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What Mortgage Options Are Available To A Homebuyer?

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.


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