Editor’s Note: From time to time we like to invite local experts from the community to answer questions about parenting and raising kids in Huntsville and North Alabama. Today we asked Kim Cappaert, Mortgage Division Manager with Progress Bank Mortgage Services, to address questions about home mortgages for new families.

There’s some speculation that mortgage rates are going to go up soon. Should I choose a fixed rate or an adjustable rate mortgage?

Adjustable rates are attractive because they offer low initial payments, enable the borrower to enjoy lower interest rates and lower mortgage payments and enable and qualify for a larger loan, but there are a few things to consider when choosing between the two:

• 1) How long do you plan to stay in the home? If the answer is five years or less, then an adjustable rate that has a fixed rate initial term of five years might be a great option. Unfortunately, this is a difficult question for most and if your housing situation changes in the next few years, you have accepted the risk of your interest rate going up.
• 2) Also, if you want to pay additional payments to reduce the total loan term (as discussed below), this won’t work with an ARM, as when the loan is recast at the new rate it does so over the remaining term, so the principal reduction would lower your new payment instead of a shortening the term.
• 3) Also, consider what direction interest rates are heading and do you anticipate that trend continuing. In a falling rate environment, an ARM will ensure that you enjoy lower rates without the need to refinance.
• 4) Fixed rates are still the most popular choice as you are protected from sudden and potentially significant increases in monthly payments.

It used to be young families could buy a smaller starter home and upgrade later, but is housing still a safe bet? What does the Huntsville market look like now? We would hate to lose money just as we are starting our family.

This is a really tough question, I would say that housing is as safe a bet for Huntsville as anywhere, if not safer.

Unemployment in our area beats the national average keeping the demand for housing high. Building equity in a home always beats paying rent if your payments for housing and rent are similar. There are many rent vs own calculators like this one on our website Rent vs Own Calculator Choosing a safe neighborhood where properties are owner occupied rather than tenant occupied is a better risk you should expect small steady increases in value. Historically that has been the case, though real estate prices fluctuate everywhere, Huntsville did not see the housing bubble (that subsequently burst) that many areas of the country experienced.

Is it better to get a 30 year loan and pay it off early or get a 15 year loan with a lower interest rate?

If you can swing it, choosing a shorter term like a 15 year loan saves you thousands of dollars in interest payment over the life of a loan than a 30 year loan, no question. Both 30 and 15 year rates are historically low Fifteen-year mortgages do charge lower interest rates than 30-year loans — but carry higher monthly payments because you have to pay all principal back in half the time.

For example, borrowing $300,000 for 15 years at this week’s 3.25% average rate means you’ll have a $2,108 monthly mortgage payment. That’s nearly 50% higher than the $1,441 you’d pay if you take out the same-sized loan for 30 years at today’s 4.05% average rate.

So if the higher payment is more than you are comfortable with every month, a good alternative is to choose a 30 year loan and make one extra payment each year (in one annual lump sum or spread over the twelve months) to be applied directly to principal. Just that one action will reduce your 30 year loan to a 21 year loan, without locking you into the higher payments every month.

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ABOUT THE EXPERT: Kim Cappaert is the SVP Mortgage Division Manager and Loan Officer with Progress Bank. With over 31 years of experience in mortgage lending, Kim and her team provide a customer focused lending experience. Born and raised in Baton Rouge, Kim relocated to the area in 1987 and is married with 2 children, 2 grandchildren and a menagerie of animals. Kim enjoys playing the guitar, horseback riding and painting when not working to improve the loan process. Drawing from her years of experience, she can provide professional guidance for your families’ next home.

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