Mortgage Options
- Several mortgage options exist for home buyers.home sweet home image by David Dorner from Fotolia.com
A mortgage is a means of financing a home purchase. Unless you are purchasing a home with cash and paying in full, you'll need to acquire a mortgage from a financial institution. Although many people opt for a traditional mortgage, several mortgage options exist for prospective home buyers. - Fixed rate mortgages are some of the most traditional and popular mortgage options. An interest rate is determined and locked in for the entire life of the loan. One benefit of a fixed rate mortgage is that your mortgage payment will always be the same amount. Typical lifespans for fixed rate mortgages are 15 or 30 years. Various repayment options are also available for these mortgages, including bi-weekly or bi-monthly. These mortgages slightly shorten the term of the loan.
- Adjustable rate mortgages, also referred to as ARMs, include an interest rate that can change throughout the life of the loan. The rate is determined by an index that is closely related to the state of the housing market. When the interest rate rises, your monthly mortgage payment also goes up. On the other hand, when it falls, the payment is lowered. Some ARMs have an upper limit that places a cap on how high the rate of the mortgage can go.
- There are three major government guaranteed mortgages including the FHA loan, the VA loan and the USDA Rural Development loan. The FHA loan is a fixed rate mortgage that is offered for first time home buyers with low income. The FHA, which stands for Federal Housing Authority, typically provides loans at a lower interest rate and requires less money down at the time of purchase for those who qualify.
A VA loan is offered to those who have served in the military, or to a spouse of a deceased military member. These loans require little to no down payment.
A USDA Rural Development loan is offered to low income individuals who are purchasing a home that is considered a rural development area. Home buyers can obtain this loan with no down payment. It's also easier to obtain than most loans, so those with poor credit may even be eligible. - Balloon mortgages are much like fixed rate mortgages. The mortgage payment remains the same for a fixed period of time, typically five to seven years. After this period, however, the amount owed on the loan must be paid in full. Many people opt to refinance after the five or seven year period.
- Interest only mortgages are loans where the home buyer pays only interest for a set period of time. One benefit of an interest only loan is a lower initial payment. However, after the interest-only period ends, the monthly mortgage payment will increase. Furthermore, the longer the interest-only period, the higher the payments will eventually be when the interest-only period is over.
