Two common types of home mortgage loans
Obtaining a home loan is the most continuous expense you will ever have in your life. When receiving a home loan, it is crucial to know what type of mortgage suits you. It also pays to know the pros and cons of each type of loan. If you are a new homeowner, we will help you pick the best from main types of home mortgage loans.
This is the most common home mortgage loan. As its name suggests, the mortgage has a fixed monthly payment. It means the charges are constant right through the entire period of the loan. The loan allows you to choose a 10 or 15 or 30 years term.
Convenient: We all want the type of loan that allows us to plan do other projects during the repayment period. A fixed-rate mortgage will enable you to make financial arrangements with total accuracy.
Helps avoid paying extra: Sometimes the interest rates increase. With fixed-rate mortgage (FRM), you will avoid paying in excess in the event the interest rates go up. If you think the rates will go high soon, FRM is your best bet.
Easy to comprehend: Unlike other types of home mortgage loans, FRM is easily understandable. Therefore, if you are a first-time homebuyer, this kind of mortgage is your ideal for you.
Expensive: While other types of home loans have changing interest rates, the fixed-rate mortgage is constant making it more expensive.
Adjustable rate mortgage
If you want a mortgage that gives you a break for the interest rates, a variable mortgage loan is your option. The interest rate for variable rate mortgage is unchanging for some time and sporadically changes after that according to the market index. Unlike FRM, the changing rates transfer a fraction of the interest possibility to the borrower from the lender. They are, therefore, used in situations where fixed rate financial support is hard to obtain or costly. Due to the risk transfer, the initial interest rate may be lower than the 30-year fixed rate.
l Ideal for individuals with lower credit ranking: This is because people with lower credit score can’t get good charges on fixed-rate loans.
l Lower initial payment: If you want to benefit from the lower fees initially, ARM offers you that advantage. You get to pay low rates at the beginning before they rise.
l Ideal if you want to sell it soon: This mortgage is perfect for people who do not plan to live in their homes for a long time. If you intend to sell their house before the fixed-rate period is over, you can take advantage of this mortgage.
Risk of exposure to higher payments: Before obtaining adjustable rate mortgage ensure you can pay for the loan in case the rates increase.
Hard to understand: Unlike FRM, variable rate mortgage is complicated mortgages as have to know several things at once.
While there are many types of mortgage loans, these two types are the most common in the entire world. Various factor also determines which mortgage best befits your needs.