Loans > Types of Mortgage Loans |
Balloon Loans Balloon loans offer a lower interest rate for a period of 5, 7 or 10 years. At the end of the term, a lump sum payment of the outstanding balance is due or you must refinance the loan. These loans are good for those who plan to sell their homes in 5, 7 or 10 years or plan to refinance at these times. Buydowns The interest rate and monthly payment remain the same for a specific period, then the rate and payment increase one, two or three times, depending on whether the loan is a 1/1, 2/1 or 3/1 type. After all of the permitted increases have occurred, the loan stays fixed at the new rate for the life of the loan. In order to "buy the rate down" to a lower interest rate, one is typically charged a fee. The basic advantages of a buydown loan is that it offers a lower rate and monthly payment for the first few years of the loan. These loans are ideal for those who cannot qualify for a fixed rate loan or a lower monthly payment. Credit Kit -- Improve credit score and reduce monthly bills by $200+ Debt Kit -- Settle unsecured debt for less than half of amount owed |
Fixed Rate Mortgages Loans are amortized over a 10, 15, 20, 25, 30 and 40 year terms. Monthly payments and interest rate remains the same over the entire life of the loan. Advantages and disadvantages of each: 30-Year Mortgage Loan: In the first 23 years of the loan, more interest is paid off than principal, meaning larger tax deductions. As inflation and costs of living increase, mortgage payments become a smaller part of overall expenses. 20-year Mortgage Loan: Interest rates are usually much lower than 30 year mortgage loans and can save a considerable amount of interest costs since mortgage is paid off 10 years earlier. 15-year Mortgage Loan: The mortgage loan is usually made at a lower interest rate. Equity is built faster because early payments pay more principal. Interest savings are significant when compared to a 30-year loan. Ideal for those close to retirement age. If you have a fixed rate loan and the interest rate drops significantly, you may want to refinance. Experts are in agreement that refinancing is a smart move if you can get an interest rate that is 2 points less than your current rate and you plan to remain in the house for at least 18 more months (to recover costs associated with refinancing). Adjustable Rate Mortgages (ARMs) The interest rate and monthly payment remains the same for a fixed period (1, 3, 5, 7 or 10 years) and then the rate can rise at fixed intervals. This increase can be anywhere from .05 to 2.00 percent per increase. There is a cap on the margin that determines the highest rate the interest can go. The major advantage of this type of loan is that home buyers can get a lower rate for a certain period of time, and then refinance when fixed rates get better. Consumers are drawn to these types of loans because (1) they usually offer a lower initial interest rate than a fixed mortgage, and (2) the lower interest rate may qualify many consumers for a larger loan. Fixed rate vs. ARM: Fixed rate mortgages are predictable since the monthly payment never changes. Since the monthly payments associated with ARMs are lower in the beginning, they make home ownership more affordable and may allow borrowers to qualify for a larger loan; however, one should make sure that his or her income will increase in the coming years per the cap set in the mortgage agreement. ARMs are also a good idea for those planning to sell their home in the next few years since increasing interest rates won't affect these homeowners. |
Types of Mortgage Loans |
Loans > Types of Mortgage Loans |
