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Top 9 Mortgages Explained! Find The Mortgage That Is Right For You
By: John R. Blakefield
There seems to be an endless choice of mortgages and rates available to the home
buyer consumer. It is always great to have options so you can specify a mortgage
that is perfect for your financial situation. However, it can get tricky
deciding between the many options.
I have attempted to put together in one place, information on the top 9
mortgages that are used for home buyers to finance their homes. Although these
are common mortgages and terms that you will see from a financial lender,
remember that these mortgages are almost always negotiable, especially if you
have pulling power with good credit and a large down payment. Never agree to a
mortgage or financial commitment, no matter how tempting, if it falls out of
your range of financial comfort. Address all options and choose what is right
for you.
1. Fixed Rate Mortgage
A fixed rate mortgage, like the name implies, maintains the same interest rate
throughout the entire life of the loan. You can get this fixed rate mortgage
usually in 10, 15, or 30 year terms. The time can be negotiable with your
specific lender to fit your needs. This type of mortgage is good for the home
buyer who wishes to know how much the house payment will be every month because
it is fixed and if the home buyer is planning on living in the home for 10 years
or more.
2. One Year Adjustable Rate Mortgage
Adjustable rate mortgages, or ARMS, have interest rates that change according to
financial indexes often dictated by the current market. This means that your
payment can increase or decrease according to the change in the index. This can
sometimes offer instable payments so the home owner must be prepared for changes
of either an increase or decrease in amount.
With the one year ARM, the interest rate changes every year according to the
index for the entire life of the loan. This can be good for the home buyer who
wants to risk getting the lowest rate possible at the expense of risking a
higher rate and higher monthly payments if the index changes accordingly. The
rates are usually offered on the lower end due to the risk that the buyer is
carrying. If you enter into this type of fluctuating loan due to financial
status, you can always re-negotiate terms or refinance later and get a better
deal and more stable loan.
3. 10/1 Year ARM
With this mortgage, the interest rate remains the same for 10 years and then
starting the 11th year changes every year according to the index the lender
chooses to base the interest on. This mortgage is good for those who may move in
10 years and want to enjoy a stable payment plan while they are living in the
home.
4. Balloon Mortgage
Balloon mortgages are considered a little higher risk because at the end of the
life of the loan, there can be a large payment as the loan is due in full. The
life of the loan is negotiable; however 3, 5, and 7 year balloons are common.
The home owner will pay at a stable interest rate for the life of the loan, then
at the end of the term, all the remainder of the loan must be paid in full. The
home owner must be prepared for this final, possibly very large payment.
This mortgage is good for those who want to live in the property more than the
life of the loan, who want to pay the mortgage of quickly, who like stable
monthly payments, or who plan to move before the life of the loan, in which the
loan can be assumable and passed to another buyer.
5. 7/1 Year ARM
Like the 10/1 ARM, this mortgage simply has a different life term. The interest
rate remains steady for 7 years and then starting the 8th year the interest rate
will change according to the index, causing the monthly payment to change every
year after. This mortgage is good for the home owner who plans to live in the
home for 7 years and likes stable payments. It is also good for the home owner
who wants to move within 7 years and has options in case he or she chooses
otherwise.
6. 30 Due in 7 Mortgage
This mortgage is like two fixed rate mortgages put together. It is also known as
a 7/23 two-step mortgage. The interest rate and monthly payment remains stable
for 7 years and then on the 8th year, the interest rate changes according to the
current rates. This interest rate and payment will remain the same for the life
of the loan. This mortgage is good for those who plan to live in the home for
more than 10 years and wants to risk the interest rate going either higher or
lower at the 8 year mark.
7. 30 Due in 5
Similar to the 30 due in 7, this mortgage is a two-step mortgage that has an
interest rate and monthly payment that remains stable for 5 years and then
changes according to the current market rates on the 6th year. This mortgage is
good for those who wish to live in the home for longer than 5 years and want to
risk having a change in a monthly payment, whether an increase or decrease.
8. 5/5 and 3/3 ARMs
These mortgages have a stable payment for the first listed number, 3, 5, or
however negotiated, and then after that period the interest rate changes
according to the market every 5 years for the 5/5 ARM and 3 years for the 3/3
ARM. This mortgage has fewer adjustments for the life of the loan and is good
for those who which to live in the home for a period of 3-5 years and who are
open to changes in the future.
9. 5/1 and 3/1 ARMs
This mortgage is not stable and the interest rate changes every year after the
first listed number. So starting the 6th year for the 5/1 ARM and starting the
4th year for the 3/1 ARM. This is good for the home owner who wishes to live in
the property for the stable payment length of the loan and who is willing to
risk getting the lowest rate possible after a time of stability.
As you can tell, most of these mortgages can fall under three main categories:
fixed, adjustable, two-step and balloon. The terms and length of the mortgages
are negotiable, so ask your broker, lender or financial advisor for assistance
in finding the best loan for your financial situation.
About the Author:
John R Blakefield is a mortgage and real estate specialist. For more information, articles, news, tools and valuable resources on home mortgages or investment loans, refinancing, debt solutions, visit this site: http://www.scourtheweb.com/mortgage |
