Different Types of Mortgage Loan Options
When searching through different mortgage loans, notice two top contenders stand out- the fixed-rate mortgage and the adjustable-rate mortgage. These two choices are quite popular but there are many other options available for today's homebuyer in the world of home financing. With the right research and a little bit of time, finding the right mortgage loan will be a snap.
A fixed-rate mortgage has a set or determined interest rate for the entire life of the loan. Where as some different mortgage loans may start out at a low interest rate but can vary as time goes on, the fixed-rate mortgage is slow and steady as she goes. Homebuyers who can lock in a nice, low rate can do well with a fixed-rate mortgage. However, buyers who aren't able to capture those super low rates will be stuck with them for the life of the loan if they choose this route. So it is a strange benefit with this loan that can also work against homeowners if it too high: the interest rate will never vary. No inflation, no sudden budget changes, just smooth sailing throughout the loan.
An adjustable-rate mortgage (ARM) has a rate of interest that can vary. These mortgage loans are popular because they allow homebuyers to make lower payments with less interest at the start of the loan. It depends on what type of rate cap an adjustable-rate mortgage comes with as to when the rate will go up (or down) and potentially by how much. Sometimes a better the rate in the beginning is indicative of a shorter the period. At first glance, an adjustable-rate mortgage offering three percent interest for three years may seem like a deal but payments could really shoot up after that three-year mark, making this a deal most homeowners could live without. Another adjustable-rate mortgage may offer five percent for 10 years, which may look more doable for buyers. A much riskier loan is the option ARM. This type of mortgage is heralded as a teaser since it often teases homebuyers with a low rate for the first 12 months. Then the interest rate jumps (and so do the payments) to often unaffordable amounts. The most important part of getting an adjustable-rate mortgage is reading the fine print. If something doesn't look right: it probably isn't. Ask plenty of questions and know what you're getting into.
Finding the right mortgage loan means checking into all kinds of different mortgage loans. An interest-only mortgage allows the homeowner to pay interest only on the principal of the loan balance for a set term; therefore the principal never goes down. Typical interest-only terms are five and 10 years. When the time period is up, the interest from the past along with future interest gets amortized so remaining loan payments will be much higher. Loans like this should be entered with caution as they may eventually come with payments that are much more than what a homebuyer bargained for paying.
Different mortgage loans are out there for the all types of buyers. A hybrid mortgage loan is a combination of both the fixed-rate mortgage and the adjustable-rate mortgage. A typical hybrid loan starts out with a set interest rate but automatically converts to an ARM when the fixed term concludes. A benefit of a hybrid mortgage loan is paying less in interest at the onset of the loan. Issues may arise when the variable rate jumps, thus dramatically impacting the monthly payments. Combo or piggyback mortgage loans combine two mortgage loans in order to lower payments. Mortgage buydowns do not have a fixed interest rate until the three years. During the first three years of the mortgage buydown, the rate of interest increases annually. Convertible mortgage loans, also known as reducing interest loans (RIL), reducing interest mortgages (RIM) and reduction option loans (ROL), are usually a type of ARM the lender allows to be converted into a fixed-rate mortgage. Buyers may opt for a convertible loan so they can have the benefit of an adjustable-rate mortgage with the reliability of a fixed-rate mortgage.
When it comes to finding the right mortgage loan, the answers are all around. Look at your budget, identify future goals and determine what works for you. Different mortgage loans work for specific situations. Be realistic and speak with someone who can help. At SimonHouses.com, our mortgage loan counselors are experienced in matching buyers up with the right loans. Let us help find the perfect financing solution for you today.