Home Mortgage Loan 101

A home mortgage loan is for real estate property, and given and certified by a mortgage company, bank, and some other financial institution. The loan is given to home buyers to buy a home or property, where buyers pay back the money with interest over a certain period of time.

There are different types of home mortgage loan and choosing the best and most suitable type is important. Before a home buyer decides to secure a mortgage loan, it’s important the buyer knows the exact kind and plan they’re aiming based on their capability and best interest. Below are a list of home mortgage loans, and how they work.

 Balloon Mortgage Loans

A balloon loan operates on a fixed short-term basis. Balloon Mortgages are between 3.5 to 7 years.  during which mortgage funds and interest must be paid back. Nevertheless, some balloon plans allow conversion from short-term to long-term fixed payment. This usually occurs at the end of the short-term plan. This mortgage type is suitable for buyers that want to clear up their mortgage plan in a short period.  Therefore, they may want to sell off their home within a given period of the time. In case the home buyer decides to move out before the end of the mortgage term, the house can be sold off. And the funds can thereafter be used to balance up the remaining mortgage loan.

3O – Year Fixed Loan

With a 30 years fixed loan, the rate of payment and the interest never change. The amount is “fixed” and has to be paid back in the 30 years. This kind of mortgage is most suitable for those who may need to make lower payments. Or they have less to put down. Although this plan is more expensive than other mortgage types, it is the easiest way to get a loan. It’s also the most reasonable with payment plans.

 15 – Year Fixed Loan

A 15 year fixed loan is the same as the 30-year fixed mortgage, you are just locked into terms for a shorter period. This loan gives the lowest fixed rate but with the highest monthly payback. This type of mortgage is suitable for home buyers that can afford to build equity quickly.

 Adjustable Rate Mortgages (ARMs)

These are mortgages where there are adjustments in the interest rates you pay for a specific period. ARM tends to offer lower rates initially when compared to a 30-year fixed and adjusting with market trends. But ARM (when ready to adjust) can increase or decrease depending on market status.

Interest Only Mortgage

Interest only mortgages give home buyers the option of paying interest for a specific term. This is usually 5 to 10 years. After the first term lapses, the mortgage switches to a fully amortizing mortgage for the rest of the loan. For example, if you had an interest only mortgage. for the first 5 years of a 30-year fixed plan. At the start of the 6th year, you will have to pay the principal funds and interest in full amount for the remaining 25 years. You can refinance at the end of the interest-only term. So you don’t have to pay the bulk remaining loan at once. This kind of loan is suitable for home buyers that expect their financial status would change in future. Young professionals may like this plan, as they tend to make more money as they develop into their professional career.

Payment Option Loan

Payment option loans give homebuyers options of having different amounts to pay each month. And the monthly payment includes low options such as interest-only options, and principal plus interest options. Buyers who don’t have a steady income may prefer this type of loan because of its flexibility.

Here you can find a Mortgage Calculator to help with pricing options as well.

For additional tips on how to save on your home, click here.

 

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