Latest and Happening Types of mortgage loans to Avail
Mortgage loan is classified on the basis of the interest levied or the period of the loan and the payment amount and frequency of the payment.
Fixed rate mortgage loan: The loan type in which the interest rate remains same throughout the period of the loan is referred to as fixed rate mortgage loan. This type of loan is said to be the most availed loans. The period of the loan generally can be 10 years, 15 or 30.
Advantages: When home owners avail this loan, they can budget easily for they know how much interest is due and when because the rate remains the same throughout the period of the loan. Also, when the borrower for linear payback, the periodic amount will also decrease!
Adjustable Rate Mortgage: The loan in which an interest is fixed for a specific period of time is known as the adjustable rate mortgage loan. That means, once the decided period ends, the interest rate on the loan changes significantly. This type of loan is regarded riskier than other loans because there is a chance of a higher payment when the rate changes.
Advantages: The advantage of availing adjustable rate mortgage is that the home buyer can be eligible for a higher loan and thus can buy his or her dream home, even though a little expensive. Considering the risk, the interest rate might be a little lower.
Depending on the number of years availed; ARMs can be classified into different types. For example, the 10/1 ARMs in which the interest rate is fixed for 10 years, and then after the due period, a new interest rate is fixed. There is also 5/5 ARM in which the rate remains the same for the first five years and then on the 6th year, a new rate is fixed which again continues for the next five years. In the 5/1 ARM, the interest rate remains the same for the first five years but changes every year from thereon. These loans are beneficial for those who are planning on buying and staying in the purchased home for a longer period of time or permanently. Similarly, there are 3/5 and 3/1 ARMs too.
The other type of ARM is the 2-step mortgage, in which a particular interest rate is fixed for a specific period of the loan and another interest on the remaining term. The new interest is fixed as per the current rate in the market. The loan applicant can either choose for a changing or variable rate or a fixed interest.
Balloon mortgage loan: This loan is given for a shorter period of time and is similar to fixed rate mortgage. The borrower has to pay a large payment at the end of the loan period, referred to as balloon payment. The monthly interest payment too is lower in this case. This type of loan proves to be an advantage for those who plan to sell the property after a certain period of time. For others, this type of loan can be quite risky.