When looking to purchase a home, there are plenty of mortgage options available to choose from. Make sure your loan offers you the most advantageous interest rate, fits within your budget and meets all of your long-term homeownership objectives. However, it can be easy to feel overwhelmed by all the available choices.
Before you decide which mortgage type is ideal for you, it’s essential to understand the various types and their features. Here is a brief overview of some common mortgages and their key characteristics.
Con: Fixed-rate loans lock you into a certain interest rate for the entirety of the loan, making them popular but potentially risky if rates rise. Fortunately, you have the option to refinance at a later date and save money with a lower rate.
Pro: 30-year fixed rate mortgages are the most popular home loan type, but 15-year terms are also available. These shorter repayment periods make it simpler to pay off the house faster and can help build equity faster.
Mortgages typically require a higher down payment than other loan types, necessitating borrowers to put more of their own money down – something which may prove challenging for some individuals.
Another disadvantage is that you’re tied into your interest rate for the entire term of the loan unless you can refinance later. If circumstances change such as moving your home or its value decreases, then obtaining a new loan before existing ones expire may prove impossible.
A reverse mortgage is a type of home loan designed for older homeowners that allows them to borrow against the equity in their houses. This loan option may be beneficial to those planning on spending more during retirement or who don’t plan to leave their property to family members.
Reverse mortgages come in a variety of forms, each offering its own set of advantages and drawbacks. Before making a decision about which type is best suited to your needs and financial situation, consult an experienced mortgage specialist who can guide you through the process.
Non-conforming loans are not insured by the federal government, making them more challenging to qualify for. Furthermore, they often have higher minimum credit score requirements than other mortgage types.
Conventional mortgages, which are the most popular mortgage type in America, are backed by private lenders. While they have stricter income and down payment requirements than government-backed loans, they can also provide greater flexibility with how they’re used.
FHA loans are insured by the Federal Housing Administration, created during the Great Depression to standardize and liberalize mortgage financing. These mortgages offer more lax credit requirements and come in both conventional and adjustable-rate forms.
ARMs, on the other hand, are based on market rates that may change throughout your loan’s term. This means your house payment could rise or decrease with changes to national and market interest rates.
