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  Home Mortgage TypesThursday, April 18th, 2024  

Buying a solid home in a good neighborhood is usually considered a good, solid, financial investment. Under normal circumstances, if a home is properly maintained, it increases in value over time, offsetting the interest paid on the mortgage loan.

When investing in a home, it's useful to understand the different types of mortgages available to you. Each is tailored to different needs and must be carefully researched before choosing the right mortgage for your situation. Take the time to find out all you can, talk to different lenders, and plot out your goals. Whether you are purchasing a new home, vacant real estate, or business real estate, the time taken to research your available options now, may save you bundles later. The more common mortgage categories are listed below.

Fixed-Rate Mortgage (FRM)
Commonly offered with fixed terms of 15 or 30 years, (though some lenders are now offering 20 year and 40 year terms) Fixed rate mortgages are the most commonly used option. The interest rate and mortgage is "fixed" at the time the mortgage is obtained. The benefit here is that you know exactly how much the Principal and Interest payment will be each month. By choosing a different term, you can taylor your payment to what you can afford remembering that the total amount paid toward interest will be much larger with a longer term loan.

Adjustable-Rate Mortgage (ARM)
The main difference between an Adjustable-rate mortgage and a fixed-rate mortgage is that the interest and monthly payment of an adjustable rate mortgage can change over the life of the loan. Often, the rate is set at a low, introductory rate at the beginning of the loan and this makes an ARM attractive. Generally, the interest rate has a cap to limit the rate from rising more than a set percentage between adjustments, for example, no more than 2 % per year. A ceiling is usually set so that the interest rate cannot raise past a certain point over the life of the loan, i.e. 6%, so while this type of mortgage carries some risk, there is a limit to that risk.

Balloon Payment Mortgage
Balloon payment mortgages begin as a fixed interest rate 30 year loan, with the difference being that the entire balance of the loan becomes due after 7 years. This may work well for those who do not plan to stay in the home beyond five years and this type of mortgage is gaining popularity for that reason.

FHA or VA Mortgage
United States programs such as the Department Of Veterans Affairs (VA) and the Federal Housing Authority (FHA) that carry lower qualifying levels and require smaller, if any, down payment. The VA loans are only issued to veterans, while FHS loans are issuable to any citizen. These federal programs do not supply the loan. Lending is done through a private institution and "guaranteed" by the Federal agency in case of default. Be aware, that the government programs often carry certain stipulations, that may limit your choice of homes.

As in all financial matters, it is best to fully research all options before deciding which is right for you. Talk to many lenders and gather as much information as possible before making your decision.

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