Find the Right Mortgage Loan
In the world of mortgages there is a lot to learn. If you are a first time home buyer and are in need of a loan, do some research to find out what types of loan products are out there for you. There are pros and cons to each type and there is no one loan that fits everyone. Use the help of a mortgage broker to find out which one is right for your lifestyle.
Thirty-year fixed-rate mortgage loan
These are the loans the mortgage lending business is built on. If your parents had a mortgage, this most likely is the one they used. It’s the most straightforward of loan products because nothing changes throughout the duration of the loan. It is set for 30 years at one specific rate. You can view your amortization schedule and see how the loan plays itself out in terms of interest and principal over the years. This is the safest of options because of its reliability.
Fifteen- or 20-year adjustable-rate mortgage loan
These loans offer a way for borrowers to pay off their loans before retirement. They give you the chance to refinance after either 15 or 20 years. In general, these loans have higher interest rates than a 30-year fixed rate loan, but that ARM could also be considerably cheaper. If you have expendable income to put into possible payment hikes, you could end up saving money with these types of loans.
One-year adjustable-rate mortgage loan
This is a great loan for college graduates who see a bright financial future regarding their earnings. They offer a low interest rate for the first year and then after that, the interest rate increases. There is an interest rate cap on the loans and the rate can go up or down every year after the first. The one caution here is to know that there is a difference between a “rate cap” and a “payment cap.” The rate cap is what you want. It sets a ceiling on how high your interest can go. On the other hand a payment cap only means that your payments can’t go higher, but your interest can still continue to rise.
Interest-only mortgage loan
The interest-only mortgage may sound great, but it’s only for a few borrowers. This can be a great product for someone relocating for a job because it only charges interest. That can make the payment considerably lower. Don’t be fooled,however: This isn’t for the average borrower. Worst case, the wrong person gets this loan and ends up paying only interest for years on their loan. When they go to sell, they may owe more and have to take money out of savings to pay back the full mortgage amount.
No- or low-documentation mortgage loan
The self-employed oftentimes have trouble finding the right loan product. The types of loans for the self-employed are called no- or low-documentation loans. They automatically come with higher interest rates due to not having to produce paychecks or references. They can help people with variable incomes qualify for loans easily. One warning however is that normally this type of loan requires substantial down payments of about 20% or more.
The mortgage-lending market
The lending market is flexible in that there is a wide variety of loan products to choose from. These are the main ones and the most popular, but there are many others. Talk to a good mortgage broker and let them suggest what mortgage products are right for you.