There is a great number of available mortgage options for a buyer. For a homeowner who enters the process of filling out the mortgage application it is imperative to know the kinds of mortgages the lender can offer. It will also do the borrower good to learn advantages and disadvantages of each of these types. The following article mentions such kinds as fixed rate mortgages, one-year adjustable rate mortgages, FHA loans, and interest-only mortgage types.
Fixed Rate Mortgages
This type of a mortgage purports a loan in which the interest rate stays the same during the whole term of the loan. The greatest and most pleasant advantage of this type of a mortgage is that the borrower knows exactly how high the interest rate and the principal payments will be and when s/he will be to make the payments. Fixed rate mortgages are popular due to the fact that they are predictable since at the end of the loan term the recipient of the home loan will be charged the rate which was agreed upon in the beginning.
One-Year Adjustable Rate Mortgages
An adjustable rate mortgage is characterized by a changing interest rate. This change is based on a specific schedule created after the “fixed period” at the beginning of the loan acquiring process. This type of a home loan is riskier than the first one since the payment sum can become completely different. A borrower who assigns for a one-year adjustable rate mortgage is usually “rewarded” with a higher loan amount (and hence a more expensive house) and an option with possible annual refinancing.
FHA loans (Federal Housing Administration loans) are insured by the government through the insurance which is funded into the loan. Ideal candidates for this type of a mortgage are novice home buyers since the requirements for the down payment are as minimal as possible and Fair Isaac Corporation scores are not taken into consideration.
Interest-Only Mortgage Types
Interest-only mortgage sorts grant the borrower with a chance to pay the interest solely during a specified time term. The principle sum of the loan is not paid down during this time at all. However, there is one alerting but. Once the initial interest-only term is over, the payments the recipient is expected to make skyrocket including repayment of the principle. These repayments are way steeper since the time allotted for the principle payment grows shorter.