Explore Your Options
Choosing the right mortgage is about finding the perfect match between your numbers and the available mortgage options (and there are frequently more options than you’d think!) Here are some of the numbers you might want to know.
For most people, a mortgage is typically 30-year fixed with the lowest interest rate and a 20% downpayment.
That’s not the only option.
But it can be tricky to weigh the pros and cons of the multitude of options, and nearly impossible to compare apples to apples. Many of your choices have a compound effect; and not everyone will qualify for every option.
Meet Our Potential Buyer: Joe
He’s looking at a $400,000 home and trying to understand what option suits him.
Follow along as we take him through several different scenarios to better understand how he can make the best choice for his future.
Scenario 1:
Joe is looking for a 30-year loan with the lowest interest rate
Interest Rate:
7.89%
$2897 / month
Total Interest Paid Over 30 Years:
$561,716.00
Interest Rate:
7.8%
$2870 / month
Total Interest Paid Over 30 Years:
$549,732.00
Interest Rate:
7.7%
$2842 / month
Total Interest Paid Over 30 Years:
$537,682.00
What to Consider about Choosing the Loan with the Lowest Interest Rate
Monthly payment will vary over time due to tax increases.
Benefits to 30-Year Fixed:
Fits comfortably in budget
Joe is familiar with this type of loan
Drawbacks to 30-Year Fixed:
High interest cost over life of loan
If he sells in 10 years, he hasn’t built up much equity in the home
Bottom line: You don't get enough bang for your buck just shopping interest rates.
Scenario 2:
Joe can lower his interest paid out, which is fixed at 7.7%, by changing the term of his loan.
Loan Type:
20-year Fixed
$3018 / month
Total Interest Paid Over 20 Years:
$326,925.00
Loan Type:
15-year Fixed
$3546 / month
Total Interest Paid Over 15 Years:
$293,148.00
Loan Type:
10-year Fixed
$4191 / month
Total Interest Paid Over 10 Years:
$329,950.00
What to Consider about Choosing the Length of Your Loan
Monthly payment will vary over time due to tax increases.
Benefits to Shorter Loan Term:
Lower interest cost over life of loan
He will make more money selling his house if he does so in 10 years
Drawbacks to Shorter Loan Term:
Higher monthly payments may squeeze Joe’s budget
The adjustable means…
Bottom line: You can lower the total amount of interest you’ll pay by shopping different loan options.
ARM Loans (Adjustable Rate Mortgages)
ARM loans are a type of mortgage that often starts with a lower initial interest rate than fixed-rate mortgages. These loans typically have an introductory period, which can last for 5, 7, or 10 years, during which the interest rate remains fixed. After this initial period, the interest rate may adjust periodically, usually annually, based on a specific financial index.
The adjustment is subject to rate caps, limiting how much the rate can increase during each adjustment and over the life of the loan. ARM loans can be a suitable option for those who plan to move or refinance before the initial period ends but need consideration due to the potential for future rate increases.
Scenario 3:
After settling on a 20-Year Fixed at 7.7%, Joe is wondering how much money to put as a downpayment.
Downpayment Percentage:
20%
$2712 / month
Total Interest Paid Over 20 Years:
$251,250.00
Downpayment Percentage:
10%
$3040 / month
Total Interest Paid Over 20 Years:
$329,610.00
Downpayment Percentage:
5%
$3220 / month
Total Interest Paid Over 20 Years:
$339,610.00
What to Consider about Choosing Downpayment Amount
Benefits to Higher Downpayment:
If Joe decides to sell in 10 years (the average length of time in a home), he has more equity in the home
Lower monthly payments
Benefits to Lower
Downpayment:
Keeps more money in Joe’s pocket initially for move-in expenses
Bottom line: Selecting the right downpayment is a balance, you might not want to automatically put 20% down.
No Closing Cost Mortgages
With a no closing cost mortgage, you can avoid paying upfront fees, such as application, appraisal, or title fees, which are typically associated with obtaining a home loan. Instead, these costs are often rolled into the loan amount or covered by your lender.
This can make homeownership more accessible initially but it's essential to understand that you may pay slightly higher interest rates or have a slightly higher loan balance as a trade-off. Call your trusted lending advisor today to determine if a no closing cost mortgage is right for you.
Specialty Loan Types
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FHA Loans (Federal Housing Administration Loans)
FHA loans are loans from private lenders that are regulated and insured by the Federal Housing Administration (FHA). FHA loans differ from conventional loans because they allow for lower credit scores and down payments as low as 3.5 percent of the total loan amount.
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VA Loans (Veterans Affairs Loans)
A VA loan is a loan program offered by the Department of Veterans Affairs (VA) to help servicemembers, veterans, and eligible surviving spouses buy homes. The VA does not make the loans but sets the rules for who may qualify and the mortgage terms. The VA guarantees a portion of the loan to reduce the risk of loss to the lender.
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USDA Loans (US Department of Agriculture Loans)
The Rural Housing Service, part of the U.S. Department of Agriculture (USDA) offers mortgage programs with no down payment and generally favorable interest rates to rural homebuyers who meet the USDA’s income eligibility requirements.
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Jumbo Loans
Jumbo loans are used for higher-priced homes in more expensive housing markets, making them common for buyers in these areas.
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Home Equity Loans and Home Equity Lines of Credit (HELOCs)
A home equity line of credit (HELOC) is a line of credit that allows you to borrow against your home equity. Equity is the amount your property is currently worth, minus the amount of any mortgage on your property. Unlike a home equity loan, HELOCs usually have adjustable interest rates.
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Reverse Mortgages
A reverse mortgage allows homeowners age 62 or older to borrow against their home equity. It is called a “reverse” mortgage because, instead of making payments to the lender, you receive money from the lender. The money you receive, and the interest charged on the loan, increases the balance of your loan each month.
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Construction Loans
A construction loan is usually a short-term loan that provides funds to cover the cost of building or rehabilitating a home.
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Interest-Only Loans
An interest-only mortgage is a loan with scheduled payments that require you to pay only the interest for a specified amount of time.
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Bridge Loans
A bridge loan is used when homeowners need to purchase a new home before selling their current one, which is common during the transition between homes.
Want to Know More?
Our experts are here to help you navigate your mortgage options. And we can do it without your sensitive data, credit checks or completing a mortgage application before you’re ready. Let us know how we can best support you by clicking below.
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