There are many mortgage types present today for home buyers to select from. This particular blog post aims to educate you on the many kinds of financing options there are to help better you choose one that best supports your profile.
Types of mortgage
Adjustable versus Fixed rate
As a loanee, one of the very first things you will have to do is choose whether you want an adjustable-rate or fixed-rate mortgage loan. Every loan will fall into any of the mentioned sections, although it is possible for a fusion. In the loan world, this is referred to as “hybrid.”
Here is the difference between fixed-rate and adjustable-rate mortgages
adjustable-rate mortgage loan
An adjustable-rate mortgage loan also referred to as an ARM, has an interest rate that will fluctuate as time progresses. Generally, an ARM rate alters each year or after a set time. Hybrid ARM loans, on the other hand, begins with an unchanging interest rate right before entirely turning into an adjustable rate. For example, the 5/1 ARM loan has an established interest rate for the initial five years. After that, it adjusts annually.
fixed-rate mortgage loan
A fixed-rate mortgage loan, as the name implies, has a consistent interest rate for the whole repayment term. That said, the size of your recurring payments will not change. Every month and every year, it will stay the same. This is just as applicable in long-term financing routes.
Conventional loans versus Government-guaranteed
As explained prior, you’re given the freedom to choose what arrangement you’d like to go for: fixed rate or adjustable. Once you’ve reached a decision, you’ll also have to choose between a government-guaranteed home loan or a conventional home loan.
Here are the variations between both types of mortgage
A conventional home loan is not ensured by the government at all. Needless to say, these loans are from managed by private lending corporations with zero approval needed from the government.
The Federal Housing Administration mortgage is a home loan program handled by the Department of Housing and Urban Development. That said the HUD is a government department. Interestingly, the FHA is a popular selection for many first-time homebuyers and repeat buyers alike because of less stringent requirements. Even then, the FHA does not let out money themselves. They only guarantee the borrower’s lender of choice to lessen the risk the lender is exposed to should the loanee default.
One of the many unique features present in the FHA is that one can put in only 3.5% as a down payment to the property the borrower is eyeing. The only tradeoff is that mortgage insurance will have to be paid for throughout the life of the loan, which increases a borrower’s monthly payments.
Another government-insured loan is one made specifically for veterans. As the name of the loan hints, this loan program isn’t for everyone and is exclusive to the U.S. army and navy.
For more news on FHA home loans and other mortgage rates, click here!