One of the foremost things to do when purchasing a home is choosing a suitable mortgage loan for yourself. Finding the correct mortgage loan for yourself is very important for more than one reason. Since mortgage loans are secured loans, that is, they are secured against your house itself, it is quite important for you to make regular mortgage payments every month throughout the term of the loan. If you default on your mortgage, then your collateral, which is your house, will be taken into foreclosure. Thus, to save your house it is necessary that you choose a mortgage that you find easy to pay back. The traditional mortgages such as fixed rate mortgage and variable rate mortgage are the most common. Here are some other mortgage loan options that you can read about.
- Option ARMs – These are also referred to as flexible payment ARMs or option adjustable rate loans which adjusts every month with no cap on adjustment. These loans allow you to make very low payments on mortgage initially. However these monthly payments rise with time and usually very fast.
- Balloon mortgage – Balloon mortgages have a payment structure that is similar to a thirty year fixed rate loan, although the term of the balloon loan is shorter. It usually spans over a year of 5 years to 7 years. At the end of this loan term, you have to pay the outstanding balance in a lump sum either by paying out of your pocket or refinancing of your home.
- Interest only mortgage – These are mortgage loans which allow you to pay only the interest on the loan for a time period that is predetermined. During this period of time, the principal amount of the loan is not paid at all. Hence you have a lower monthly payment that you need to make in the short term. However, once the initial interest only period gets over the repayment increases quite a lot to include repayment of the principle. This is of course more than standard loan as you have to make the payment of principle over a shorter period of time.
- Bi monthly mortgage – This plan does not require you to make any extra payments but save a little bit on interest by advancing the payment by half a month. On an average, these kinds of loan only shorten the loan term by around one month on a thirty year loan.
These four different kinds will give you more options to consider while choosing your mortgage loan.
