If you’re indecisive about which loan to apply for, then you need to know your options. There are different types of home loans, some of them provide you security while others can save you a few bucks. Before signing any contracts, check out the different mortgages on the market. This article will nudge you in the right direction!
Loans according to type of rate
Fixed-rate loans
Those who are looking for security in their payments generally go for a fixed-rate loan which provides the same interest throughout the duration of the credit. The only fluctuation you may face will be due to insurance rate and property taxes. By the way, the shorter your payment term is, the lower the interest rate will be.
Adjustable-rate loans
Among the different types of home loans, this one may seem sort of dicey, but it can result in convenient periods of low interest rates. Though market rates will rise and fall, you’ll always be safeguarded by a maximum and minimum rate. Besides, rates won’t vary radically from one month to the next; there are predetermined adjustment intervals.
Loans according to the type of backup
Conventional loans
These mortgages are marked out by not being backed up by the government. They usually come with the highest interest rate and have more rigorous underwriting rules and a minimum 3 percent down payment. What’s so alluring about conventional loans then? Well, you can get anything from a fixed-rate mortgage for 30 years to an adjustable-rate loan with one month option.
- Conforming loans
They meet the requirements set forth by Freddie Mac and Fannie Mae, which are government sponsored enterprises. Of the types of home loans available, these are the ones with a loan amount up to $417,000.
- Non-conforming loans
These loans, also called ‘jumbo loans’, don’t meet the requirements of the government sponsored enterprises. The loan amount is above $417,000 and, as a consequence, the mortgage rate is higher.
| Remember that if your loan amount is on the limit, you can drop a few thousand dollars to get a lower mortgage rate. |
Government loans
The Federal Housing Administration, the Rural Development and the Veteran’s Administration provide backup for loans on the lender’s behalf. In this way, the lender will feel secure enough to encourage homeownership. The maximum loan amount permitted varies by county.
Some of these loans don’t require downpayment, since the goal is to boost the economy by fostering ownership.
Balloon loans
The balloon loan requires a large payment at the end of the loan. It can be a great option for a responsible borrower who can save up the necessary money and who wants a shorter-term mortgage and low monthly payments. However, the stakes are high since if you can’t pay the large balloon payment, refinance can increase monthly payments exponentially.
When trying to decide between the different types of home loans, you’ll realize there’s a whole new world of mortgage rates and downpayments. But don’t fret, you’ll be able to navigate the intricate world of mortgages if you just make time to do a quick research and ask lenders when in doubt.