Other Types Of Mortgages

Other Types Of Mortgages



Other Types Of Mortgages
In addition to​ the​ traditional fixed rate mortgage and the​ adjustable rate mortgage we all know about,​ there are some other types of​ mortgage instruments that are not so well known .​
This article details a​ few of​ those less-than-traditional mortgage methods.
Jumbo mortgage: a​ jumbo is​ nearly always considered a​ non-conforming loan because it​ exceeds the​ loan limit set by Fannie Mae and Freddie Mac .​
These are the​ two publicly chartered corporations that buy mortgage loans from lenders .​
They do this to​ make sure that mortgage loan money is​ available at​ all times around the​ nation .​
You should know that the​ single-family limit benchmark changes yearly and if​ you​ need to​ borrow more than that amount,​ you​ will need a​ jumbo mortgage .​
a​ jumbo loan usually has a​ higher interest rate than traditional loans.
The advantage of​ a​ jumbo mortgage is​ it​ allows you​ to​ buy a​ more expensive house .​
The disadvantage is​ that you​ will normally pay a​ higher interest rate.
Two-step Mortgage: These are some mortgages that use certain elements of​ both the​ fixed rate and the​ adjustable-rate mortgage .​
They might be called 2/28,​ 5/25 or​ 7/23 .​
a​ two-step mortgage allows for a​ fixed rate and payment for an​ initial period,​ followed by one interest rate adjustment,​ then a​ fixed rate and payment for the​ remainder of​ the​ loan term .​
For example,​ a​ 5/25 has an​ initial fixed rate period of​ 5 years,​ then an​ adjustment to​ the​ rate,​ and then 25 years of​ adjusted payments.
Balloon Mortgage: a​ balloon mortgage is​ right for some people,​ but a​ bad idea for most .​
Home buyers in​ a​ balloon mortgage will see lower rates and payments for a​ specific period of​ time,​ which can be anywhere from 3 years to​ 10 years .​
At the​ end of​ that time,​ however,​ the​ home owner has to​ pay off the​ principal balance in​ one lump sum .​
In some cases,​ the​ mortgage may be changed to​ either a​ fixed-rate or​ adjustable-rate loan,​ but in​ other cases,​ it​ cannot .​
a​ balloon mortgage is​ most often used for those who know that they will not be in​ the​ home for long,​ and plans for selling it​ later on​ are somewhat firm.
Assumable Mortgage: Assumable mortgages do not happen often .​
An assumable loan is​ usually conducted with the​ seller and they should be approached with caution .​
Because they can be tricky,​ you​ should always use the​ services of​ a​ good attorney before getting into an​ assumable mortgage.
The same is​ true for another type of​ mortgage known as​ seller financing .​
With this type of​ loan,​ you​ pay the​ seller directly instead of​ to​ a​ bank .​
The property is​ often used as​ the​ security for the​ loan.
Construction Mortgages: Construction mortgages are used when building a​ new home is​ a​ key issue .​
These types of​ loans typically use a​ two-step borrowing system .​
The home owner may pay higher interest rates during the​ construction phase .​
Then the​ home owner may go through a​ second closing at​ which time the​ loan usually converts to​ a​ more traditional,​ long-term fixed-rate loan.




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