Five Types of Mortgages You Should Consider For Your Next Home


Buying a new house is not often something you can do without a mortgage of some sort. The vast majority of buyers are not qualified to pay cash for a new home, and that’s where banks and other lenders come in handy. These lenders offer buyers the chance to finance their homes through something called a mortgage. There are many different types of mortgages, but they’re all very similar in that they last much longer than other loans. The average loan on a new home is around 30 years, though many people choose to have shorter mortgages that allow them to pay less interest and pay off the balance of their home years sooner. If you’re in the market to buy a new home, you should familiarize yourself with the many types of mortgages available to potential homebuyers with good credit scores. These mortgages all allow you to purchase a new home, but the terms are slightly different with each one.

Fixed Rate Mortgages

This is a standard mortgage that offers you the chance to buy a home knowing what your interest rate will be for the rest of the length of the loan. For example, if you buy a home with a 4% interest rate, it will be 4% forever. This will not change. You will not see this rate go down if rates drop, and you will not see it go up if rates go up. That’s the good news; and as long as your mortgage is low, you are going to ensure that you always have a good rate. If the rate you’re attempting to lock in is on the high side, however, you’re going to find that it’s probably not a good idea to go with a fixed rate mortgage. Wait for one of these mortgages until rates are low enough to be too irresistible to pass up. This is one of the most common types of mortgage, and it’s the kind of mortgage that allows you to rest assured that you are paying what you will pay for the length of the loan. This is one of the only types that presents everything up front for the life of the loan.

Adjustable Rate Mortgages

What attracts people to this type of mortgage is the fact that the payments are lower than usual at the start. However, you should know that this could change at any time. There is a lot to understand about this type of mortgage. Just because interest rates drop in general does not mean yours will, and just because they rise does not mean yours will. It all depends on when you get your mortgage and when your rates are subject to change. You have periods of time in which things change and they don’t change. For example, your rates could be the same for several years before they change, which might not be a bad idea if you plan on refinancing your home before the term ends. These mortgages can be very appealing to many buyers at first, but the risks are high.

Interest-Only Loans

This is the kind of loan that allows homebuyers the chance to purchase a home with a very low monthly payment for a set amount of time. For example, this kind of loan only requires that you pay the interest on the loan at first. All payments go directly to interest and none to your actual principal balance. This means you do not pay down the balance of the loan at all, and when the term is over you are usually presented with three choices; pay off the loan in full, refinance the loan, pay much higher monthly payments. It’s a risky loan for many because it’s often difficult to refinance a home for which you have paid nothing down. Additionally, you might have to deal with the concept of much higher payments that are unaffordable in comparison to what you paid in the past when the loan was interest-only. Additionally, if you do have to go the route of refinancing, you just paid the interest of one loan and now are paying interest all over again yet you haven’t paid one cent to your loan principal.

FHA Loans

This loan is one that is offered to homebuyers that may not qualify for a home loan in any other capacity. For example, if you cannot afford a loan because you cannot afford to pay the typical down payment, you might be able to apply for an FHA loan from the federal government. This type of loan allows you to get a loan on your home with a low down payment. This is something that helps many homebuyers afford the homes they want. The consideration to make with this type of loan, however, is the fact that this one often comes complete with limitations. There are maximums and caps in place that dictate what kind of mortgage you can apply for and how much you can apply for.

Balloon Mortgage

The balloon mortgage is something most people consider a bad idea for homebuyers, and for good reason. While there are some people who are in love with the idea of a balloon mortgage, it’s not the loan for everyone. In fact, it’s not the loan for most people. For a fixed period of time, this kind of mortgage comes complete with a very low interest rate and a very low payment. However, when that term is over, everything changes. When the fixed period is over, the entire balance of the mortgage is due. This is often a term that lasts anywhere from 3 to 5 years. This means you will get a very low mortgage payment for a few years, but then you have to pay the balance of the mortgage in full when the term is over. This is fine if you have the cash on hand but if you don’t, you will need to refinance the mortgage. And since you never know what could happen to your job or financial security during this time, it’s a risky loan type for most buyers.

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