Choosing the Right Mortgage Loan - updates

Choosing the Right Mortgage Loan - updates

When it comes to buying a house, choosing the perfect one is important, but itís not the only decision a buyer must make. Thereís also the mortgage to consider. Although the choices for mortgages arenít nearly as vast as the number of homes on the ma

Published Monday, July 18, 2016 5:00 pm

When it comes to buying a house, choosing the perfect one is important, but it’s not the only decision a buyer must make. There’s also the mortgage to consider. Although the choices for mortgages aren’t nearly as vast as the number of homes on the market, there are still several types of mortgage loans available, each with distinct advantages and disadvantages.

Following is some general information about the most common types of mortgages available today. It’s important to consider the three main components of a mortgage—the down payment, the monthly payment, and fees—when deciding which loan fits best with income, budget, and the length of time planned for ownership of the particular home. When it comes to making sound decisions throughout the buying process, choosing the right mortgage is every bit as important as picking the perfect home.

Fixed-Rate Mortgages—These loans are usually for a period of 15 or 30 years and maintain the same interest rate for the entire term of the mortgage. That means the monthly payment stays the same throughout the length of the loan. The stability of a fixed-rate mortgage enables homeowners to budget easier since there are no fluctuations in their house payment. The down side, however, is the fact that if interest rates fall significantly throughout the length of the loan, the homeowner must refinance in order to take advantage of lower rates. Refinancing includes closing costs and other fees, which can be expensive. But if the decrease in the interest rate is substantial, the overall savings over the course of the new loan will be worth it.

Adjustable-Rate Mortgages (ARMs)—With an adjustable-rate mortgage, interest rates will change throughout the term of the loan, making monthly budgeting more of a challenge. Typically an ARM starts out with an initial low fixed-rate period, usually three to five years, and then the rate is adjusted annually every year after that period. This type of loan is often referred to as a hybrid 3/1 or 5/1 ARM. Lower rates and payments during the early part of the term make ARM loans ideal for people who require less of a monthly payment to qualify for a loan. Also, an ARM is an inexpensive way to borrow for a home that will only be lived in for a short time due to certain job transfers or other planned moves.

FHA Loans—These government-insured loans are initiated through the Federal Housing Administration. While they are available to many types of borrowers, FHA loans are especially helpful for first-time homebuyers because the down payment requirements are much lower than traditional mortgages and credit scores are not as important for approval. There is a cost, though. Since the government is insuring the lender against losses incurred due to the borrower defaulting on the loan, the borrower must pay for that insurance, which increases the monthly payment. 

While these are the most common mortgage loans, there are other types available, including VA loans, USDA/RHS loans, interest-only loans, jumbo and conforming loans. The links below provide more detailed information on the various mortgage loans from which borrows can choose.

 

http://www.homebuyinginstitute.com/mortgagetypes.php

http://www.bankrate.com/brm/green/mtg/mort1a.asp

http://www.practicalmoneyskills.com/personalfinance/lifeevents/home/mortgage.php

http://www.usa.gov/topics/family/homeowners/buyingselling/mortgages/types.shtml

http://fhagovernmentloans.org/?gclid=CMeu3dPihb4CFe87MgodXSUA3A

http://www.benefits.va.gov/homeloans/

http://www.rurdev.usda.gov/lp_subject_housingandcommunityassistance.html

https://themortgagereports.com/

 

 

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