There are several types of home mortgage loans available to buyers. Since several options are available, one will surely fit your home buying needs.
A fixed rate mortgage loan is one in which the interest rate is consistent during the life of the loan. The advantage of this type loan is that your house payment will be the same as long as you have the loan. The downfall is that if you lock in at a higher interest rate, it won’t change even if interest rates fall during the life of your loan.
Many homeowners choose a 30-yeaer fixed rate loan. It takes a while to build equity, but if you plan to use the house as your primary residence for several years, this option will give you a stable rate. Fifteen year fixed rate mortgages let you pay off your loan quicker and let you build equity sooner. The payment will be higher than a 30-year loan, though. If you think you might like to sell the house in a few years, a 15 year mortgage might be best for you. It will give you a stable rate, but allow you to recoup your money quicker when it sales since you’ll have more equity in the home.
Another type of home loan is an adjustable rate mortgage. In this type of loan, the interest rate varies periodically. Monthly payments increase or decrease with the interest rate. The advantages and disadvantages of this type of loan are obvious.
One type of adjustable rate mortgage is a balloon note. For a given period of time, perhaps one to three years, your loan payment would work like a fixed rate mortgage (or you may choose to have it set up as an adjustable rate mortgage if you think interest rates will work in your favor). After that period of time, the remaining balance on the loan would be due. This allows you to keep monthly payments low – at least until that loan balloons at the end of the loan period. At that time you could choose to refinance or perhaps you plan to sell the house before the note balloon comes into effect.
Another type of loan is a convertible loan. It’s simply an adjustable rate loan that can be converted to a fixed rate one after a certain period of time.
While having all these loan options can be confusing, knowing all your options as you plan to buy a home is a huge asset.