3 Common Types of Mortgages

Home ownership is both exciting and rewarding! Whether it be your first home, an upgrade into your dream house, or reassessing your existing loan terms, there are decisions to be made and situations to think through before selecting the best mortgage loan. Most people cannot purchase a house without financing, so knowing about the different types of mortgages before getting too deep into the process can help you immensely. Below are a few pros and cons of the three most common types of mortgages.

1. Fixed Rate Mortgage – Typically a 10-, 15-, 20-, or 30-year loan with an interest rate that will not change over the loan term.

   • Pro – A variety of terms to fit your budget and a predictable monthly payment.

   • Con – These loans generally have additional up-front costs and could also have a higher interest rate compared to other loan types offered by WESTconsin. These long-lasting loans mean you could be paying it off for the next 10 to 30 years.

2. Adjustable-Rate Mortgage (ARM) - ARM loans generally offer lower fees and interest rates during the initial term of your loan with an interest rate that is fixed for 5 to 7 years, and then adjusted thereafter according to the market.

   • Pro – Rates could decrease over time, which means you may be able to pay more principal every month. ARM loans have “protections” in place which limit how much your loan’s interest rate can increase and have maximum interest rate caps.

   • Con – Your monthly payment may fluctuate on an annual or semi-annual basis, making long-term planning a little more difficult.

3. Refinance – If you already have a mortgage loan and interest rates drop or you want to access your home’s equity, you may consider refinancing to take advantage of a lower rate or to receive cash out.

   • Pro - Lower your monthly payment or pay off your loan sooner with a reduced loan term, or access funds from your home’s equity and receive cash out.

   • Con – Before refinancing, consider the closing costs for the new loan and if an appraisal will be needed.

As with all large financial decisions, we recommend doing your research and consulting with an expert before making any commitments. Whether you are a first-time homebuyer or looking to refinance, our lenders are here to help. We welcome you to contact one of our knowledgeable Mortgage Loan Originators today.