The types of mortgages are important to know because they literally make or break the transactions. The entire deal is dependent on how the mortgage plan will be lay out.
There are a handful of mortgage loans available in the market, but there are only four that stands out. These are the most commonly used because it is well-balanced and they have lesser risks for most clients.
1. Fixed-Rate Mortgage Never Fails to Top the List
Fixed-rate mortgage loans are always on the top of the list because they are available in almost every financial institution. The rules are simple. A client has to pay a pre-determined interest rate for a given period of time.
It depends on the client whether to work with 10, 15 or 30 years of the mortgage loan. Until a client pays promptly for the rest of the given period, the house will not be theirs. Thirty years is the most common choice, especially for middle class families. The entire house will cost a more. On the other hand, a client gets the comfort of paying in small amounts per month.
2. Adjustable-Rate Mortgage Is Risky, But Worth the Try
Risk is bigger when people choose Adjustable Rate Mortgage or ARM. A financial institution will base the interest rate on the existing rates in the market. This means that it will fluctuate a lot. This is one of the types of mortgages that you want to have when you are ready to play with the on-going trade.
The gamble starts when the economy is shaky. If the country is facing better times, then, they can expect the rates to be at their lowest while the opposite will happen if it is not. Some of the determinants are government securities, the cost of funds, and even the world trade.
A certain period of time is also given to a client with this deal. They are usually at 10, 15, and 30 years, too. Almost all types of mortgages work in these given intervals.
3. Federal Housing Administration Loan for Limited Choices
These types of mortgages allow people to choose their own way of paying. With the Federal Housing Administration Loan, they can work with the government to pay for their mortgage bills. The government will act as the middleman in this deal. They will pay for the loans. They will get money from their applicants through retirement, social security benefits, or what-not.
The only downside of this type of loan is that it is limited to small loans only. As much as possible, the government will limit their clients because this means lesser risk.
4. Interest-Only Mortgage Loan
The interest-only mortgage will require the client to pay for a fixed interest rate for a certain period of time. Then, the remaining balance will be paid in full. This could really be tricky, especially for those who have not saved for it.
These types of mortgages will always have their own advantages and disadvantages. It is up to the client where they can capitalize in the best way there is.
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