Mortgage Programs: Reviewing the Positive and the Negative

One important step in the home loan process is choosing a mortgage program. It is advisable to select a program that you are comfortable with, as this will affect your interest rates and monthly payment. The right choice, of course, will depend on both your financial goals and risk profile. It is best to review the key features and the pros and cons of each loan to make a sound decision.

Fixed-Rate Mortgage

Mortgage companies in Orem say this is a common mortgage program with the least amount of risk. As its name suggest, a fixed-rate mortgage has a constant payment (will never increase or decrease) over the life of the loan. The main concern for this program is that if the interest rates decrease, you are stuck with the same rates and payment. Refinancing will be necessary to take advantage of the low rates. Many borrowers, however, prefer the certainty of this loan program.

Adjustable Rate Mortgage (ARM)

The rates for ARM can change over the life of the mortgage. During the initial period of the loan, an ARM has a low fixed rate, which will then change or adjust after the introductory or teaser period. Many borrowers choose this program because when interest rates go down in the future, the same would happen to their monthly payments. The thing is, however, there is also the risk of increased payments if the interest rates increase.

Interest Only Mortgage

This is the least common mortgage program with a high degree of risk. For a certain period, you will only pay the interest without the principal. After this, you will need to pay the interest and the principal, with the home loan turning into ARM. The downside is that your interest rates and monthly payment can go up. When you start paying for the principal and interest rate (with the risk of increased rates in the future), your payment could go up more after the initial interest-only period. Your decision on a mortgage program will depend on your specific situation. What you think of the certainty/uncertainty of interest rates will also play a part. If you think rates will increase, you may want to choose a fixed-rate loan. If you think rates will decrease, an ARM may be a good choice. Note, however, that it is difficult to predict the movement of interest rates. Get in touch with a reliable lender to help guide your decision.