Choosing Your Perfect Mortgage
Just as there's a home style to suit every lifestyle, there are numerous mortgage options available today to meet a variety of needs and situations.
Which mortgage is the best choice for you?
Here's a handy home mortgage primer:
Fixed Rate Mortgages
Fixed rate mortgages offer one primary advantage: predictable housing costs for the life of the loan. The most common is the 30-year fixed rate mortgage. This choice offers the lowest monthly payments, while providing a never-changing monthly payment schedule. Some lenders offer 15, 20 and 25-year term mortgages as well. The longer the term of the loan, the more total interest you will pay.
Changing Mortgages
A new type of loan, often called a Two-Step or Super Seven, gives homeowners the predictability of a fixed rate for a certain period of time (often 7 or 10 years) and then the interest rate is adjusted to fit market conditions at that time.
A Lender Buydown is another mortgage that fits this category, where the homebuyer gets an initially discounted rate and
gradually increases to an agreed-upon fixed rate from the third year on.
Convertible fixed rate mortgages offer homebuyers the option of getting a loan that can be adjusted to a lower interest rate with a payment of a few hundred dollars and a small fee based on the loan amount instead of refinancing.
Adjustable Rate Mortgages (ARM)
With an ARM, the initial interest rate is typically one to three percentage points lower than that of fixed rate mortgages, making ARMs easier to qualify for. However, payments and interest rates can increase, either steadily or irregularly, so homebuyers need to have the income to keep up with all possible rate and/or payment changes. Interest rate caps and monthly
payments caps are consumer safeguards found on some ARMs.
Interest-only Mortgages
An interest-only loan does not mean you will never pay
principal on a home loan. Typically, your interest-only
payments will last for a specified term (for example, 5 years). During that time, your only obligation is to make interest
payments. After that period, the unpaid balance of the loan
is fully amortized over the remaining term and you are then obligated to make principal and interest payments to the lender.
"We're seeing a lot of interest-only loans right now," says Diane Wallenta, a loan officer with Ryan Mortgage. "People are asking for them. They're a popular option."
Reverse Annuity Mortgages (RAM)
For older Americans, especially those on fixed incomes, the equity in their home represents a large but liquid asset. The RAM was designed to help supplement those homeowners' income by paying them an annuity, usually every month, up to an amount equal to the equity they have in the home.
The homeowner retains ownership and the loan is based on a percentage of the home's current value.
FHA/VA Mortgages
The Federal Housing Administration and the Veterans Administration offer fixed rate mortgages and ARMs, with loans that feature low or no down payment terms. VA loans are restricted to individuals qualified by military service or other entitlements, but FHA-insured loans are open to all qualified home purchasers.
Questions?
Talk with your lender to find the right type of home mortgage for you.
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