Additionally, if you don't have six or more months of financial padding to fall back, you may be better off with the lower monthly payment available on the thirty-year loan. A mortgage lender will be glad to pencil out the options for you using various payment schedules. If you find that the 30-year loan suits you best, ask the lender if prepayments are allowed to reduce the principal. This can cut years off the loan, especially when applied early on in the mortgage. Since we think adjustable rates look good, we're considering using an ARM to finance our new home.
Caps can apply to either the maximum amount of interest charged, a ceiling on the payment, or both.
Make sure you're aware of the caps for the loan you apply for. Statistically, ARMs may make the most sense for short-term ownership. This is because you can usually find initial interest rates well below those of fixed-rate loans and sell the property before any substantial payment increases can occur. The lender will be glad to show you what each loan considered will cost you. Third, shop for the best overall program.