Mortgage loans come in many varieties. This can sometimes spell difficulty in choosing which one is the best for you. So here are 3 main mortgage types available in the market. Majority of lenders offer loans which can be categorized according to these 3.
These are most popular among the tree. The lender gives you a particular amount which you pay within a fixed period. Most individuals opt for a 30 year fixed mortgage because of low repayment amounts and the evening out of interest rates within the span of 30 years.
However, a setback with regard to a 30 year fixed mortgage is that the total repayment is higher compared to getting a 5 year or 15 year loan. Shorter period loans permits individuals who want to get rid of a loan in a shorter period. However, if you opt for this, you should be sure of your capacity to handle higher monthly dues.
There is likewise a sub-category to this loan which is called ARM or adjustable rate mortgage. Compared to a 30 year plan, this usually starts off on a lower interest. In sum, your mortgage repayment is less each month. Nonetheless you should bear in mind that ARM depends on interest rates and is highly fluctuating. When interests are low, you pay less and when interests are high, you pay more.
2. Convertible Loans
This allows for more flexibility. If interest rates are low, you can opt for ARM; if interest rates are high you can go for fixed rate mortgage.
One example of this is the balloon loan where you repay small amounts monthly for around 5 to 7 years and then you repay one lump sum at the period’s end. This is typically used by those who want to flip houses. They won’t need to lock their cash on a house and still benefit from low rates of interest. Paying the lump sum won’t be a problem since they will get a big amount of money by selling the property.
These are offered to a particular group of individuals. For instance, FHA is only offered to those with bad credit or are buying homes for the first time. The veteran affairs mortgage is another example, one which is for armed forces widows.
To know which one is best for you, it would be best to speak to a mortgage consultant or real estate expert like Jason Buzi, who can help you decide the best plan you can go with.