Not all mortgages are the same. There are many types of mortgages existing today, and they are drawn to cater to a wide variety of borrowers’ needs.
If you are looking to apply for a mortgage, it is essential to understand which one fits your needs. Knowing the types of mortgages makes it much easier to identify which one will bring you the most advantage. It also prepares you to talk to lenders and eventually get the best deal available.
Each type of mortgage is tailored for different situations. In some instances, only one type will fit your need. If multiple options provide what you need, you can discuss scenarios and ask lenders to give quotes so you can choose the best one for you.
30-year fixed-rate mortgage
It is the most popular type of mortgage, which comes with a fixed interest rate set for the entire 30-year term. This type has a lower monthly payment than that of short-term loans.
This type of mortgage is best for homebuyers who need a lower monthly payment as the rate is stable. A 30-year fixed comes with the flexibility to settle the loan quicker by increasing your monthly expenses. Thus, this type offers you peace of mind.
15-year fixed-rate mortgage
This type of mortgage is commonly used for refinancing. It comes with a fixed interest rate set for the entire 15-year term. While you may have a higher monthly payment, this mortgage has lower interest than 30-year loans.
This mortgage is best if you are a refinancer or a homebuyer who wants to build equity and pay off the loan faster. Interest rates are stable, and since you are repaying the loan for fewer years, you pay less total interest.
Rates vary among lenders; you can try to find out the rates for different loan terms. By then, you can determine if you are getting a good deal. Remember, you need to compare loan offers before deciding.
This type of mortgage is a home loan with an initial rate fixed for a specified period, then changes periodically. It means that your loan has a fixed interest rate for the first five years, and then the interest is adjusted annually.
There may be a lower initial interest in this type of mortgage, but there is an element of uncertainty after the specified period, and this is equivalent to higher risk.
This mortgage is best if you know you will be relocating in the future or if you know you can fully repay the loan in a short period. Thus, in this case, an increase in future rates will not hurt you.
The Federal Housing Administration insures this type of mortgage. FHA loans are supported by the government and are specifically created to help borrowers with lesser income to buy a home.
FHA mortgage requires you to pay an insurance premium, and it also allows you a downpayment of as low as 3.5%. Even those with a credit score of 500 can qualify for this mortgage.
This mortgage is best if you have a low credit score or your resources only allow you to shell out a 20% downpayment. Your lender is required to document and look into your income, employment, assets, debts, and credit history to find out whether you can afford to repay the loan.
You can ask lenders if the loan they offer meets the government’s Qualified Mortgage standard. Qualified mortgages provide safety to the borrowers.
This type of mortgage is supported by the Department of Veterans Affairs and is available to military service members and veterans. Here, a downpayment is not required, although an advance VA funding fee is required. Also, a VA mortgage does not offer mortgage insurance.
This mortgage is best for qualified veterans, service members, or surviving spouses— who lean towards lower interest rates and no downpayment.
This type of mortgage is one above a specific dollar amount. Jumbo mortgage limits differ in every county and are adjusted from time to time.
With this mortgage, you can choose between fixed or adjustable rates. Lenders usually require a minimum credit score of 700 and a downpayment of 10% or more.
This mortgage is best if you want to buy an expensive home or if you want to refinance jumbo-size mortgages.
This type of mortgage requires payments only on the lender’s interest charge. This means that the principal loan amount does not decrease during the interest-only payment period. You will have to show the lender that you have substantial assets to prove your ability to repay the loan.
This mortgage is best if you have a high or steadily rising monthly income, big savings, an income that varies each month, or large annual bonuses that you can use to pay the principal balance.
To sum it up, there are many mortgages readily available at your disposal. However, make sure to be knowledgeable enough so that it would do you good instead of harm in the long run. Anything about finances should be planned and thought about thoroughly.
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