Options for Mortgages
There are many mortgage options for people looking to purchase a home. Having a lot of choices makes it easy for potential buyers to find a mortgage that works for them. However, the more options, the more confusing financing a home can be. Below you will find details of mortgages that are the most common.
Adjustable Rate Mortgage
Adjustable rate mortgages, also known as ARM, is a mortgage with an interest rate that is not constant throughout the term of the loan, instead it is ‘adjusted’ and changes after time. With these types of loans the homeowner is really taking a chance because they are going into the mortgage with no knowledge of what their interest rate will be in the future and in some cases the rates can quadruple. Of course, people wouldn’t take this type of risk if there was no benefit. In the beginning of an ARM, the interest rate is lower than many other types of mortgages. And these types of mortgages allow people who otherwise would not qualify for a particular home to qualify.
FMR
Fixed rate mortgages, also commonly referred to as traditional loans, are one of the most common type of financing arrangements for buying a home. Fixed rate mortgages are the complete opposite of adjustable rate mortgages. They are less risky because the interest rate stays the same through the term of the loan. Knowing exactly what your rate will be is of courage a benefit. But these types of loans carrying higher rates of interest. They also carry another disadvantage. If interest rates drop, the homeowner is stuck with their current rate.
Balloon
Balloon mortgages benefit those who will be in their houses for only a few years. At the beginning of the term, balloon mortgages are like fixed rate mortgages but then the interest rate grows substantially (or balloons) after a certain, agreed upon time; usually between five and ten years. Balloon mortgages differ from ARMS because the new rate is not a surprise. Balloon rates, like adjustable mortgages, often have lower interest rates than traditional loans. The drawback is that homeowners will need to refinance their houses unless they sell before there rate increases. And there is no way of determining what the new rate will be or if it will be affordable.
Federal
There are two kinds of loans backed by the government. They are federal housing loans and veterans administration loans. If you qualify, a regular lender can make the loan. VA loans are only available to serviceman. Although you can get these loans from regular mortgage lenders, they are insured by the government. For those who are not veterans, they may apply for an FHA. These loans are a lot cheap than non-federal loans in both the down payment required and the monthly payments. There are some cons, however. There is often long wait periods, many hoops to jump through and only certain homes qualify.
The Author: Carl is a family man and authority blogger. He enjoys debating the latest industry news, learning & writing about view site, and taking long walks. You can find more information on the author’s website.
