Mortgages: Home Loans and Types of Mortgages

Different types of loans are available which target the specific needs of each buyer. Good financial institutions pair a buyer and the type of loan which is given. A quick look on the different type of loans available for you could mean the choice of keeping your home in the future.

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Fixed Rate Mortgage

The most popular or most common type of loan because of its simplicity. Interest rates are fixed over a pre determined number of years. This is also commonly referred to as 15 Yr or 30 Yr mortgage loans.

• easy to understand
• stable, outside influences like the economy does not affect the rates
• buyers can plan their monthly expenditure accordingly

• rates are comparatively higher than other loan types
• buyers don’t usually push thru with long term deals

• 15 Yr loans are better compared to 30 Yr loans, it gives the option for couples to send and plan for the future because it allows them to finish the loan in a shorter time and give them different options for the future.

Adjustable Rate Mortgages (ARMs)

These types of loans have a lower interest rate compared to fixed rates. Rates vary in certain periods of time but the amount of movement is predetermined.

• one obvious advantage is it has lower interests rates than fixed rate mortgages
• it is also a better option for short term loans like 3 Yr or 5 Yr loans
• they are more available for buyers with larger loans
• the possibility of a lower interest rate

• interest rates vary making it harder for making a budget
• the possibility of having a higher interest rate

• be sure to check if the bank has pre-payment penalties
• negotiate with the bank for reasonable margins of interests

Adjustable Fixed Mortgages

Can also be referred to as combo loans. These are loans which start at Fixed Rates and then move on to Adjustable Rate Mortgages after a set number of years.

• gives the homeowner lower interests rates to fixed Rate and Adjustable Rate Mortgages
• it is a great way of lowering interests rates and having a greater loan granted

• with a steady or fixed rate at the onset, interests rates fluctuates when the ARM takes into effect
• it would be harder to budget in the future because of rate changes

• if you have lesser flexibility in terms of the amount of downpayment you have and is thinking of having lower interest rates this loan type offers great possibilities.

Interest Only Mortgages

This type of loan is defined as a fixed rate loan but on the initial 5 to 7 Yr only interest on the loan is made. With the normal procedure for Fixed Interest rates applying after set period.

• a great feature of this is that you have lower monthly payment at the start which means you could save for future payments
• it gives you time to adjust and improve you financial situation before you start paying normal monthly payments

• payments made during the first years are not deducted on the principal of the loan
• there is a greater strain the budget when monthly payments reach their normal

• be sure to save up while payments are relatively low. Some banks offer an option of letting you pay on the principal making for adjustments for future payments

Minimum Payment Loans

These are fixed rate plans which initially offer low interest rates at the start of the loan and increases to its normal rates after a couple of years.

• they are generally the lowest priced plans in the market
• ideal for buyers in high end markets

• potential negative amortization that increases your total borrowed amount
• after initial period ends, a threefold increase in payments is common

• you can use the minimum payment plan in the start and build up your credit position for the future

Zero Down Mortgages

Generally characterized as loans with less than 20% downpayment or zero downpayment. Designed for first time home buyers usually done with government agencies.

• for first time homebuyers or those who don’t have enough savings, this is the greatest way of acquiring that house
• this type is the most ideal for any home buyer

• requires PMI primary mortgage insurance therefore raising monthly payments
• it also limits you to the choices of houses that can be purchased

• check the nearest government agency and see if you qualify for their programs. Government rates are 0.5% to 1% lower compared to financial institutions

Balloon Mortgages

These are monthly payments based on any fixed term with 15 Yr or 30 Yr amortizations. At the end of the period, remaining mortgage loan amount will come due.

• for homebuyers who expect an increase in earnings in the years to come this would be the most ideal plan

• home value may drop with the market
• quite confusing and harder to understand for homebuyers

• this is an unpopular type of loan plan, try using more conventional plans as they are easier to understand and could provide you with better decisions

Penny’s worth

If you’re in the market for purchasing a new home, it is best that you study the different mortgage plans available in the market. Another good strategy is to check out different banks and see which could give you the best deal. This could be the most ideal time for purchasing a home. With mortgage rates at all time lows and houses at bargain prices and with the use of a mortgage loan designed for your needs, this could help you with that house you always dreamed of.

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