Home Mortgage Preparation :: Type Mortgage Loan

Type Mortgage Loan:

Choosing a Mortgage Loan Type

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• Fixed monthly payments for the full term of the loan.
• At the end of the loan term, it is paid off in full.
• There are a variety of terms and payment options to choose from.

• Regardless of interest rate changes or market fluctuations, monthly payments will remain the same.
• The total borrowed amount is completely amortized over loan term.

• Monthly payments remain the same, even if interest rates decrease.

• Monthly payments are based on a longer amortization period, typically 30 years.
• Borrowers must pay the remaining loan balance at the end of the balloon period. The most common balloon periods are 5, 7 and 10 years.

• This financing type mortgage loan is usually available at a lower price or interest rate than fixed-rate loans.
• If the buyer or real estate investor plans to own the home for less than the balloon period, they can  obtain the lower rate. 

• At the end of the balloon mortgage period, the mortgage must be repaid in full or refinanced.

• The interest rate will adjust at established intervals and be based on an established index rate.
• Payment changes are usually capped. One cap will typically apply to individual adjustments while another will apply to the upper limit of the interest rate.

• The initial rate is always lower, so home buyers can qualify for a bigger loan.
• If market rates decrease, the homeowner will benefit from lower monthly interest rates and payments.
• Many adjustable-rate mortgages can be locked in or converted to fixed rate mortgages.
• Because there are rate caps, home buyers know the worst case scenario and can prepare for it.

• Unpredictable fluctuations in monthly payment amounts can be a burden to some buyers.
• If buyers choose to convert to a fixed rate mortgage, they may receive a conversion rate that is slightly higher than the market rate. 
• Because this financing type mortgage loan depends on market rates, when index rates rise, so do interest rates and monthly payments.

• Private Money Lenders
• Grants for First Time Home Buyers

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