The Different Types Of Home Mortgage Loan
Posted on May 6, 2009 in the Mortgages category
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If you are considering buying a home, then you may be a little confused by all of the terms you hear about home loans. After all, lenders just throw around words like fixed rate, balloon mortgages and adjustable rate mortgages without a thought. What follows are the three most common types of home loans. Study it, and determine which one would be right for you.
First is the fixed rate loan and with this, you will have a fixed interest rate and that will not change for the life of the loan. So if you plan to buy a home and stay in it until you pay it off, then this would be the loan for you. Just take note that if interest rates go higher, yours will just stay the same. But just hope that they will not go down as you will be paying a higher interest rate.
The Adjustable Rate Mortgage or ARM is the second type of loan. The interest rate with this loan type goes up and down with the market. In other words, if the interest rate is low, the rate on your home mortgage will be low, but if it’s high, your loan interest rate will then reflect it. And because the interest rate on a home mortgage loan affects the payments, you will have no idea from reporting period to reporting period what your monthly mortgage payments will be. This type of loan obviously isn’t right for everyone.
To make good use of an ARM loan, individuals usually plan to sell a house quickly that they purchased for investment purposes so they may take advantage of the low interest rates especially if it looks as they may go lower.
Another reason to use an ARM as a home loan is if you are buying a home in a time when interest rates are on the decline. You can take out an ARM, and then have it changed to a fixed loan once the interest rates bottom out.
The third type would make you pay monthly for a fixed amount of time with a fixed interest rate; this is called the balloon home mortgage loan. At the end of the payment schedule, you will owe the unpaid balance in a single lump sum. The interest rates in this type are much lower than the fixed rate and the ARM.
The obvious disadvantage to this type of loan is the huge payment due at the end, but if you are planning to hold the house for a short period of time, then this might be the right loan for you.
When you get to really understand the types of home loans then you will be more confident and prepared to make the right decision in getting the best home mortgage loan for you and your family.
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I liked this post very much, keep up the good work