginning of the loan, the payment is predominantly paying down the interest. Its not until the end of the loan where the majority of the monthly payment is being applied to principle. Have your mortgage consultant explain how the hybrid option arm can quickly build equity in your home for the first 5 years of the loan.

There are numerous loan options available besides a 30 year fixed mortgage. Many will provide a lower payment and allow you to qualify for a more expensive home. Contact a mortgage broker to determine the loan that is suitable for your needs.

» DISCLAIMER: The information contained in this article on 'What Other Options Besides A 30 Year Fixed?' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.