Owning a home is a dream most people, particularly those who have never owned one before. There are those who are lucky to inherit a beautiful home from their parents or relatives but most of us don’t necessarily get that opportunity. Home ownership and mortgages go hand in hand. As someone who has never owned a home before or who has never been involved in the process of getting a mortgage, it’s natural that you may have questions regarding various things related to mortgages. It’s not possible to cover all that there is to know in this article but by the time you’ll be done with it, at least some things shouldn’t bother you anymore. Here are the most common types of mortgages you are likely to deal with.
Fixed Rate Mortgages
As the name suggests, a fixed rate mortgage is one where the interest rate on the mortgage is fixed for the entire period of the loan. Almost anyone who has ever dealt with mortgages before knows this one because it’s the most common type of mortgage. Most people are drawn to this kind of mortgage because they are predictable and easier for those who take the loans to budget for. Often, they are presented in 10, 15, or 30-year options. Most people go for the 30-year option because it’s interest rate is the lowest. Be that as it may, the 15-year option builds equity the fastest. According to Propillo, fixed-rate mortgages are ideal for those with a steady source of income and recommended for first-time homeowners.
Adjustable Rate Mortgages (ARM)
There are those who refer to this kind of mortgage as a floating-rate mortgage or variable-rate mortgage, but it’s the same thing; the interest rate of this mortgage will invariably change based on certain conditions. The moment the change takes place, the monthly payments will be modified to reflect the new interest rate. As expected, that means the interest rate will increment with time, causing your monthly payment to also be higher.
ARMs are ideal for those with the intention of only staying in a house temporarily or anticipate to clear the mortgage by the time it reaches the adjustment period.
Government-Insured Loans
These include loans like the FHA (Federal Housing Administration) mortgage, VA (Veterans Affairs) mortgage, and USDA (United States Department of Agriculture) or RHS (Rural Housing Service) loans.
The thing that’s most attractive with government-insured loans is that most banks or financial institutions welcome them because of the guarantee that if the borrower fails to pay, the government will reimburse them. On the other hand, borrowers prefer them because government-insured loans also involve very low interest rates. Most borrowers find this to be more manageable compared to taking private mortgages. The main drawback with government-insured loans is that you may still have to pay for mortgage insurance, which in this case may be considerably expensive compared to private mortgage insurance.
Interest Only Mortgages
With this kind of mortgage, you’ll only pay the interest on the loan for an agreed period. Once the period has elapsed, you’ll be accountable for refinancing the terms of the loan or settle the mortgage at once.
This kind of loan is ideal for those with an inconsistent income or those who are sure fortune will soon favor them with a major financial breakthrough by the time the terms of the agreement will be changing.
Balloon Mortgages
Balloon mortgages are similar to fixed rate mortgages and last for a short period. They involve considerably low monthly payments because the payments are essentially the interest involved in the loan, and due to a major payment (balloon payment), that takes place at the end of the loan.
They are ideal for those who are financially disciplined but with the intent of selling the house by the time the balloon payment is due.
Reverse Mortgages
Called reverse mortgages because the tables are turned; instead of the one in need of a home taking the mortgage from a financial institution, it’s the financial institution taking a loan from the homeowner. This kind of mortgage is common with and ideal for seniors. It’s particularly ideal for seniors who are sure their home won’t go to a relative after their time is up. It’s an ideal way to earn some extra income in the course of the golden age.
These are the most common types of mortgages you are likely to come across out there. I’m sure at least one of them will apply to your situation. Now those doubts and the ambivalence you’ve been having should be cleared. You have more information about mortgages to make an informed decision. Be that as it may, do some more research because I’m well aware I haven’t covered everything. This was just a good introduction to what you should expect. Some more research should give you the details and specifics you need to be sure to invest in something you’ll manage and appreciate.
