When shopping for a new home, it is important to know the different options available for your mortgage loan. I've outlined some of the most common options below.
Adjustable Rate Mortgage (ARM). The interest rate and payment fluctuate over the term of the loan. It carries a lower initial interest rate which benefits borrowers who need a lower rate to qualify for a mortgage, and for those who plan on keeping the mortgage for only a short time. But be wary of the teaser rate, which is usually offered as an incentive and only lasts for a short time.
Balloon Mortgage. A single mortgage payment that is larger than all the others. Example: You have a mortgage that is due in 3 years, and you are only paying the monthly interest. When the mortgage is due, you will pay it off in one lump sum. Usually Balloon Mortgages offer very low rates.
Bi-weekly Mortgage. The borrower makes a payment every other week instead of monthly payments.
Advantages: the payments double from 12 to 24. The extra payment each year goes to the principal, so this mortgage can be paid off quicker. But if you get a monthly paycheck, bi-weekly payments may not be convenient.
Government-Insured/Guaranteed Loans. VA (Veterans Administration) and FHA (Federal Housing Administration) guarantee or insure a mortgage that you obtain through the lender. These loans offer a low down payment or no down payment, but also low loan amounts.
Home-Equity Mortgage. Acts like a second mortgage.
Advantages: the interest on home-equity loans can usually be deducted up to certain limits, home-equity mortgages are like credit cards where at any time you can pay down the principal without penalty.
Disadvantages: the interest rate is typically a couple of points higher, and you must have considerable equity in your property.
Jumbo Mortgage. Provides a mortgage above the conforming limitation. The lender keeps the mortgage in its own portfolio instead of reselling it to a secondary lender.
Advantages: readily available in those areas of the country where they are needed.
Disadvantages: usually a half a percentage point higher in interest, and available only to prime borrowers.
125 Percent Loans. The maximum loan you can receive is 125% of your home’s worth.
Asset-Based Loans. Mortgage-based on the amount of money you have in the bank.
Advantages: lower than market interest rate, and your assets can be stocks or bonds.
Blanket Mortgage. Instead of having separate mortgages with several properties, this product establishes one mortgage that covers them all.
Advantages: lower interest rate on the one mortgage, easier to get more money with one blanket mortgage than with several smaller ones, and only one payment.
Disadvantages: one big payment, the risk is losing all your properties.
Low-Doc/No-Doc Mortgage. No documentation or little documentation is required to obtain this type of loan.
Disadvantages: higher than market rate, higher points.
If you would like to discuss your plan with an experienced real estate professional, please feel free to contact me or visit my website at https://www.bryancurtisteam.