25 Feb 2021

Mortgage Choice: A Home Loan Option for Several Financial Circumstances

Mortgage Choice: A Home Loan Option for Several Financial Circumstances



Homeownership is attainable, but it requires financing in most cases. The individual has more than one mortgage choice available to them. Depending on an applicant’s financial situation, a 30-year fixed mortgage is best. For others, the 15-year fixed home loan makes more sense.


Mortgage Choice Options

The most popular mortgage choice option is the 30-year fixed home loan. It gives the homeowner ample of time to pay it back. The trade off is the accrual of higher interest rate charges, which makes the loan more expensive. The second most popular mortgage is the 15-year fixed home loan. It delivers some opportunity costs because the monthly payment is larger. These two examples have their own pros and cons.

Another mortgage choice is the adjustable rate home loan. Here, the interest rate resets, which makes it a little unpredictable. Some quarters, your monthly payment makes a jump. Others, it goes down. You have to prepare yourself to follow the potential ups and down. At the end of the loan, the ups and downs may cancel themselves out, or they may not.

There are other mortgage options, too. They include interest-only, split and portable.


Understanding the Pros and Cons

Each mortgage option has pros and cons. The 30-year fixed mortgage is the most popular. Its monthly payments are more modest. A 15-year fixed home loan allows the homeowner to build equity faster. It leads to a long term savings because interest has less time to accrue. A 15-year fixed mortgage consists of a larger monthly payment. This presents an opportunity cost, which ties up your money.

For example: a growing family might opt for the 30-year fixed mortgage because they cannot tie up any extra funds. Those funds have other immediate uses like paying for school other necessities. 


What is Best for You?

The best mortgage choice for every household varies. It depends on each household’s current financial circumstances. The monthly payment of a $300,000 home loan with an interest rate of 4% changes based on its length. With a length of 30 years, it nets a monthly payment of $1,450. With a 15 year payback period, the loan nets a monthly payment of $2,200. The applicant needs to decide how the difference between the two options is best spent. Is there a comfort level high enough to put it toward the home? For some, yes it is. Others may decide that the difference is best used in a different manner. Individuals caring for aging parents may need access to those funds to cover healthcare costs.

Before submitting a mortgage application, there are plenty of financial tools to explore. Mortgage calculators allow you to input several factors, which sets realistic expectations. By conducting due diligence, an application is less likely to be denied. 


Mortgage Choice Conclusion

Purchasing a home is an attainable goal. Thanks to mortgage choice, there are several options available to most home buyers. Our Mortgage House team is ready to explore them with you.

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