Fixed-rate mortgages
As the name implies, a fixed-rate mortgage carries
the same interest rate for the life of the loan.
Traditionally, fixed-rate mortgages have been
the most popular choice among homeowners, because
the fixed monthly payment is easy to plan and
budget for, and can help protect against inflation.
Fixed-rate mortgages are most common in 30-year
and 15-year terms, but recently more lenders
have begun offering 20-year and 40-year loans.
For more information regarding
this or other loan programs please click here.
Adjustable-rate mortgages (ARM)
Adjustable-rate mortgages differ from fixed-rate
mortgages in that the interest rate and monthly
payment can change over the life of the loan.
This is because the interest rate for an ARM
is tied to an index (such as Treasury Securities)
that may rise or fall over time. In order to
protect against dramatic increases in the rate,
ARM loans usually have caps that limit the rate
from rising above a certain amount between adjustments
(i.e. no more than 2 percent a year), as well
as a ceiling on how much the rate can go up
during the life of the loan (i.e. no more than
6 percent). With these protections and low introductory
rates, ARM loans have become the most widely
accepted alternative to fixed-rate mortgages.
For more information regarding
this or other loan programs please click here.
Hybrid loans
Hybrid loans combine features of both fixed-rate
and adjustable-rate mortgages. Typically, a
hybrid loan may start with a fixed-rate for
a certain length of time, and then later convert
to an adjustable-rate mortgage. However, be
sure to check with your lender and find out
how much the rate may increase after the conversion,
as some hybrid loans do not have interest rate
caps for the first adjustment period.
Other hybrid loans may start with a fixed interest
rate for several years, and then later change
to another (usually higher) fixed interest rate
for the remainder of the loan term. Lenders
frequently charge a lower introductory interest
rate for hybrid loans vs. a traditional fixed-rate
mortgage, which makes hybrid loans attractive
to homeowners who desire the stability of a
fixed-rate, but only plan to stay in their properties
for a short time. For more
information regarding this or other loan programs
please click here.
Home Equity Loan.
A home equity loan allows you to borrow money
by offering the equity in your property as collateral
for the new loan usually as a 2nd positioned
mortgage. Unlike a fixed 2nd mortgage where
the borrower receives a lump sum and makes fixed
payments for a specified term (usually 15 years);
the "Home Equity Line Of Credit" allows
you to make payments only on what you draw out
of the account. For more
information regarding this or other loan programs
please click here.
Interest Only
An interest only loan is setup so that your
entire monthly payment is directed toward paying
the interest on your mortgage. If you make the
minimum payment each month you will not reduce
your mortgage balance, although your property
will continue to appreciate in value. This is
a popular option for borrowers looking to keep
their payments as low as possible. For
more information regarding this or other loan
programs please click here.
Option ARM
The basic principle with an option ARM is that
it gives you, the borrower, the power to decide
how much you would like to pay each month on
your mortgage. When you receive your monthly
payment statement you will have 4 payment options
to choose from
Each month you choose to make the minimum payment
you will be deferring interest, causing your
mortgage balance to increase. While this type
of mortgage is certainly not for everyone it
presents obvious benefits to borrowers who have
seasonal employment, investors looking to increase
cash flow on an investment property, the self
employed or commission based who may not receive
regular compensation, etc. For
more information regarding this or other loan
programs please click here.
Reverse Mortgage
A reverse mortgage is intended to allow seniors
who are 62 and older, and have a great deal
of equity in their home to supplement their
monthly income using the equity in their home.
Borrowers typically receive monthly, tax-free
payments from the new mortgage until they move,
sell the home, or pass away. There are also
options to receive a lump sum payment, or setup
a line of credit that can be accessed at any
time. In most cases the payments will not affect
your social security or Medicare status. A reverse
mortgage is really the only time your mortgage
company makes payments to you. For
more information regarding this or other loan
programs please click here.
Construction Loan
A construction loan is typically a short term
loan that is intended solely to fund the construction
of a new home. If you do not currently own the
land that the home is being built on you can
include its purchase price in the initial disbursement
of funds. In most cases you are required to
make interest only payments based the current
balance of the loan. As the construction proceeds
and payments are made to contractors the amount
of your monthly payment will increase. For
more information regarding this or other loan
programs please click here.
Once the house is completely finished being
built you will be able to refinance and establish
your end mortgage. You can choose any type of
loan that you would like, such as a fixed rate,
ARM, etc. There are also some loans that will
allow you to setup your end loan at the same
time as your construction loan. The nice thing
about these types of loans is that you will
not have to pay closing costs twice, although
the interest rate may be slightly higher than
you would otherwise pay.
Time as a factor in your loan choice
As has been discussed, the length of time you
plan to own a property may have a strong influence
on the type of loan you choose. For example,
if you plan to stay in a home for 10 years or
longer, a traditional fixed-rate mortgage may
be your best bet. But if you plan on owning
a home for a very short period (5 years or less),
then the low introductory rate of an adjustable-rate
mortgage may make the most financial sense.
In general, ARMs have the lowest introductory
interest rates, followed by hybrid loans, and
then traditional fixed-rate mortgages.
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