Types of Mortgages
Posted Thursday, November 20, 2014
- Fixed rate mortgage – you can choose from 10-year, 15-year, 20-year, 30-year, 40-year, and even 50-year fixed rate mortgages. With a fixed-rate home loan, your interest rate remains the same for the life of the loan and the payment is split into equal monthly payments for the duration. In other words, it is amortized over the life of the loan. The interest payments are front-loaded, however, so that during the first few years of the loan term, only a small portion of the payment pays off the principal.
- FHA loans – these loans are insured by the government through mortgage insurance that is funded into the loan. This is the ideal loan for first-time homebuyers.
- VA loans – this type of loan is available to veterans who have served in the U.S. Armed Services, and sometimes to spouses of deceased veterans. The benefit of this type of loan is that no down payment is required, as the loan is guaranteed by the Department of Veterans Affairs.
- Adjustable rate mortgage or ARM – Usually offers a lower interest rate initially than a fixed rate mortgage. Unlike a fixed-rate home loan, which sports a static interest rate over the life of the loan, the interest rate on an adjustable-rate mortgage, or ARM, changes every year. ARMs come in various permutations. For instance, a hybrid ARM features aspects of both adjustable and fixed-rate mortgages.
- Balloon mortgage – Balloon mortgages require borrowers to make regular payments for a specific interval, and then pay off the remaining balance within a relatively short time. Some types of balloon mortgages can be interest-only for 10 years, and the final “balloon” payment to pay off the balance comes as one large installment at the end of the term.
If you would like examples or a better explanation of these types of mortgages, please call or email me today.