What Type of Mortgage Is Best for You?

Buying a home can be an exciting time for a family. However, the complexity of the process can sometimes make getting a mortgage frustrating. For one, there are many different types of mortgages to choose from. To help clear up some of the confusion, below is an overview of some of the most popular mortgage types.

Conventional Mortgage

The first option you should consider is a conventional mortgage also sometimes referred to as a conventional loan. This is a mortgage that is not tied to backing from a government agency. 

Instead, these kinds of mortgages are provided through a private lender such as a bank, credit union, or mortgage company. An exception to this rule would be conventional mortgages that are guaranteed by the government-sponsored entities, Freddie Mac and Fannie Mae. 

If you have a good credit score, a conventional loan may be the best choice due to the control and choice you will have in the market.

Government Backed Mortgage

On the other hand, you may want to consider home loans that are indeed backed up by government agencies. This can be an excellent choice if you have poor credit or are in some kind of situation in which making the down payment would be difficult. 

Examples of government agencies that provide such loans include the FHA, VA, and USDA.

Fixed Rate Mortgage

Another popular choice is the fixed-rate mortgage. As the name suggests, this is a home loan in which the interest rate paid on the loan does not change during the loan's lifetime. 

The great thing about fixed-rate mortgages is there will be no mystery regarding what you will pay each month. The downside is, if economic conditions change during the lifetime of the loan, you may end up paying more in interest than you would have otherwise.

Adjustable Rate Mortgage

Alternatively, adjustable rate mortgages, sometimes shortened to ARM, have an interest rate that varies based on changes to an index or benchmark. 

In most cases, this usually results in paying less in interest rates in the short term and higher interest rates in the long term. If the term of the home loans are shorter, the borrower may end up saving money. 

Thankfully, there is typically a cap on how much the interest rate can inflate over the year.

Overall, don't rush into choosing a mortgage. If you take your time, you may be able to find a loan that is much better for your situation. 

However, if you rush into the process, you may end up paying more in interest and have to deal with other issues you wouldn't have if you had performed more research.