What Type of Mortgage Is Right for You?
If you are planning to buy a home or a commercial property for a business but you are unsure what your options are, you need to do some research before you actually start looking at possible properties. You want to have a clear idea what will be affordable for you, and if you are buying a business property, what will be profitable and won't end up being a black hole endlessly sucking away your profits. You want to take into account the monthly payment, but affordability (or profitability) doesn't end there. You also want to take into account interest rates and how they affect what you pay over the lifetime of your loan.
There are a wide variety of mortgage options out there. For a home that will be your primary residence, the traditional loan is a 30-year mortgage with a fixed rate of interest and a 20% down payment. However, if you do not have enough money saved for that down payment, or if your income is on the borderline, you may be able to get a loan if you accept and adjustable rate mortgage (ARM), which allows the lender to accept borrowers who represent a higher risk.
Some mortgages may require balloon payments at the end of the loan. These arrangements make it possible to have lower monthly payments over the life of the loan, but borrowers almost always have to take out another loan at the end in order to cover that balloon payment, which means more years of monthly payments, not to mention the additional closing costs associated with the second loan.
Some mortgages offer low monthly payments for the first few years of the loan, often by using a "teaser" interest rate that is artificially low or by offering an interest-only payment option. Many borrowers get into them based on the hopes that their income will go up during that period (either by regular raises or by changing jobs), but if the increased income is not forthcoming, they can be in for a very unpleasant surprise when their monthly payment suddenly takes a major jump. However, someone who knows they will be occupying a home for only a few years and wants to build equity instead of just paying rent may find an artificially low introductory interest rate a good option. Similarly, a person who is buying houses to rehab and resell may find an interest-only loan a way to finance their business.
Just as there are a wide variety of loans for homes, there are also a wide variety of commercial loans that will enable you to buy a business property. Some of them may offer low introductory rates to help you through the first few years at a new location until you can get your cash flow smoothed out. Balloon payments are more common in commercial loans than in home finance, since many businesses figure on trading up to a better location before the end of the loan.
Whatever kind of loan you are looking for, you need to make sure to consider all the options available to you before locking yourself into any particular type of mortgage. You may want to avail yourself of the services of a mortgage broker to help assure that you can get the best possible deal on your mortgage.
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