By Linda Ungerleider
Feb 24, 2013
Q: I know there are lots of types of mortgages. How do I know which one is best for me?
A: There are mortgage products available for individual needs. Unlike a five-year car loan for example, at the end of the term (five, seven or 10 years) the fixed-rate paid for the period of term then becomes a variable rate with a cap on how high the interest rate can increase or decrease. The biggest mistake buyers make is assuming that the minute they close on a home they expect appreciation.
An important consideration buyers should make when choosing a mortgage is how long they plan to live in the home.
Often, first-time buyers plan on living in a home or condo for five years. In this case, a five- or seven-year mortgage would be most desirable. A 10-year mortgage would also be more desirable than a 30-year rate. A five-, seven- and 10-year interest rate are still amortized over a 30-year period of time.
If the buyer ends up living in the property longer than first considered, the buyer can refinance at that point for a 30-year rate as long as the property has remained stable and has not depreciated.
If the market goes down, the buyer needs to live in the property until the market regains normal appreciation. The market condition now is normal, stable and with interest rates at record lows, the buyer’s market is turning towards a seller’s market.
I never recommended a one- or three-year interest rate also offered by banks and mortgage brokers even though these rates are considerably lower. The short time span can make it more difficult to refinance, if necessary, or sell depending on market conditions at the time the term ends.
— Linda Ungerleider, ERA Property World, 203-231-3002