What Are The Different Types Of Mortgages?

Posted: July 12, 2012 in Uncategorized

Very few people can afford to buy a home or piece of real estate in one payment. Thankfully, there are other options. Different types of loans are available for real estate purchases. The type of mortgage that is best depends on your circumstances and what you plan to do with the property. Visit http://utahhalfpriceagent.com for more.

A fixed rate mortgage has one interest rate for the entire term of the loan. This means that interest rate fluctuations won’t affect your payments. If interest rates fall below the fixed rate you’re paying, however, then you could end up paying more for the loan than you need to.

An ARM, or adjustable rate mortgage, has an interest rate that follows the current rates. If the prime rate decreases, so will your payments. If interest rates rise, however, so too will the amount you owe each month.

A loan that combines a fixed rate and adjustable rate mortgage is called a convertible ARM. It starts out as an adjustable rate mortgage. You can choose at a certain point, though, to lock in the current rate and essentially turn your mortgage into a fixed rate one. When you can do this depends on the terms of the loan and generally must be after a set time period.

A balloon loan is a fixed rate mortgage that amortizes over a short period. This type of loan offers a low interest fixed rate for a period of a few years and then the borrower must repay the entirety of the loan. Borrowers who have interest only loans pay only the interest for the term of the loan, and then pay the entire principle when the term ends. Interest only loans work for people who intend to invest the money that will pay the principle in another asset or investment that will provide high enough returns to grow into the amount necessary to pay the entire loan once it comes due. Search for more via our website.

What type of loan is best for you? That depends on your situation and your aversion to risk. A fixed rate mortgage will never rise unexpectedly and is a way to ensure that your monthly expenses remain stable. For borrowers who do not like risk, and those who intend to stay in the home or property for a long time, a fixed rate mortgage is the best option. If interest rates are very low, you intend to sell the property again soon, or you know that your income will increase in the next year or so, then an adjustable rate mortgage can work for you. If you plan to sell your property again quickly, or if you have, or intend to have, the bulk of the loan amount soon after purchase, then a balloon or interest only loan could work for you.

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