3 Mortgage
Loan Options
When it comes to home loans there are plenty of options
to choose from and it can be hard to determine which
one can be right for you. Let’s have a look at
the three main types of mortgage loans there are available
and what they have to offer to help find one that will
suit your needs.
1. The first and most popular form of mortgage
loan is the fixed mortgage loan:
30 year fixed rate: this loan is the most commonly
used loan today as it offers the low monthly repayments
and is the best option for home owners who want to stay
in their house for a long time. Advantage – you
have more cash in your pocket each month. Disadvantage
– you pay more for the loan in the end compared
to shorter loans.
15 year fixed rate: this loan allows you to pay your
home off in 15 years, most likely before your children
finish school or before your retirement. You save in
the long run. Advantage – you pay half the interest
of a 30 year loan. Disadvantage – you have to
pay higher monthly repayments.
Biweekly loan: this loan is usually done on a 30 year
fixed rate plan but by paying every fortnight you add
in extra payments every year and usually have your loan
paid off in about 23 years. This loan also builds your
equity in your home a lot faster. Advantage –
you pay your home off faster and pay less interest.
Disadvantage – you have to pay every two weeks.
Adjustable rate mortgage or (ARM): this loan is great
because it works on interest rates and they usually
start off with a lower interest rate than a fixed rate
home loan. This leaves you paying less each month but
leaves you at risk of paying a higher interest if the
rates go up.
Advantage – when your interest drops so does your
repayment. Disadvantage – if your interest rate
rises so does your repayment.
2. Next of the mortgage loan options is the
convertible loans:
Hybrid and convertible ARM: there are two types of
loans with this one. One is an ARM that you can convert
to a fixed rate or a fixed rate home loan that you can
covert to an ARM. These options give you the flexibility
to change your mortgage loan after a few years. Advantage
– having the ability to change between ARM and
fixed rate. Disadvantage – if interest rates are
high you might not wish to convert.
Interest Only Loan: this loan is good for people who
work on commission or get big bonuses so they only pay
the interest on their loan and when they get their bulk
income they can put it towards paying off the actual
loan. Advantages – you are able to get a bigger
loan amount. Disadvantage – you have to pay in
lump sums and when only paying interest you aren’t
paying any thing off on your house.
Balloon loan: this loan is a fixed rate loan with small
monthly repayments that usually last about 7 years,
at the end of that time you must pay the loan in one
big lump sum or have the option to refinance. Advantage
– great for people who will want to sell their
house before balloon payment is due and low interest
rates. Disadvantage – you have to pay lump sum
at end of the loan or refinance at usually a higher
interest rate.
Reserve mortgage loan: this loan is designed for equity
rich seniors. It requires no monthly repayments. Advantage
– more money in your pocket. Disadvantage –
loan needs to pay if you sell your house and reduces
equity for inheritors.
Buy down mortgage loan: there is two types of this
loan, a temporary and permanent. They both work on points
and lower interest rates. Advantage – lower repayments.
Disadvantage – need to pay higher down payment
to lower interest rates.
3. The third option for loans is the special
mortgage:
FHA mortgage: for first home buyers, people with little
down payment and credit problems. Advantage –
low down payment and repayments. Disadvantage –
cap on loan and limited mortgage options.
Veteran Affairs Loan: only for people and widowers
of the armed forces. Advantage – no down payment
necessary. Disadvantage – not available for everyone
and usually takes longer.
As you can see there are many loans you can get when
you want to purchase a home. The best way to find out
which one will work best for you is to talk to a financial
professional and they will go through them with you.
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