3 Types of Loans for Homes in Scottsdale

Even after the recent financial meltdown, there are many loan options for a Scottsdale home buyer to choose from. Each of these loans are designed to meet the needs of different types of home buyers.

While all of these choices may seem overwhelming at first, the goal is quite simple: find a Scottsdale home loan that fits both your current financial situation and your future plans. While this article can provide you a basic outline, speak with your lender before deciding on a loan for your new home in Scottsdale.

Keep reading to learn more about the 3 major types of home loans and factors you need to consider in deciding which one you should choose.

Fixed-rate mortgages

As you can probably guess from the name, fixed-rate mortgages have the same interest rate for the life of the loan. Traditional, fixed-rate loans have historically been the most popular for Scottsdale home buyers because the fixed monthly payment is easy to plan and budget for, and can help protect against inflation.

Fixed-rate mortgages are typically available in 30-year or 15-year terms but many lenders are also offering 20-year and 40-year mortgage loans.

Adjustable-rate mortgages (ARM)

The big difference between an ARM and a fixed-rate mortgage is that the interest rate and monthly payment can change over the life of the loan because the interest rate on an ARM is tied to an index that rises or falls over time. ARM loans usually have a cap on how much they can increase the rate, usually no more than 2% a year. They also have a ceiling to how much the interest can rise over the course of the loan’s life, usually no more than 6%.

With low introductory rates and these conditions, ARM loans have become the most widely accepted alternative to fixed-rate mortgages.

Hybrid loans

Hybrid loans contain features of both fixed-rate loans and ARMs. Typically, hybrid loans start out on a fixed-rate for a certain length of time then convert to an ARM at some point. But be sure to check with your Scottsdale home lender to confirm what the first rate increase will be since some hybrid loans do not have the same caps as straight ARMs for the first increase.

Other hybrid loans may start out with a fixed-rate for several years, increasing to a new fixed-rate for the rest of the loan. It’s typical for a lender to charge a lower introductory rate for a hybrid loan when compared to a fixed-rate. This makes hybrid loans an attractive option for those who plan to only live in their Scottsdale home for a short period of time.

Consider the amount of time you will be staying in your Scottsdale home when choosing your loan.

As we’ve mentioned, the amount of time you plan to stay in your Scottsdale home will have a strong influence on the type of loan you choose. If you plan on staying for 10 years or longer, a traditional fixed-rate mortgage is probably the best. But if you plan to own the home for 5 years or less, the low intro rate or ARM may be better. Generally, ARMs have the lowest intro rate, followed by hybrid and fixed-rate mortgages.

Are you ready to start looking for homes in Scottsdale? If so, contact a Scottsdale realtor today.

Need More Information
On Scottsdale & Phoenix
Real Estate?

Fill out the form below and we will be in touch with you on available listings and information you're looking for.