by: STUART PARKER
With changing economy, mortgage market is also changing rapidly. The changes have made it really difficult for most of the home buyers to get an affordable mortgage loan easily. The options are limited enough as the qualification criteria is going higher rapidly. However, there are still a few options available for home buyers to choose from.
3 Types mortgage loans that home buyers may look forward to
There are basically 3 types of mortgage loans that home buyers can look for. For better home financing home buyers may choose anyone from these 3 types. Here are the 3 different types, have a look:
1. The fixed interest mortgage
This is the most classic form of mortgage loan for the home buyers. As the name suggests, in this type of mortgage loan the interest rate on the loan will remain same for the whole life of the loan. The payment can be done easily through equal monthly installments. The amortization of the loan amount makes the payment easy for many. Here are some other features of the fixed interest mortgage:
- The interest rate and the principle balancing: Apart from being fixed the interest rates are generally front-loaded in this type of mortgage loan. Just because of this, during the first few years of the loan tenure, the borrower mostly pays interest. Less goes for the payment of actual loan amount.
- The loan terms: The two most common terms are 15-year and 30-year mortgage terms. However, shorter terms are also available there. The term depends largely on the requirement of the borrower. Even 40-year and 50-year mortgage terms are also available there for the areas where housing price is extremely high.
The price factor: Fixed rate mortgages are considered to be more costly than the adjustable rate mortgages. As the interest rate is fixed, it’s quite obvious that the price will go high.
2. Adjustable rate mortgage
Here are the essential facts that you need to know about adjustable rate mortgage or ARM:
- The interest rate: The interest rate of the adjustable-rate mortgage isn’t fixed at all. This keeps changing according to the market condition. The rates keep changing almost every year. It’s actually a bit difficult to cope up with the changes in interest rates.
- The time frame is short: The time frame of adjustable rate mortgage isn’t as long as the fixed interest mortgage. For hybrid ARMs there is no fixed time frame and it can be anywhere between 3 to 10 years.
3. The interest only loan:
This is also a famous form of mortgage loan that most borrowers find useful. The borrowers only have to pay the interest rate charged on the main balance for the initial years. There is no hard and fast rule for the payment of principal balance. The overall structure is more like the ARM.
The interest only loan is good for the home buyers who have the assurance of financial improvement in future. Young people who’ve just started earning can take out interest only loan to buy a house. The repayment depends largely on the interest payment made during the initial years of the loan term.
These are the 3 main types of mortgage loans that home buyers may select according to their specific needs. Of course, the borrowers must consider their financial standing to take out the most suitable mortgage loan. For more information you can follow us on Twitter