The Most Common Types of Mortgage Loans
Taking out a mortgage loan is typically the largest amount of money any one person will borrow in their entire life. Buying a home is an investment. You want to make sure that you are making a smart investment. There are a lot of mortgage options, some more common than others. If you plan to buy a home, you will want to know about the most common types of mortgage loans available.
The fixed rate mortgage loan is perhaps the most well known mortgage option. When interest rates are low, it is a good idea to get a fixed rate mortgage and lock in the interest rate. Whatever interest rate you get with your mortgage will stay with you unless you refinance the house. The amortization schedule with a fixed rate mortgage will stay the same throughout the term of the loan.
Most fixed rate mortgages have a term of thirty years, but amortization schedules can range anywhere from ten year terms to forty year terms. The shorter the term, the lower the interest rate usually. The longer the term, the more expensive the loan will be by the end of the term since you are paying interest for longer.
Obviously, the least expensive loans have the shortest terms so if you are looking to save money, you might consider a shorter term for your fixed rate mortgage. Your monthly payments will be more, but you will pay less for the loan in the long run.
An adjustable rate mortgage is another common mortgage. They have become more popular over the past several years. Some buyers grossly misunderstand the ARM (adjustable rate mortgage) loan. The main thing to be aware of with this type of loan is that you need to expect that your monthly mortgage will change over time.
People will use this type of mortgage if they are using the property as an investment that they plan to sell when it appreciates in value. Sometimes they'll rent out a place for five to ten years in the amount of the interest only mortgage and then sell the property for a profit when it appreciates.
These are two of the most common types of mortgage loans. There are of course several more options available to the borrower. It is important that you feel you made the best financial decision for you and your family when you purchase a home. Choose a mortgage loan that makes sense for you.
The fixed rate mortgage loan is perhaps the most well known mortgage option. When interest rates are low, it is a good idea to get a fixed rate mortgage and lock in the interest rate. Whatever interest rate you get with your mortgage will stay with you unless you refinance the house. The amortization schedule with a fixed rate mortgage will stay the same throughout the term of the loan.
Most fixed rate mortgages have a term of thirty years, but amortization schedules can range anywhere from ten year terms to forty year terms. The shorter the term, the lower the interest rate usually. The longer the term, the more expensive the loan will be by the end of the term since you are paying interest for longer.
Obviously, the least expensive loans have the shortest terms so if you are looking to save money, you might consider a shorter term for your fixed rate mortgage. Your monthly payments will be more, but you will pay less for the loan in the long run.
An adjustable rate mortgage is another common mortgage. They have become more popular over the past several years. Some buyers grossly misunderstand the ARM (adjustable rate mortgage) loan. The main thing to be aware of with this type of loan is that you need to expect that your monthly mortgage will change over time.
People will use this type of mortgage if they are using the property as an investment that they plan to sell when it appreciates in value. Sometimes they'll rent out a place for five to ten years in the amount of the interest only mortgage and then sell the property for a profit when it appreciates.
These are two of the most common types of mortgage loans. There are of course several more options available to the borrower. It is important that you feel you made the best financial decision for you and your family when you purchase a home. Choose a mortgage loan that makes sense for you.
About the Author:
Trinity gives people advice about mortgages for people with bad credit and home loans for people with bad credit.
posted by Credit Counseling at
4:20 AM
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