What are the most common types of mortgage loans?
Prospective homeowners are faced with an overwhelming amount of different loans provided by lenders trying to snag new business. Regardless of the often outlandish advertisements, choosing the wrong loan is a shortcut on the fast track to overwhelming debt. Consider the opportunity to familiarize yourself with different types of loans a necessity in the process of finding which one is perfect for you.
Fixed Rate Mortgages
One of the most traditional loan types provides a fixed monthly rate that is guaranteed to remain the same throughout the entire duration of a home loan. Terms range from 10 years up to 30 (sometimes more), with the shortest requiring the highest payments. In the beginning years, the majority of payments goes toward the interest so only a minimal portion actually paying on the principal amount.
Adjustable Rate Mortgages
Rates are adjusted as often as annually for buyers that choose this option to acquire their home. It starts out with a major advantage of low initial payments that help a person qualify if they’re considered undesirable otherwise. Rates can get out of a comfortable range at times, making it difficult for those on a strict budget. As strange as it seems, a penalty will likely arise if the mortgage is paid off earlier than the agreed duration.
Interest only Mortgages
A unique mortgage option involves only paying the interest on a loan for a set number of years. At the end of the agreement, the buyer is responsible for refinancing their loan terms or paying the entire mortgage off at once. This loan makes sense for individuals with inconsistent income or the anticipation of major financial growth before the agreement terms are due to change.
Another scenario that fits circumstances of the homeowner anticipating a significant boost in cash flow is initially similar to fixed terms. After a few years of maintaining set payments, the outstanding balance will become due in full.
Government intervention is responsible for the advantages provided to both the lender and buyer involved in this loan. By protecting the lenders, they’re able to offer the borrower lower rates and smaller down payments. The only potential problem is the limits on the loan amount that can cause issues with financing a more expensive home.
Exclusive to buyers with a minimum age of 62, a portion or the total amount of home equity may be released to the borrower. Always be wary of offers that seem too perfect because some lenders use these tactics to take advantage of seniors.
If you’d like for a specialist to contact you regarding your financial options, take a moment to fill in our contact form. We’ll personally evaluate your unique circumstances and find the best solution to help your case.