Home Mortgages and Financing, In a Nutshell

When you get a mortgage you borrow money from a lender to buy a home.

Since most people do not have hundreds of thousands of dollars saved, this usually involves a loan from the bank. The loan is then repaid over time, with interest, and is known as a mortgage.

There are three main types of home loans that you can choose. Each has its pros and cons, and each are specific to a certain type purchase.

Fixed Rate Home Loans

Why would I use this loan?

A fixed rate home loan is the most basic type of home loan. The interest rate stays the same throughout the entire life of the loan. This type of mortgage is best if you plan to live in the same house for between 15 and 30 years.

What’s the drawback?

Although the actual rate stays the same, that does not mean that the taxes or insurance will not increase over time. Therefore, your mortgage amount might gradually rise, especially with the tax rates today.

what are the benefits?

Another important thing about fixed rate loans is that the longer your loan is, the less your monthly payment will be. The reverse is true for shorter loans.

Adjustable Rate Mortgage (ARM)

Why use an ARM?

An ARM has a few benefits that set it apart from other loans. The most important thing about them is that you can schedule a change in the interest rate. This is best for people that are expecting a higher salary over the years, but want to start with a low interest rate.

What’s the drawback?

The catch is that when using an ARM, the interest rate is controlled by the U.S. Treasury, and may change over the years. The way to counter this is to try to get a fixed rate for the first few years when you ask for your loan. After the numbers of years are up, then the rate is susceptible to change.

Anything else?

Many people who selected this type of loan in the past found they could not make the payments when the rates went up so be cautious and ask questions to understand which is the best loan for your needs.

Balloon Mortgage

Why use a balloon mortgage?

A balloon mortgage is a short-term, low interest mortgage. Five to seven years is best for this mortgage, and is good if you want to sell or refinance your home in the near future. This loan is also good if you are unsure about how long you want a mortgage.

What’s the drawback?

At the end of the term, you have two choices – pay the balance of the mortgage in full, and the other is to refinance the loan. If you don’t have funds to pay the balance and your bank won’t refinance, then you could lose your home.

Anything else?

Balloon mortgages have certain conditions under which they operate, and they different from lender to lender. Be sure to ask your lender if they do balloon mortgages and to outline the qualifications.

If you have more questions, please refer to my website for more mortgage and home selling and buying tips, or contact me today if you’re interested in selling or purchasing a home on the Main Line – rainny.1@verizon.net