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Conventional housing loans are offered for 15 and 30 years, but if you seek a very low interest rate and have a healthy income, you may qualify for a 5 year fixed mortgage. Is this option right for you? It can be, if you have one of these unique situations.
1. You have a hefty down payment.
If you are buying a modest home and have a hefty down payment, say at least 50 or 60% down, you may be able to find impressive 5 year fixed mortgage rates are worth the financial risk. However, before you take out this type of loan, make sure the payment is not so steep that you will have trouble paying every month. There is no point in taking out this type of loan if it is going to cause you financial hardship.
2. You plan to move in less than 5 years.
You can also choose a 5 year fixed rate adjustable rate mortgage (ARM). In this case, you can lock in very low rates for 5 years, but then the rate will adjust. Be forewarned that depending on the economic climate in 5 years, your mortgage may readjust to a much higher interest rate, which can sky rocket your payments. If you plan to live in your home for less than 5 years and you give yourself ample time to sell before the 5 years is over, you may benefit from an ARM.
3. You want to retire early.
If you would like to retire in your 40s or 50s, retiring without a mortgage payment is best. A 5 year loan may help you make your retirement dreams a possibility. However, compare rates for a 5 year loan vs. a 15 year loan. If the difference in mortgage rates is not significant, you may be better off taking out a 15 year loan and paying extra rather than committing yourself to a 5 year loan.
Five year mortgage loans are not for everyone (or even most people), but if you fit one of these unique situations, it may be the best choice for you.