The Regular Joe’s Guide to Types of Mortgages
If you are in the market for a new home, it is utterly imperative that you review your financing options before you make any concrete decisions. Depending on the circumstances (and in order to make sure you get the best possible loan) you should be aware of what choices you have, and what types of financing are at your disposal.
Believe me, all the different types of loans can be quite intimidating to someone uneducated on the subject. In fact, most people in America don’t know hardly anything about their financing options. But don’t worry. That’s to be expected.
BASIC LOAN TYPES
The type of mortgage that the majority of people today will get is know as the traditional fixed rate mortgage, or FRM. Over 70% of homeowners this year will get this type of financing for their new home. The main reason for this is that the FRM offers a much stronger sense of stability over the other types of financing. Whether the life of your loan spans 15 or 30 years, the interest rate of this loan is locked in at origination and will not change, no matter what happens to the economy or the mortgage market.
The other main type of loan is called an Adjustable Rate Mortgage, or ARM loan. This type has an interest rate that is tied to an index, and can rise or fall depending on the current mortgage market. In general, if the prevailing market increased during one adjustment period (which is specified when you close the loan) then your interest rate will rise, along with your payment. Adversely, your payment amount will drop if the market drops.
The main reason some people decide to go with an ARM loan is that it will initially offer you a much lower interest rate, which means your monthly payment will be significantly cheaper. That dark side is that your interest rate can sky rocket, leaving you with a mortgage payment that can be hard to pay every month. Luckily, though, when you go to your closing, caps are usually set on how high your rate can go. Be careful though. Make sure you know what you’re doing before you get setup in one of these loans.
OTHER LOAN TYPES
Payment Option ARMs. You may hear this type of mortgage referred to as a “flexible payment ARM.” These loans have an interest rate that adjusts every month (like a regular ARM loan) but with no adjustment caps, meaning the sky is the limit. The draw of these loans is that they allow homeowners to make a very low initial monthly payment, but unfortunately the amount will often jump up over time, and usually quite steeply.
Interest Only Mortgages. This type of loan allows borrowers to pay only the interest portion of their payment for a certain amount of time. This is a good type of financing for the short term, because the principle of the loan is not paid down, and the outcome is a lower monthly payment for the homeowner. That being said, the interest only period doesn’t last forever, and once it expires you can expect your payment to increase due to the fact that you are repaying all of your principle over a shorter period of time. Basically, the longer your setup your interest only period, the higher your monthly payment will be once it expires.
Balloon Mortgages. At first glance, these types of loans will very much resemble a traditional 30 year fixed rate loan. The difference being that the term of the loan is almost always much shorter, usually around 5-7 years. After this time limit is over, the remaining balance must be paid in one single lump sum. In most cases a borrower will refinance once this point is met, or else pay the entire amount.
Biweekly Mortgages. CLICK HERE to read more about these types of loans. They can take years off the life of your loan if done correctly.
As always, if you have any questions about the different types of loans, please don’t hesitate to CONTACT US and we will get back to you with an answer ASAP.
- Pate
9 Comments for this entry
-
Pretty nice entry, really useful stuff. Never ever believed I’d obtain the tips I would like in this article. I have been hunting everywhere in the internet for a while now and was starting to get disappointed. Fortunately, I happened across your blog and received precisely what I was struggling to find.
-
Though I would have appreciated it much more if you added in a relevant video or at the least pictures to back up the description, I still thought that your page quite beneficial. It is normally challenging to make a complex matter seem very easy. I enjoy your internet site and will sign up to your feed so I will not miss anything. Amazing posts
-
Hiya, nice day.. Your article is extremely impressive. I never considered that it was feasible to accomplish something like that until after I looked over your post. You certainly gave a great perception on exactly how this whole process works. I will make sure to return for more advice. Thanks
-
I lately came across your blog and have been learning along. I thought I would leave my first comment. I don’t know what to say except that I have loved reading. Fine blog. I will keep visiting this blog very often.
-
Who needs newspapers when they have such a informative site to read. I was really wondering on this subject so I went to Bing, typed my question and voila, here I landed. Such a nice surprise to get to your website. Thank you for your time and for this good post. Thank you cute search engine for bringing me here.
Ciao!
-
Have you ever considered adding more videos to your blog posts to keep the readers more entertained? I mean I just read through the entire article of yours and it was quite good but since I’m more of a visual learner,I found that to be more helpful well let me know how it turns out
-
I was very pleased to find this site.I wanted to thank you for this great read I definitely enjoying every little bit of it and I have you bookmarked to check out new stuff you post.
-
Stumbled into this site by chance but I’m sure glad I clicked on that link. You definitely answered all the questions I’ve been dying to answer for some time now. Will definitely come back for more of this. Thank you so much
-
Do you maintain some kind of donation box where I may easily send gift in PayPal? I would wish to reward you for your text-based content.
Jc Greenland
February 6th, 2010 on 9:32 am