If you are in the market of buying a house you might be wondering what kind of loan is the best for you. There are many different kinds of loans out there and it can be hard to sift through the massive amounts of information. Here are some things that you need to know about the different kinds of mortgages that are available to you.
Adjustable Rate Mortgage (ARM)
An adjustable rate mortgage is a type of mortgage that has a low interest rate at the first and then raises after a certain period of time. Depending on the type of the ARM you could have a fixed rate for 3, 5, 7 or 10 years. After that the interest rate raises based on the market values.
The advantages of this type of mortgage are that you get a lower interest rate at the beginning. This is a great option for people who know they are going to live in the house for only a short period of time. For example, say you have a work assignment in a certain city for 3 years. In this case an ARM might be great.
The disadvantage is that there is a risk. If you are unable to see you might be stuck with a high interest rate that is hard to bare.
A Balloon Repayment
Much like the ARM the balloon has a lower interest rate at the beginning. What the lender will do is take the loan and amortized it over a certain amount of time. For example, you might get it amortized over 30 years so that your payments reflect what a 30 year mortgage would be, but the loan only lasts as long as the balloon, usually around 5-7 years.
At the end of that term you will be responsible to either refinance the home to a different kind of loan, or pay off the balance. For this reason, you should only do this loan as a short-term loan.
Conventional Loan
In this case you would choose a longer term on your loan, like 15-30 years and the rate is fixed. The rate won't be as low as a balloon or an ARM but it will stay the same and cannot change. This is the best option for people who are planning on staying in their house for longer than 5 years. It also gives you peace of mind knowing that what you signed up for in the beginning.
By understanding the different types of mortgages you can choose what is right for you. To learn more about home loans contact a business like MCS Bank.
Share6 May 2015
How long has it been since your family has been on a vacation together? Do you continue to put off going on vacation because you just don't have a lump of money to pay for it? That is exactly the reason that my family hadn't been on a vacation together for about five years. Last year, we decided that our time spent together as a family on a vacation is more valuable than anything, so I began looking for options to finance the vacation. Visit my site to find out what I learned about financing a vacation and get tips that can save you money on financing and the vacation itself.
