A First-Time Homebuyer’s Guide to Mortgages

You’ve made one of the biggest decisions of your life and decided it’s time to buy your first home. Not sure where to start? Take our first-time homebuyer quiz: It will help you understand how much home you can afford, how your credit score affects your rate, how much your down payment should be—and more.

Now it’s time for the biggest—and most important—part of your home buying experience: Deciding on the right mortgage. There are a lot of things to take into consideration when choosing between a fixed- and variable-rate mortgage and it can be overwhelming. That’s why we did the research for you!   

Fixed Rate

  • What is it?
    A mortgage where the interest rate you are given at the start of the loan remains the same for the life of the loan.
  • What kind of borrower is it best for?
    This mortgage is ideal for borrowers who don’t want any surprises when it comes to their monthly payments and those who don’t want to take any financial risks, no matter the potential rewards.
  • Why is it a good option?
    Your monthly payments will never change, even if there are drastic changes to the economy, its terms are easy to understand, and it’s easier to create a budget around.
  • What’s the downside?
    Fixed-rate mortgage rates are typically higher than their variable-rate counterparts and will never decrease, even if the market improves. So, while your monthly payments will never change, you may be paying more in the end. They may also be more difficult to qualify for than variable-rate mortgages.

Variable Rate

  • What is it?
    A mortgage where the interest rate can change periodically throughout the life of the loan.
  • What kind of borrower is it best for?
    This mortgage is ideal for borrowers who have a more flexible budget, are willing to risk potential rate hikes for the opportunity to take advantage of potential rate decreases and those who plan on only staying in their home for a short period of time or believe their income will increase in the coming years.
  • Why is it a good option?
    Rates are typically lower than fixed-rate mortgages at the outset of the mortgage, which may increase your home buying budget, and if rates fall, you’re essentially refinancing your mortgage without all the paperwork. Plus, the money you save on payments can be budgeted elsewhere. Buyers who are planning to only remain in the home for a few years before reselling can enjoy the low introductory rate without worrying about a potential rate increase.
  • What’s the downside?
    Variable-rate mortgages can be very difficult to understand and offer no guarantees: Your payments are at the mercy of the market and can rise significantly over time and cost you much more in the end.

No matter which type of mortgage is better for you financially, the bigger the down payment you have to go along with it, the better. Start saving today with Suffolk Federal’s First Time Homebuyers Club, a savings account that rewards your efforts with cash bonuses toward your closing costs.

Once you’re ready to begin the home buying process, make sure to find a mortgage lender with low rates and great service who’s ready to move when you are, like Suffolk Federal. Want more real estate and financial advice from local experts? Attend one of our FREE first-time homebuyer seminars coming back in Spring 2020!

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