subject: What Are My Options For Mortgage Types? [print this page] Which Home Loan Mortgage Type Is Right For Me?
Those attempting to familiarize themselves with the different types of mortgages may find themselves overwhelmed. While there are many options available, mortgage type can be easily categorized. Basically, mortgages can be broken down into fixed-rate (interest doesnt change) and adjustable-rate (interest can change), with a few other options in between. Anyone looking into a mortgage should be familiar with the following mortgages and how they work so that they may know their options when its time to decide.
The 30-year fixed-rate mortgage is probably the most common type of home loan mortgage, with a fixed interest rate that the borrower has 30 years to pay off. A 15-year fixed-rate mortgage follows the same principles as the former, although it is paid off in half the time. An advantage to these sorts of mortgages comes in the fact that they are somewhat predictable. Of course, the 15-year mortgage requires one to make more money than the 30-year, but it may also be paid off in a shorter amount of time. Those looking to hold onto their homes for some time should look into these longer-term, fixed-rate mortgages.
Theres a sense of risk involved in taking on an adjustable-rate mortgage, as they may offer lower interest initially, but such rates have a tendency to rise. Rates are attached to an index and thus have the ability to fluctuate, impacting ones payments accordingly. Before considering an adjustable-rate, one should familiarize themselves with the different rules and regulations of interest laws, caps, etc. Many people who acquire these mortgages intend to sell or refinance prior to rates going up. This mortgage strategy requires a great degree of responsibility for the borrower, especially in an unstable economy.
There are other types of mortgages that fluctuate somewhere between adjustable and fixed rates. A hybrid adjustable-rate mortgage begins at a fixed-rate but then converts to an adjustable-rate, and can also do the opposite. A payment-option adjustable-rate mortgage shifts payment types over a period of years. Some mortgages allow one to pay only-interest for a certain period of time, while some are available which require little or no documentation if one has trouble verifying their income level. A reverse mortgage is a unique type of loan that allows those over the age of 62 shift part of their equity in their primary residence into income. These have become popular in recent years as it allows retirees to cover various expenses. There also exist buydown mortgages, where one gets a low interest rate through paying a lump-sum that remains financed over the duration of the entire loan. There are many options and points to consider when looking into a mortgage, so be sure to do proper research and prepare before jumping into one.
by: Brent M. Barnhart
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