Understanding Mortgage Types and Which One Is Right for You
mortgage loans
The market for home mortgage loans has grown more complex over recent decades.
With so many choices available to homebuyers, it can be difficult to decide which loan is the best in any given circumstance.
It’s a good plan to start at an informational site to gather some basic mortgage know-how.
Three Initial Considerations
There are three sets of information to understand about any mortgage loan:
- Loan Category
- Interest Rate Type
- Repayment Time Frame
Mortgage Categories
Most mortgage loans are simply known as conventional loans.
They are offered by banks and mortgage companies with rates and repayment terms based on market conditions.
These loans may require borrowers to have a larger down payment or a higher credit score.
FHA loans are backed by the federal government and may allow borrowers to have a lower down payment or a lower credit score.
Special lending programs may also be available. For those who are serving or have served in the military, VA loans are an option. In rural areas, the USDA has loan offerings.
States or local areas may offer programs for first-time homebuyers or employees of state or local governments.
Interest Rate Types
Fixed-rate loans have an interest rate that will remain unchanged for the lifetime of the loan.
These loans offer a predictable principal and interest payment until the loan is paid off.
Variable-rate loans offer an introductory rate that will stay the same for some time and then be adjusted at scheduled intervals over the lifetime of the loan.
These loans are often more affordable for borrowers, but because the principal and interest payment may increase in the future, there is some risk involved.
As there are many variations of adjustable-rate loans, they need to be considered carefully in view of the borrower’s financial abilities and future plans.
Loan Repayment Terms
Home loans with a shorter repayment term such as fifteen years will have a higher monthly payment and lower overall cost.
A loan with a longer repayment term such as thirty years will have a lower monthly payment and higher overall costs.
Finding the perfect mortgage may seem as daunting as finding the perfect home.
However, borrowers who understand some home loan basics will be well-positioned to find a mortgage that suits their needs for years to come.
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Category: Housing
