Explanation Mortgage Types
Types of Mortgages and Home Loans
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Types of mortgages: There are several basic types of home loans however there are very few national mortgage lenders that will advertise them all. Make sure you know what you want and talk to your mortgage broker or home loan lender to see if they can offer you the mortgage of your choice.
All mortgages have a term, or a specific period of time to repay the loan. Common terms are 5, 10, 15, 20, 25 and 30 years. Recently, 35 and 40 year mortgages have started to make an appearance on the market but are still relatively uncommon.
Types of Home Loans and Mortgages:
Adjustable Rate Mortgages or ARM’s: this type of mortgages is where the interest rate and the principal and interest payment vary throughout the life time of the loan. These mortgages are great when interest rates are lower but can be a pain when interest rates are high. Get a quote for an Adjustable Rate Mortgage.
Balloon mortgages: this type of mortgages is where the payment is typically calculated over a 30-year term but the balance actually comes due much earlier, such as 5 or 7 years (at which you must pay off the balance or remortgage the property). This type of mortgage is not common in North America but is frequently found in the European mortgage markets. Get a quote for a Balloon mortgage.
Fixed rate mortgages: also known as FRM’s: is a type of mortgage where the interest rate and principal with interest payment remain the same throughout the life of the mortgage loan. This is of course a desirable mortgage if one can lock in a great interest rate. Get a quote for a fixed rate mortgage.
Graduated payment mortgages or GPM’s: is a type of mortgages that have a fixed interest rate, whose payments gradually increase over a predetermined time increments and then level off. Get a quote for a graduated payment mortgage.
Hybrid mortgages: With this type of mortgage the loan remains fixed for a period of time such as 3, 5, or 7 years, and then adjust like an ARM mortgage. Get a quote for a hybrid mortgage.
Interest-only mortgages: the names says it all. These types of mortgage loans, usually an ARM or a hybrid, allow you to make interest-only payments during the first 5 years to 7 years. After which, you are expected to repay principal and the interest in order to pay off the loan within the remaining 25 years of its term. Get a quote for an interest only mortgage.
Payment-option loans: typically called by different names the name usually incorporates the words option or choice. These loans offer you the borrow a choice of two or three payments each month, but their complexity grows right along with those choices. Get a quote for a payment option mortgage.
The first two choices are fairly straightforward: You can pay the full amount of principal and interest owed that month, just as you would with a traditional mortgage, or you can choose to pay even more and pay off a 30 year mortgage on a 15 year payment schedule.
Be carful, the other two choices can get borrowers in over their heads if you aren’t careful. In any given month, you may opt to pay only the interest that is due that month, or the you may choose an even smaller minimum payment, an amount that covers none of the principal and only part of the interest that is owed. To make things even more complicated, these loans often have interest rates that adjust as frequently as every month. And payment caps could allow your minimum payment to rise by as much as 7.5 percent in a given year
Reverse annuity mortgages or Ram’s: is a reverse type of mortgages that actually pay an annuity while equity in a house decreases. These are for individuals 62 years or older who are looking to tap the equity in their homes for living or other expenses. Get a quote for a reverse annuity mortgage.
Government loans: are simply mortgage loans that are insured or guaranteed by the federal government. They are most typically fixed rate or adjustable rate mortgages. Government loans account for 20% of all mortgage loans.
There are three types of government mortgages:
Federal Housing Administration (FHA) loans
Department of Veterans Affairs (VA) loans
Farmers Home Administration (FMHA) loans
There are also a class of mortgages that require reduced or no documentation. These are also referred to as Alt-A mortgages. These are typically standard fixed or adjustable mortgages with reduced documentation requirements. There are no documentation loans where a person is applying only on the strength of their credit score and down payment. There are also many variations on reduced documentation loans, such as stated income (SI), no income (NI) verification, no asset (NA) verification, no ratio (NR - referring to the debt ratio calculations), no employment verification (NE), and many combinations of the above. These loans are typically intended for self-employed individuals who may have trouble documenting their true income (or who just do not want to go through the hassle). They carry with them more risk for the lender, so they typically have higher interest rates than traditional prime, or A grade loans.
Secondary mortgage:. These are mortgages that have a lien position behind the primary mortgage on a residence, not unlike mortgage refinancing (for the top mortgage refinancing rates see our other posts) . These come in two forms:
Secondary loans which are similar to primary mortgages (may be done through mortgage refinancing).
Home equity lines of credit (HELOC) which are more like credit cards. You are approved for an amount, but you draw upon the line of credit when you need it and pay it back in a manor similar to credit card payments.
For some recent news on the available types of mortgages you may want to look at your local banks, contact you mortgage broker at Ditech mortgage.
Types Of Mortgages Explained
Are you wondering on which is the best mortgage loan to choose from? It’s really simple, there’s really no answer. In choosing those mortgage types, which are best in fulfilling your.
What a Home Mortgage Loan Advisor Can Accomplish for You
Help you choose the right mortgage for you. By clearly explaining the different types of mortgages and repayment structures, a mortgage broker can walk you through the mortgage.
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