Before deciding if it’s the right time to buy your first home, you must be informed about certain aspects of mortgage. Keep in mind that when you request a loan you will sign a legal document that has the legitimate power to sell the house in case you don’t comply with the monthly payments.

The payment normally includes a principal payment and an interest rate. Property taxes and home insurance can be included in the payment. However, you can pay these directly to the insurance company and the County.

It is important that you stop and analyze your current situation and your future plans. The experts recommend that you do this exercise together with a loan expert. You must keep in mind many important aspects such as the amount of time you plan to live in your new home, your future income, and the possibility to make every payment on time in the event that your interest rate becomes adjustable.

Let’s take a look at the different types of mortgage that are currently available in the market:

Fixed Rate Mortgage
This is probably the most appealing type of mortgage, since it provides a stable interest rate and fixed monthly payments until the entire debt is paid, which generally extends to 15, 20, or 30 years. The disadvantage is that when interest rates go down, you will continue to pay the same amount unless you pay to refinance your home and change your mortgage terms.

1. Convertible ARM: is an adjustable rate mortgage which allows you to switch to a fixed rate mortgage, once you comply with the payments during the specified time period. The remaining payments will include a fixed interest rate that is somewhat higher than the one in the market.
2. Balloon Payment Mortgage: during the first five, seven, or ten years it allows you to have low fixed payments. When the specified time expires, you must make a single payment equal to the total remainder of the loan. To request this loan, you must be certain that you will have the large sum of money by the time your term expires.
3. Convertible Loan: some types of ARM offer a fixed interest rate for the first couple of years and then change to an adjustable rate that is in accordance with the market.
4. Two-Step Mortgage: is an adjustable rate mortgage that is adjusted only once in five or seven years. When the adjustment takes place, your interest rate will remain fixed for the remainder of the loan. The benefit is that during the first years you will enjoy a low interest rate (up to 3% less). Then, when you switch to a fixed rate it will increase to 6% or less, depending on the market.
5. Graduated Payment Mortgage: during the first years this type of mortgage requires low payments, which will gradually increase with time until they become equal to a fixed payment in the contract. If you believe you will benefit from the low payments, keep in mind that they only pay the interest and later you will find out that your debt has only decreased marginally.

One of the characteristics of the current mortgage market is that it has adjusted to fit clients’ financial situations. Thus, you will find different mortgage proposals that vary in name and form according to your credit profile.

Remember, the purchase of a home is a major step, and in some cases it’s the greatest investment a person can make in his entire life. This is why it is very important that you decide which type of mortgage best fits your needs.