Commonly Used Types of Mortgage Loans
If you plan to buy a home, you will have to make a choice on what type of mortgage loan is best for you. It might be overwhelming to decide when there seems to be so many different options. What is best for you financially might not be what was best for someone else. If you plan to take out a mortgage sometime soon, it would be beneficial to learn how some of the most common types of mortgage loans work so you can know which mortgage is best for you.
The fixed rate mortgage is a very typical mortgage loan. This type of mortgage offers an interest rate that is fixed to one set rate. With the interest rate set, your monthly mortgage payment will be set and won't change over time. This mortgage allows people to truly plan on what their housing payments will be over the course of the loan.
Fixed rate mortgage loans have different options for length of the loan. There are differing opinions on what is the best length of term for a mortgage. It really depends on what your objective is.
Another type of mortgage loan that has gained in popularity over the past years is the adjustable rate mortgage. It is often referred to as an ARM. Adjustable rate mortgages have interest rates that will change depending on the market interest rates at the time. Sometimes they adjust every three or five years.
When the interest rate adjusts, your monthly mortgage payment will either go up or down depending on whether the interest rate increased or decreased. ARMs can be tricky since you can't really plan on what your monthly payments will be exactly. You want to make sure you will still be able to afford your mortgage, even if the interest rates increase so that you don't lose your house. Another type of mortgage that has become more common over the past five years or so is the interest only loan. With this type of mortgage, the monthly payments are usually a lot lower than with other types of mortgages, but you are only paying on the interest of the loan and not the principal.
Interest only loans are mortgage loans that are commonly used for people using real estate as an investment. With this loan, the payments you make each month are only paid on the interest of the loan. If you were using the property as an investment and can find renters to pay the mortgage on the home, then you can make money selling the home years later when it has appreciated in value.
There are many more types of mortgages to choose from. But the most common mortgages today are the fixed rate mortgage, the adjustable rate mortgage, and the interest only mortgage. One of them might be right for you.
The fixed rate mortgage is a very typical mortgage loan. This type of mortgage offers an interest rate that is fixed to one set rate. With the interest rate set, your monthly mortgage payment will be set and won't change over time. This mortgage allows people to truly plan on what their housing payments will be over the course of the loan.
Fixed rate mortgage loans have different options for length of the loan. There are differing opinions on what is the best length of term for a mortgage. It really depends on what your objective is.
Another type of mortgage loan that has gained in popularity over the past years is the adjustable rate mortgage. It is often referred to as an ARM. Adjustable rate mortgages have interest rates that will change depending on the market interest rates at the time. Sometimes they adjust every three or five years.
When the interest rate adjusts, your monthly mortgage payment will either go up or down depending on whether the interest rate increased or decreased. ARMs can be tricky since you can't really plan on what your monthly payments will be exactly. You want to make sure you will still be able to afford your mortgage, even if the interest rates increase so that you don't lose your house. Another type of mortgage that has become more common over the past five years or so is the interest only loan. With this type of mortgage, the monthly payments are usually a lot lower than with other types of mortgages, but you are only paying on the interest of the loan and not the principal.
Interest only loans are mortgage loans that are commonly used for people using real estate as an investment. With this loan, the payments you make each month are only paid on the interest of the loan. If you were using the property as an investment and can find renters to pay the mortgage on the home, then you can make money selling the home years later when it has appreciated in value.
There are many more types of mortgages to choose from. But the most common mortgages today are the fixed rate mortgage, the adjustable rate mortgage, and the interest only mortgage. One of them might be right 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
6:02 AM
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