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Home Mortgage Preparation :: Type Mortgage Loan
Type Mortgage Loan: The Many Types of Mortgage Loans
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Depending on your financial type, mortgage loan eligibility and purpose for borrowing, the kind of home mortgage you'll need will vary.
Essentially, there are three major kinds of mortgages – the adjustable rate mortgage (ARM), fixed term mortgages and home equity lines of credit. Keep reading to learn the difference between each type.
Mortgage Loan – Adjustable Rate
An adjustable rate mortgage (ARM) offers a lot of flexibility for prospective home buyers, particularly when interest rates are falling. Typically, the rate offered is prime minus 0.375% and is then adjusted monthly to reflect current interest rates.
An adjustable rate mortgage can be deceiving because for the first three months of the mortgage an introductory rate is typically given as an incentive. However, after the initial 3-month grace period, that great rate is taken away.
Because the rates are adjustable, if interest rates rise, you wind up paying more each month on your mortgage. Due to the risk involved, these types of mortgages aren't for the cautious financial type.
Mortgage Loan – Fixed Term
With any fixed-rate mortgage, your interest rate will be set for the full term of your mortgage so that monthly interest and principal payment will remain the same for the duration of your mortgage.
Regardless of whether interest rates rise or fall, you'll know exactly what your payments will be and can budget accordingly.
Because of the stability, this type of mortgage is more popular with the slow and steady financial type. Mortgage loan structures like the fixed term set-up are particularly great to get into when interest rates are low.
If you're seeing interest rates falling, it may be a good idea to lock into a long-term, fixed rate mortgage.
Home Equity Lines of Credit
Home equity lines of credit are a type mortgage loan that uses the equity built up in your home as collateral against the loan.
Most homeowners use a low-interest HELOC to make major purchases like home renovations, cars, or college educations. Like a line of credit, homeowners only pay interest on what they use.
Remember, the home equity line of credit is designed for those willing to take on a “second mortgage,” also known as the adventurous type - mortgage loan options come in all shapes and sizes, from steady fixed-term setups to home equity lines of credit.
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Home-Mortgage-Preparation.com :: Type Mortgage Loan