In today’s low-interest-rate climate, some lenders are throwing money at home buyers. Offers might include 100 percent financing and interest-only loans.
Generally, though, you’re better off being prudent with home financing.
- Instead of 100 percent financing, try to make a 20 percent down payment. With at least 20 percent down, you’ll avoid private mortgage insurance (PMI), which can be costly.
- Interest-only loans will become principal-and-interest loans at some point, perhaps after five years. The increase in payments may be steep and hard to manage.
One sensible financing alternative is a hybrid mortgage. You’ll have a fixed interest rate for, say, seven years. Such mortgages generally have a lower initial rate than a 15- or 30-year fixed-rate mortgage. After seven years, the rate will re-set annually but this deal may work well if you expect to be moving to a different house by then.
