Managing Mortgage

With the interest rates going up all the time, I thought I’d de-mistify mortgages today!  I remember when we got our first mortgage back in California, I was so nervous!  I thought they’d want a ridiculous amount of paperwork from me (I just had to SIGN a ridiculous amount of paperwork).  So I’m going to break down the different types of mortgages, so it’s not so scary.

The first and probably best mortgage to get for your house is the Fixed-Rate Mortgage.  This means that your interest rate, and more specifically your PAYMENTS will not change for the entire life of the loan (usually 15 or 30 years).

Next is an Adjustable Rate Mortgage.  Usually this mortgage will have an inital period of fixed ratedness, and then start adjusting.  The only way you would want this mortgage is if you are planning to sell before your fixed period is up.  I know of people that have gotten “adjusted” right out of their payments, and end up losing their house.  That would not be a good situation to be in. 

Last we have an Interest Only Mortgage.  This means that for the first part of the loan you are ONLY paying interest.  After the period is up you will start to pay the interest in addition to the principal (the actual amount of the loan).  The payments will definitely go up after the inital period.  This mortgage will not allow you to build up equity in your home.  Speaking of Equity…

I will only say one thing about Home Equity Lines of Credit.  If you take out a “HELOC” to pay off credit cards, your spending will not have changed (since you really didn’t work to get out of debt, AND you are technically STILL IN DEBT), and you will end up running the credit cards back up.  Now you have the credit card payments AND a HELOC payment!  Don’t get stuck with double the debt, and keep the money in the house.

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Sarah Kimmel

Sarah Kimmel, the Organized Mom

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