Buying a home is perhaps one of the biggest financial commitments you’ll make in your lifetime. To make things more complicated, there are an array of mortgages to choose from when buying a home. So which one is the best for you?
That depends on your situation and needs. There are several factors to take into account when choosing between different types of home mortgages.
What Is A Mortgage?
A mortgage is a loan for the purchase of a home. When you purchase a home with a mortgage, you agree to make monthly payments over an extended period. The lender will agree to loan you a certain amount of money and in return, they will hold the title to your house as collateral until the loan is paid off.
Fixed Vs. Variable Interest Rates
One of the first things to look at when comparing mortgages is the interest rate. Fixed and variable rates are the two types of rates you’ll find on mortgages. A fixed mortgage will have a set interest rate throughout the life of the loan, whereas a variable mortgage has an interest rate that changes (often monthly) according to market conditions.
Fixed mortgages often offer lower monthly payments than variable mortgages, but they can also be riskier in situations where interest rates go up. Variable mortgage rates might seem higher initially, but they can help you save money if interest rates increase because your monthly payment will adjust automatically.
Adjustable Rate Mortgages (Arm)
One of the biggest considerations when buying a home is what type of mortgage you want. The two most popular types are fixed-rate mortgages and adjustable-rate mortgages (ARM). Fixed-rate mortgages offer stability. You can compute your mortgage rate through td mortgage calculator toronto.
The interest rates on ARMs tend to be lower, but they also fluctuate with the market. If you know you’ll need to sell your home quickly, this may not be the best option for you. You’ll have to do some research before deciding which type of home mortgage is best for you.
30-Year Fixed Mortgages
One of the most popular home mortgage options is a 30-year fixed mortgage. This type of mortgage offers stability and long-term affordability, which is perfect for those who want to plan and commit to their payment for up to 30 years.
Fixed mortgages offer a level monthly payment over the term, but they are also the most expensive due to their length. 30-year fixed mortgages are ideal for those who want to plan and know what their payments will look like for some time. They’re also ideal for those who can afford higher monthly payments to pay off the house as quickly as possible.
15-Year Fixed Mortgages
A 15-year fixed mortgage would be the best option for someone who is looking to take on a shorter-term loan but still wants to lock in their interest rate for the duration of the loan. If you have excellent credit and are planning on being in your home for at least 15 years, this type of mortgage will be your best bet. It also lowers your monthly payments significantly.
However, as you’re only financing your home over 15 years, you will end up paying more in interest than with other mortgage types. This can make it difficult for people with low or average credit scores to get approved for this type of loan.