When anybody considers purchasing real estate the first thing that comes to mind is how they are going to finance the purchase. There are a wide range of mortgage finance options from which you can select the most suitable option for your specific situation. It?s very important for anyone who is evaluating a new home purchase to know all the available options when applying for a home loan.
Traditional Mortgage
The most common home financing option is a traditional fixed rate mortgage. Most people find that this loan option is simple and safe because the cost of the mortgage doesn?t change over the course of the loan. When you consider a fixed rate mortgage it?s important to understand that you interest rate will not change during the course of the loan. This is good for a family that would like to determine a budget or has fixed monthly financial needs. For this reason the mortgage is a stable payment and can be avail for a long time span or 15, 30 or 40 years if desired.
Adjustable Rate Mortgage
Adjustable Rate Mortgage or ARM is another financing option that is popular for those who can be flexible in the mortgage interest rate that they pay each month. In this case the interest rate is connected with an index and can often vary from time to time with the changed market interest rate. This financing option is typically for a short term duration of 1, 3 or 5 years.
These are the two main types of home loans. However, there are a number of variations some of which combine characteristics of both. A few of the most common variations are illustrated below.
Government Guaranteed Mortgage Loans
An FHA loan is a fixed rate mortgage that is designed to meet the needs of first time home buyers or people with low income. The Federal Housing Administration overseas this type of loan and makes them easily available. The initial down payment is generally around 3 percent and interest rate is often lower and fixed for the life of the mortgage.
A VA loan is another Government guaranteed loan. To be eligible for a VA loan, you must have a history of active military service. The benefits of a VA loan are immense to make accommodations for those who served our country.
Option ARMs
With ARMs, there is an option to adjust the rate of interest every month. These loans provide a benefit of very low down payment but the monthly payment can quickly increase within a short period of time. ?This can be difficult in an economy that can quickly shirt and raise your interest rate significantly.
Balloon Mortgages
Balloon mortgage structured quite similar to the thirty year fixed rate loan. In the case of the balloon mortgages the terms are shorter and vary around five to seven years.
Biweekly Mortgages
This type of loan adjusts the payment duration to be due every two weeks instead of once a month. As a result the payment terms become very short and can be paid of much faster than a traditional mortgage. Someone that is considering this type of mortgage would have to evaluate the high cost of 26 payments per year rather than the traditional 12 payments.
Bimonthly Mortgages
Bimonthly mortgage do not increase the monthly payment amount, but it can help save a fraction of interest by making a payment 2 times each month. For example, if you pay half of the monthly mortgage 2 weeks prior to the end of month, you save the interest that would have been charged on that amount. By paying the interest quick it can also shorten the loan term.
Conclusion
Each mortgage option has its pros and cons and hopefully this has given you a brief overview of each programs benefits and weakness. To determine further if any of these options are suitable for you it is important to discuss your needs with a mortgage lender that better understands what if best for your situation. Depending upon your financial situation, financial structure and future plans they will be able to choose the best option for you.
Source: http://everythingfinanceblog.com/2011/08/types-of-home-loans.html
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