Choosing a Loan Type
Renovators Place Columnist
Oct 13, 2009
The options in home mortgages have expanded greatly during the past 5 to 7 years. While a traditional fixed-rate 30-year mortgage remains a good option for many people, there are lots of other options to consider when financing your dream home.
Here are some popular options:
Fixed rate mortgages - As the name implies, the interest rate is fixed for a certain period of time, typically 15 or 30 years. This is a traditional type of home mortgage and offers the security of having a set mortgage rate and payment for loan term.
Adjustable rate mortgages ("ARM")- The rate typically starts lower than with a fixed rate loan and then rises slowly after a certain period of time (typically 1, 3 or 5 years). This type of home mortgage is ideal for those who want a lower monthly payment, but know that they either will sell or refinance the house before the rate changes (thus, closing the loan) or will be able to afford the higher payments in the future.
Interest only mortgages - With this loan, your payments go toward interest and not toward paying down the loan balance. This is a good loan program for investors, those who don't plan to live in the house long or those who have the discipline to periodically pay more toward their loan balance. Others should consider different mortgage loan options that require payment toward the outstanding loan balance.
Reverse mortgages - These loans allow you to tap into the equity in your home. This is ideal for many seniors who have built up equity over many years.
Flexible down payment options - There are many home loans available that require little to no money down and have competitive mortgage interest rates. Countrywide, for example, has several.
Home improvement loans - For those who plan to make home improvements right after buying a home. Home improvement loans allow you to finance the purchase and improvements in one loan.
Other tips:
Here are some popular options:
Fixed rate mortgages - As the name implies, the interest rate is fixed for a certain period of time, typically 15 or 30 years. This is a traditional type of home mortgage and offers the security of having a set mortgage rate and payment for loan term.
Adjustable rate mortgages ("ARM")- The rate typically starts lower than with a fixed rate loan and then rises slowly after a certain period of time (typically 1, 3 or 5 years). This type of home mortgage is ideal for those who want a lower monthly payment, but know that they either will sell or refinance the house before the rate changes (thus, closing the loan) or will be able to afford the higher payments in the future.
Interest only mortgages - With this loan, your payments go toward interest and not toward paying down the loan balance. This is a good loan program for investors, those who don't plan to live in the house long or those who have the discipline to periodically pay more toward their loan balance. Others should consider different mortgage loan options that require payment toward the outstanding loan balance.
Reverse mortgages - These loans allow you to tap into the equity in your home. This is ideal for many seniors who have built up equity over many years.
Flexible down payment options - There are many home loans available that require little to no money down and have competitive mortgage interest rates. Countrywide, for example, has several.
Home improvement loans - For those who plan to make home improvements right after buying a home. Home improvement loans allow you to finance the purchase and improvements in one loan.
Other tips:
- Before shopping for a home, get pre-approved - not just pre-qualified - for a set loan amount. This way you can shop in the appropriate price range. Also, you will be viewed as a more serious homebuyer when presenting a purchase offer.
- Before committing to one mortgage lender or home loan program, review the company's fees and the details of the loan program.
- Those with good credit, look for "no doc" loans with little or no paperwork when applying.
- Check out lenders web sites, for mortgage payment calculators and information on current mortgage loan rates and refinancing information.
- Consider using a mortgage broker to shop around at various lenders.
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