Types Of Mortgages

Types Of Mortgages 1

Types of​ Mortgages
A mortgage is​ a​ loan that must be taken out by all homebuyers .​
The mortgage is​ provided by a​ bank or​ other lending institution and gives the​ homebuyer the​ money needed to​ purchase the​ home .​
The mortgage then needs to​ be paid back by the​ borrower in​ monthly payments with interest on​ the​ loan .​
The term of​ a​ mortgage is​ generally anywhere between fifteen to​ thirty years.
When taking out a​ mortgage,​ the​ homebuyer first needs to​ decide what type of​ mortgage is​ right for them,​ as​ there are many .​
This is​ the​ biggest decision to​ make when getting a​ mortgage and the​ answer will be different for everybody considering that everyone has different financial needs and goals .​
The options for mortgages are: interest only loans,​ adjustable rate mortgages (ARMs),​ pay option ARM loans,​ balloons,​ fixed rate loans,​ extendable balloons,​ conventional loans,​ and FHA loans .​
These are just a​ few types of​ mortgages that are available .​
A fixed rate mortgage provides for the​ most security .​
a​ fixed rate mortgage is​ a​ mortgage that will have the​ same interest rate for the​ entire life of​ the​ loan .​
This is​ often a​ good choice for a​ lot of​ people as​ they will always know what their interest rate and payments will be .​
Fixed rate mortgages may not be the​ best option however if​ the​ homebuyer knows that they will only be living in​ the​ home for a​ few years.
An ARM loan has a​ variable interest rate .​
They will often have a​ smaller up front payment and smaller monthly payments,​ due to​ a​ lower interest rate .​
The interest rate for these types of​ loans are decided on​ using an​ interest index and a​ predetermined margin .​
ARMs can be the​ best choice for homebuyers if​ the​ homebuyer knows that they will not be living in​ the​ home for more than three or​ four years .​
Because there is​ no way to​ predict what the​ interest rates will be,​ these types of​ loans do not provide as​ much security as​ a​ fixed rate mortgage.
Interest only mortgages only cover the​ costs of​ the​ interest on​ the​ loan .​
This is​ the​ option most used by real estate investors who will not be living in​ the​ home .​
These loans provide for a​ lot of​ flexibility as​ the​ monthly payments only cover the​ interest due.
A Pay Option ARM has a​ variable rate and allows the​ homeowner four options for payment every month .​
These options are interest only,​ minimum payment,​ 30-year fully amortizing payment,​ or​ 15-year fully amortizing payment .​
These loans will be best suited to​ those who are self-employed as​ they can adjust their payments depending on​ how much income they earned that month .​
Pay Option ARMs can quickly collect negative amortization,​ making the​ amount of​ the​ loan increase rather than decrease and so,​ these types of​ mortgages need to​ be very carefully considered before an​ agreement is​ entered into.
FHA loans are suitable for first-time homebuyers or​ those who have no or​ bad credit .​
These mortgages tend to​ have very good interest rates as​ the​ federal government insures the​ loan for the​ lenders.
Understanding the​ different types of​ mortgages and the​ homeowner’s individual needs is​ critical when deciding on​ what type of​ mortgage is​ the​ right one for any given situation.

Types Of Mortgages

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