MORTGAGES
Find the types of mortgage loans that fit your lifestyle
Whether you’re buying your first house or your fifth,
there are many different types of mortgages to choose from. When it comes to
financing your new home, it’s important to understand the differences between
each type of mortgage so that you can choose the right offering for your
budget, but also feel confident in your decision. Most banks offers several types of mortgage loans to fit your needs,
whatever they may be, and help you pay less on what you borrow. Find below the
most common types of loans offered to consumers.
Fixed-rate mortgage
Considered a traditional type
of mortgage, a fixed mortgage offers borrowers a fixed interest rate over the
term of the loan, whether it is 10, 15, 20 or 30 years, with monthly payments
that remain the same. In the beginning of the loan period, the majority of
monthly payments will serve the purpose of paying off the loan’s interest.
During the latter part, you will be paying more toward the loan’s principal.
Why a fixed mortgage may be the right choice:
You are planning to stay in
the house for several years
You want the security of
knowing your interest rate will not change
You like having a predictable
monthly payment so you can better budget for other expenses
Why a fixed mortgage may not be the right choice:
You are locked into the same
interest rate for the term of your loan and cannot take advantage of lower
rates unless you refinance, in which case you could have to pay additional
closing costs, appraisal and title fees
Interest rates are usually higher
for this type of mortgage
Adjustable-rate (ARM) or
variable-rate mortgage
An adjustable rate mortgage
(ARM) is a type of mortgage with set adjustment periods in which the interest
rate may increase or decrease, depending on current market conditions. Rate
caps are put in place so that the interest rate can never increase or decrease
by more than the determined percentage over a predisclosed period of time
Why an adjustable rate mortgage may be right for you:
You expect to live in a home
for a short time period, respective to the term of your ARM
Interest rates are usually
lower than other types of mortgages for the first few months to first few
years, depending on the terms
Why an adjustable rate mortgage may not be the right choice:
Your payments may increase
once the loan’s introductory period ends
Monthly payments will be
harder to predict, making it more difficult to budget for other expenses
FHA (Federal Housing
Administration) loan
Why a FHA loan may be right for you:
Allows
buyers who may not qualify for a home loan to obtain one Low down payment.
Why a FHA loan may not be right for you:
The
size of your loan may be limited.
VA (Veterans
Administration) loan
Why a VA loan may be right for you:
Guaranteed
loans for eligible veterans, active duty personnel and surviving spouses Offers
competitive rates, low or no down payments.
Why a VA loan may not be right for you:
The size of your loan may be limited.
Balloon mortgage
Why a Balloon mortgage loan may be right for you:
Usually
a fixed rate loan with relatively low payments for a fixed period.
Why a Balloon mortgage loan may not be right for you:
After
an initial period, the entire balance of the loan is due immediately This type
of loan may be risky for some borrowers.
Interest-only
Why an Interest-only loan may be right for you:
Borrower
pays only the interest on the loan, in monthly payments, for a fixed term.
Why an Interest-only loan may not be right for you:
After
an initial period, the balance of the loan is due. This could mean much higher
payments, paying a lump sum or refinancing.
Reverse mortgage
Why a Reverse mortgage loan may be right for you:
Allows
seniors to convert equity in their homes to cash; you don't have to pay back
the loan and interest as long as you live in the house.
Why a Reverse mortgage loan may not be right for you:
Subject
to aggressive lending practices and false advertising promises, particularly by
lenders that prey on seniors. Check to make sure the loan is federally insured.
Remember
there are different loans for different people for different circumstances. The
best thing to do is to find a qualified mortgage broker, research your options
and then make the best decision for you. Coming up on Day 10 we will go into
more details of interest rates associated with various loans and the credit
scores required to qualify for them. Feel free to contact us at 1-888-824-7622
or The Credit Genius.
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