When it comes to financing your home, you have a few options to take into consideration. It can be confusing and you may not know the difference between the options or know which one is right for you. Let’s take a look at the three most popular mortgage loan options.
Fixed mortgage loans
Fixed mortgage rate loans are the most popular type of home loan. With this type of loan you will know upfront what your monthly payment will be for the life of your loan.
The 30 year fixed rate loan is probably the most common loan selected by home buyers because the loan is spread over a longer span of time which reduces the monthly payment required each month. However, it increases the amount you have to pay over time due to interest as opposed to a shorter term loan.
The 15 year fixed rate loan allows you to pay off your home if fifteen years and is a popular choice for home buyers that can afford a higher monthly payment. You will only pay half the interest you would otherwise pay with a 30 year loan.
Biweekly loans are usually tied in with a 30 year fixed rate loan. Payments are made every two weeks instead of monthly. This lowers the amount of interest you have to pay and means your home will be paid off a few years sooner.
Adjustable rate loans
The adjustable rate mortgage can be tricky for those that don’t understand how it works or are on a tight budget. The amount you pay each month depends on the current interest rate. Therefore it is possible your payments will increase as time goes on.
This type of loan allows you to switch from a fixed rate loan to an adjustable loan or vice versa. This gives you flexibility in the years ahead to switch your loan type to get the lowest interest rates and lowest house payments.
Interest only loan
If you work on commission or receive a big bonus each year as part of your salary, you may be interested in an interest only loan. With this type of loan, you just make the interest payments each month until you get your bonus, and then you make a lump sum payment on your mortgage.
A balloon loan is a fixed rate loan that has small monthly payments which span around seven years. Then at the end of seven years you must pay off the loan in a lump sum payment or refinance the loan.
A reverse mortgage is for those with a lot of equity built up in their home. The loan requires no mouthy payment, however the loan needs to be paid off if you sell your house.
This type of mortgage loan is a good match for first time home buyers and those with little money for a down payment. FHA loans require a smaller down payment than conventional loans and the monthly payments are also less.
Veterans loans are only for those who have served in the armed forces and their survivors. No down payment is required for this type of loan.
You can see there are quite a few choices to mull over. The best idea is to consult with your realtor, financial advisor, or other professional to help guide you through the types of loans available and how to choose the one best for you.