What Mortgage Options Are Available To A Homebuyer?
Joseph Kenny
Buying a home is something that most people look forward to.
When it comes time to look at the various options that are
available for mortgages, though, the questions start to arise.
There are so many different options that it can definitely be
confusing. Here are some brief descriptions that explain your
different loan type products.
Every mortgage will fall under one of two general types - it
will either be a fixed rate mortgage or an adjustable rate
mortgage. Here are definitions of these two types.
Fixed Rate Mortgages
A fixed rate mortgage is one in which the interest and payment
rate always stays the same. It does not matter what happens to
the market - good or bad, your payment does not change. This is
especially good when the market is changing or the economy is
fluctuating.
Adjustable Rate Mortgages
An adjustable rate mortgage is one that changes periodically in
order to reflect the economic conditions. Most people get these
mortgages because it allows them to get a little bigger house
than they could otherwise afford. These usually have a fixed
rate portion for a few years first, then the rate changes
regularly - could be monthly or yearly. This type of mortgage
is the best when the economy is good, but could be very costly
in times of adverse economies.
Among these two types of mortgages, there are different names
that could come under either general type.
Balloon Mortgage
This type of fixed rate mortgage and is generally for 5 to 7
years. It does not fully amortize by the end of the term since
it is usually refinanced for a 25 or 30-year mortgage. This
option must be stated in the terms, though, so be sure it is in
there, or you may be left without being able to refinance.
Jumbo Mortgage
Two of the largest loan agencies in the US - Fannie Mae and
Freddie Mac, set ceilings on the amount of loans that they will
give to a borrower for a home. Any mortgage requiring more than
this is considered a jumbo mortgage. They may also be called a
non-conforming mortgage.
Assumable Mortgages
An assumable mortgage is one that the new buyer of the house
simply takes over without
any refinancing. The terms that enable this kind of transfer
must be in the contract when applied for, or it cannot qualify
as an assumable mortgage. It will also require the lender’s
permission and the new owner must qualify before being
approved. Under some conditions, some of the terms may be
changed, and closing costs will be involved. Taking over an
assumable mortgage cold turn out to be very good for the buyer
– especially if the interest rate is better than what the
market is offering at the time. Both types, fixed rate or
adjustable rate, can be assumable.
Interest Only Mortgages
While the title of this mortgage is more than a little
deceiving, it is not what it seems. It would be more truthful
to say interest first mortgage than anything. With this type of
mortgage, the interest is paid first, leaving the principal
untouched until the interest is paid. Generally, this means
more is paid because the principal is not paid down at all.
This would normally slowly reduce your interest. The difference
could result in thousands of dollars more being paid over the
lifetime of the mortgage.
About The Author: Joe Kenny writes for the UK personal finance
sites
http://www.ukpersonalloanstore.co.uk and also
http://www.cardguide.co.uk
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