Different Types of Mortgages
If you’re looking at becoming a first-time home owner, you may need to brush up on your mortgage knowledge. Talk to your real estate broker and see if they can recommend a lender for you to talk to about your mortgage options. Getting pre-approved when you’re house hunting can be a great advantage to getting the home that you want. If you’re pre-approved you already know what sort of financial situation you are in, and what sort of mortgage you can afford. Check out the following list and learn about different types of mortgages available. Then, talk to a lender to see which mortgage option works best for you.
A fixed rate mortgage means that the interest rate for the loan, is locked in at the beginning of the mortgage agreement. Fixed rate mortgages can come in terms of 10-15-30 years. The most common of mortgages is a fixed rate 30 year mortgage. This provides the owner with the lowest mortgage payment per month, as it divides the loan into 30 years of payments, with a fixed rate of interest.
Fixed rate mortgages are also popular because they are the most predictable; the owner knows what their payment will be month to month for the entire timeline of their term in years.
Adjustable Rate Mortgages
There are many different types of adjustable rate mortgages(ARM), but the essential idea is that the interest rate can change over time. If a home buyer gets a one year ARM, the interest rates on their loan change to the current market rate, once a year on the anniversary of their loan. This can be risky as you could wind up paying different amounts of mortgage payments from year to year. They payment amount may go down, but it also may go up.
10/1 ARM’s also change in interest as time goes on. This features a fixed interest rate for the first 10 years, but then is subject to change every year to the current market interest. This loan is typically for 30 years, and is typically used by homeowners who intend to pay their home off before the initial 10 years have passed.
Balloon mortgages feature a much shorter term and a fixed rate of interest, much like a fixed rate mortgage. The difference is that balloon mortgages feature a larger or balloon payment at the end of the loan. The monthly payments are lower and typically go to interest being accrued. Balloon mortgages are great for responsible borrowers, and typically are for people who intent to sell the house before the balloon payment is due. These mortgages can get tricky, as you’ll be required to re-finance if you can’t afford the balloon payment when it’s due.
Check out the different types of mortgages and see what you can afford, and how long a payment schedule you want to commit to. Talk to a lender to see what your options are and what makes the most sense for you. We also suggest checking out our monthly Trend Report to learn more about the local market trends.