Types Of Mortgages

by

Martin Dolemo

Are you looking for some general purchase guidelines in buying a new home? When it comes to mortgage issues, it is advisable to conduct your research to prepare yourself for a serious financial commitment. The financing and documentation process can be confusing and overwhelming especially if it is your first time. That is why you need a mortgage consultant to help you deal with the complexities of the entire process. At the same time, familiarize yourself with home loan terminologies. To help you get started, here are the different types of mortgages.

Fixed-Rate Mortgage

Considered as the most basic of all loan programs, a fixed-rate mortgage has specific time frames. This means you are going to pay back the amount over 10, 15, 20, or 30 years. The monthly payment remains the same.

Advantage – Stable, constant, and practical. You always know your monthly payment.

Disadvantage – You still pay the same amount every month even if the interest rates have dropped.

Adjustable -Rate Mortgage (ARM)

This is an agreement between a financial institution and a real estate customer stipulating predetermined adjustments of interest rates at specified intervals. The payment is tied to an index. Payments are adjusted on a regular basis, which is usually at intervals of one, three, or five years.

Advantage – Reasonably lower rates for your monthly payments.

Disadvantage – If interest rates soar high, your monthly payment will also increase.

Federal Housing Administration (FHA) Loan

Many people assume that the Federal Housing Administration (FHA) is the one providing the loan, which is entirely false. The truth is FHA\’s responsibility lies in guaranteeing and insuring your loan. In other words, your mortgage provider does not take on any financial risks. The role of FHA is to assure the borrower that the lender will not write off the loan in case of defaults. Usually, at least 20 percent of the total loanable amount is required for down payment.

Advantage – Guaranteed low down payment.

Disadvantage – Loan limits apply to certain locations. Stringent requirements.

Veteran Affairs Loan (VA)

A VA loan is available to veterans, active military veterans, and qualified surviving spouses. This is a loan guarantee provided by the Federal government. To qualify, just present a certificate of eligibility, a minimum credit score of 620, and a copy of your DD-214 as proof that you have been honorably discharged.

Advantage – No down payment. Up to 100 percent refinance value. Lower credit score is accepted.

Disadvantage – Limited loanable amount.

Balloon Mortgage

A balloon mortgage initially requires you to give monthly payments for a limited time, which is usually up to seven years. After this, you need to pay the remaining loan balance.

Advantage – Very low payment for the first few years.

Disadvantage – You need to pay the loan balance in full after paying the interest.

Interest – only

As its name suggests, an interest-only mortgage requires you to pay the interest of the total loan. When your mortgage is due, you will need to pay off the balance in full immediately.

Advantage – You only pay for the monthly interest.

Disadvantage – You must pay the total either through a refinancing option or in cash.

Reverse Mortgage

This type of home equity is designed for a homeowner who is already 65 years old and above. The loanable amount will be based on the present value of your home. Senior citizens are qualified to apply for reverse mortgage.

Advantage – As long as you live in your home, you are not required to pay the principal amount and the monthly interest.

Disadvantage – More expensive. The process is complicated.

Given the complex process of mortgage application, it is highly critical to review the various types of loans for your best interest. Knowing what questions to ask from your mortgage provider can help you get the most suitable loan for your needs.

Martin Dolemo

is a member of Saxony Real Estate in Palm Desert, CA. He and the agents at Saxony work hard to ensure that their clients get the home of their dreams. For more information, please visit

saxonyrealestate.com/

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