Which Mortgage Should You Get?

Wanna buy a house?  Then you'll have to borrow some money.

But which mortgage is best for you? 

For your forever home, get a 30-year fixed-rate mortgage.

For a temporary home, get an adjustable-rate mortgage (aka ARM).

An ARM will have a lower interest rate and lower payments than a fixed-rate mortgage, which is what you want if you're definitely selling within 10 years.

Lower interest and lower payments sounds good.  So why not get an ARM for your forever home? 

Because the interest rate on an ARM "resets" after a short-time period.  For instance, a 10/1 ARM locks in that low-interest rate for 10 years.   After that, it adjusts every year based on interest rates at that time. 

Currently, interest rates are at all time historic lows and can only go up from here.  So whether your ARM resets or you refinance, you can bet you'll pay a much (much?) higher interest rate in 10 years.

If you find your forever home, lock yourself into a nice, long 30-year fixed-rate mortgage.  You'll take full advantage of these once-in-a-lifetime low-interest rates.

Talk to your financial planner before taking out a loan.  This stuff is more complicated than I'm making it and only your financial planner will be an objective third party (your mortgage guy earns a commission on your loan, which could be a conflict-of-interest).  

Don't have a financial planner?  Then check us out.  We're the only financial planning firm exclusively for young families.

DISCLAIMER: This publication is for educational purposes only and should not be considered financial, tax or legal advice. These statements have been simplified for illustration purposes. Consult your financial planner or tax advisor for help with your specific situation.