Exploring Your Mortgage Loan Options
Those who are thinking about taking out a loan for purchasing a home might thing that there is just one type of mortgage available. Generally one does not hear people discussing about taking out a specific type of mortgage. The reality is that there are several different types of mortgages available, though the majority of buyers do take out what is referred to as a fixed rate mortgage. When it comes to selecting the type of loan that is right for you having additional knowledge about these types of mortgages and their positives and negatives is a must. The details of a few of the other types of mortgage loans that are available are provided below.
Also referred to as simply Alt-A loans, liar loans or NINJA (No Income, No Job and No Assets) loans, these loans are given out without requiring the buyer to meet many requirements. These loans are quite lucrative for mortgage brokers because of their extremely high fees and interest rates. Since the borrower does not have to provide any proof that he or she can actually repay the loan, these are very risky loans to make. Because of the high fees and interest rates that are associated with these loans it is also not a good choice for you.
When opting in for a balloon loan, you only pay the interest fees for the first 5 to 10 years. At the end of this period, you have to pay off the loan balance in one lump sum. As the intent is to sell the home before the lump sum comes due so the borrower has the money needed to pay the loan off, this type of loan is primarily meant for those who do not plan to stay in the home for very long. Unless home prices increase significantly in the area after making the purchase, it is obvious that the borrower will not build equity with this type of loan. Despite the fact that this type of loan may sound quite good because of the low monthly payments, the person who takes out a balloon loan can be in a very tough situation if the value of the home goes down when the time comes to sell it.
There is yet another option whereby one takes out a loan that covers 80% of the purchase value of the home as well as another loan that covers the other 20%. The smaller of the 2 loans is then used as the down payment, which means you are actually borrowing the full amount of the loan. As a result, you may actually find yourself owing more on the home than it is worth if the value of the home drops.
An ARM or Adjustable Rate Mortgage loan is loan with a variable interest rate that changes according to current interest rates. When interest rates are lower, this can interpret into a considerable savings for borrowers when compared to those with fixed rate loans. Borrowers with an ARM loan may face a significant increase in their monthly payments that may be difficult to pay when the interest rates go up.
There are other options available to you too. These loans come with risks as well while there are some potential benefits associated with them too. Therefore, it is easy to see why so many choose to go with the traditional fixed rate mortgage in order to avoid these risks.