Choosing a Home Mortgage
On today's market there is an abundance of home mortgage options. Choosing the right home mortgage for you can be both difficult and confusing, especially for first time home buyers. Consider the following descriptions of the most common types of home mortgages so you can choose a current home mortgage that is right for you.Fixed Rate
With these loans you get the security of an interest rate that stays the same throughout the life of the loan. If interest rates are historically low these loans are especially popular. You know exactly how much interest will be paid. You also have the added security of knowing that you are protected against future interest rate increases. However, if the market rates drops your payments won't drop as well. In order to take advantage of lower interest rates you would have to refinance your home mortgage.Adjustable Rate
With these loans the home mortgage rates will vary throughout the term of the loan. The interest will adjust up or down depending on the index that it is based upon. Your monthly payments will fluctuate along with these adjustments. You and the lender will agree on a schedule to adjust the rates. Many adjustable rate mortgages come with a cap that limits the number of increases in a year and the total increases for the life of the loan. Often you can get a lower starting rate with an adjustable rate home mortgage, but there is still the risk of fluctuating rates which can potentially go much higher in the future.Hybrid Mortgage
These are loans that combine features of the fixed rate and adjustable rate mortgage. They will typically start with a rate that is fixed for a period of time. Once this period expires it changes to an adjustable rate mortgage. The lower initial rate of these loans provides you with more buying power. However, they also come with the risk of uncertain high interest rates once the fixed rate period expires.Balloon Mortgage
These mortgages have a short term between three and seven years. During the term you make regular equal payments on the principal or the amount you borrowed plus the interest. Once the loan term is finished a balloon payment is needed to pay off the remaining loan balance. You can also choose to refinance before the balloon payment is due. These mortgages have the advantage of interest rates lower than fixed rate loans. However, they are only successful if you plan ahead so you aren't caught unprepared for the balloon payment.Interest Only
While this is considered an individual home mortgage, it is really an option that you can attach to any mortgage types. With this option you have regular monthly payments for a fixed period of time. The difference is that the payments consist of only the interest. During the interest only period you don't pay off the principal. Once the period ends you then have to pay on both the principal and interest. Payments will often go up once the period is over since the time remains to repay the loan will be shorter. However, these loans offer excellent savings.Government Mortgages
There are home mortgages available through the Federal Housing Administration (FHA) and the Veterans Administration (VA). These loans offer lenders protection against loss from default. These loans try to offer more favorable terms for qualifying borrowers than they would get from other types of mortgages. The VA will guarantee a loan once it is closed and then the FHA insures the loan. If you default on an FHA loan the lender is paid from an insurance fund. There are maximum limits to these loans that you will need to consider as well as other qualifying criteria. FHA is a popular loan with first time homebuyers, those with low income or those who have a limited down payment.These are just a few of the basic home mortgage types. There are many loan programs available on the market today along with variations in the terms. You can choose to get a second home mortgage to pay for the additional costs you can cover. There is a bad credit home mortgage for those with less than excellent credit history. You can also consider a reverse home mortgage or an allied home mortgage.
It is extremely important that you choose the right home mortgage. In order to do this you should consider the current and future financial consequences. Educating yourself is the best way to figure out which loan are right for you and your needs. You can find plenty of information on mortgages through financial web sites, mortgage books, articles and consumer workshops. You can also get assistance with real estate professionals or mortgage lenders. Just remember not to rush your decision and choose carefully.
