If you're ready to become a homeowner, the seemingly endless number of mortgage options may feel daunting. The conventional 30-year fixed mortgage remains a popular choice due to the low interest rate and stable payment. However, if you want to minimize your mortgage payments as much as possible, check out these alternative mortgage products.
1. Hybrid Adjustable-Rate Mortgage
A hybrid adjustable-rate mortgage starts with a fixed interest rate. The length of this introductory period varies based on the terms of the mortgage; typically, it lasts anywhere from one to five years. During this intro period, your payments are extremely affordable thanks to the low fixed interest rate.
After this intro period, the interest rate readjusts based on a stated index. Common indexes include the prime interest rate and Treasury Bill rate. Usually, your payments will increase once the interest rate starts to adjust.
This mortgage is a good choice for individuals who need a lower payment at the beginning of their mortgage. Thanks to these low payments, you can take steps to improve your cash flow so that you can afford the later payment increases.
2. Interest-Only Mortgage
If you don't plan on living in your home for the duration of the mortgage, an interest-only mortgage may be right for you. This product helps you minimize the amount of money that you put into your home.
You pay only the interest on your home loan for designated period of time. This period usually lasts between five and seven years; during this time, the amount that you owe on your home remains the same. After this period, a balloon payment is usually due that pays off the remainder of the mortgage. If you still own the home when the balloon payment is due, you may have the option of refinancing into another loan product.
For example, assume that you buy a home for $110,000 with an interest-only mortgage. The interest-only portion lasts for seven years. After living in the home for five years, you decide to move. Thanks to an increase in your city's home values, your home is now worth $125,000. You can sell your home, pay off your mortgage, and cover your selling expenses.
3. Pick a Payment Mortgage
The "pick a payment" mortgage is ideal if you want options when it comes to your monthly mortgage payment. This mortgage works well for individuals with a fluctuating income.
Payment options for this loan usually include a standard 30-year mortgage payment, an interest-only payment, and a minimum payment that does not fully cover the loan's interest. You can pick the payment each month that best fits your current cash flow. Be aware that if you opt for the minimum payment option, your mortgage balance will increase. Experts recommend using this payment choice as sparingly as possible.
For more information, contact a business like Dave Schell at Guaranteed Rate Mortgage.