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The Different Mortgage Types

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By : Sonia Smith    99 or more times read
If you wish to buy a home, one of the first things you have to consider is financing. There are various kinds of mortgages in the market today, which makes it all the more important for consumers to have an idea on the various kinds to find the best mortgage for them.

While each option could be best for a portion of loan seeking consumers, none will be considered as perfect for everyone. Depending on the time that a person wishes to stay in the home, personal finances and other factors, the perfect home mortgage choice differs widely from one consumer to another.

The Different Mortgage Types:

  1. A fixed rate mortgage has a monthly interest that remains the same for a certain period of time. Towards the end of the period, the rate usually changes to the variable rate. This will guarantee that the rate will be exactly the same every month even if the variable rates of interest will rise.

  2. An Adjustable Rate Mortgage or ARMs is another option that is gaining popularity these days. The interest rates of these loans are tied to an index, which vary with the prevailing market rates. Generally, some intervals where the rates of interest are adjusted are specified in the contract of the loan. If the market rates increase from one period of adjustment to another, the monthly payments will rise. On the other hand, if the interest rates fall, payments will also fall.

  3. Balloon Mortgages are created with a payment schedule similar to a thirty-year fixed rate loan. Although this loan has a shorter term, which could often last from fie to seven years, at each term end, the outstanding balance must be paid in lump sum, either from your own pocket or through refinancing.

  4. The Federal Housing Administration or FHA mortgage loans are fixed rate mortgages especially created for first time homebuyers in the category of low to middle income. This is a government guaranteed loan, easier to qualify and needs a smaller amount of down payment than most loan types. Additionally, the interest rate is also lesser than the standard fixed rate mortgages. There are also programs available for buying a single family or multi family home.

  5. A VA loan is another mortgage guaranteed by the government and this is for those who have history of active military service or any surviving spouse of an active member. Usually, a veteran can get a VA loan with a lower down payment or no down payment at all, but should possess the ability to make monthly payments.

  6. An interest only mortgage is a kind of loan that allows you to pay the loan interest for a certain time period. The principal loan is not paid down on this time, which leaves you a lower monthly payment to meet the short term. However, as soon as the initial interest period expires, the payment will increase which includes repayment of the principal amount and steeper loans.
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