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Home Loan Information; a short primer to help you make an informed selection of offers on these pages.
A Comparison of Mortgage Types
When you look at the number of loan products on the market, deciding
which one is right for you can be a daunting task. There are fixed rate,
adjustable rate, jumbo, conforming, etc. etc.; along with many variations of
each.
The best solution to this problem is to speak with a qualified lender to
help you sort out your many options. This article will give you a quick
primer on some of the most common types of mortgage loans that can be found on these pages.
Reverse Mortgages
This loan can be used for a home purchase, to
refinance a current mortgage, or just to cash out equity. With this type of
financing, a homeowner does not make any payments toward the loan for as long as
he or she resides in the home and meets the requirements of the loan. These
requirements include staying current on homeowner's insurance, property taxes
and any necessary home repairs. If a homeowner meets these requirements, he or
she will not be responsible for any amount exceeding
the loan amount once the loan is due.
Fixed Rate Mortgages
These are by far the most
popular of mortgage types. They may be paid back (amortized) over 10, 15,
20, 30, or even 40 years with the interest rate and payments remaining fixed
every month.
Adjustable Rate Mortgages
These are similar to Fixed rate mortgages, they are amortized over a period
of years, however the interest rate can fluctuate. They have a set period of
time for which the interest rate is fixed, then it will reset based on the
market rate at that time. They offer lower rates upfront, but rates can go
up sharply without much notice.
FHA Loans
These loans are guaranteed by the government and typically offered to first
time homebuyers with moderate to lower income. Since they are guaranteed by
the government, they are often easier to qualify for and require a lower
down payment than typical loans. The interest rates even can be lower as
well.
VA Loans
These loans are also guaranteed by the federal government and are reserved
for individuals with a history of active military duty, or their surviving
spouses. They are often provided with little or no down payment required and
attractive interest rates.
Interest Only Mortgages
Interest only loans allow a borrower to pay just the interest portion of
their home loan for a period of time. These loans can be very dangerous for
consumers, as each month, they are making no progress on paying down their
mortgage debt. They should only be used with caution and a proper
understanding of how they work. These loans are attractive to borrowers
because they dramatically lowers their monthly payments for a period of
months.
Option ARMs
With an Option ARM (Adjustable Rate Mortgage), the interest rate can adjust
every month with no warning. Borrowers are interested in Option ARMs because
they offer a lower initial monthly payment, however the payments can rise
steeply down the road.
Balloon Mortgages
Balloon Mortgages typically follow the pattern of a fixed rate mortgage,
however the entire balance is due in a much shorter period of time,
typically 5-7 years. The borrower will make payments as if it was a standard
fixed rate loan, but will be required to pay the remaining loan amount after
5 years. Borrowers are attracted to these loans because they usually offer a
lower interest rate.
About the Author
For the most up-to-date Mortgage News and the best Mortgage Calculators,
visit: LendingBrains.com and on these pages.
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