When you begin choosing your mortgage, you should know that there are several different types available. There are also a few things that you should consider before choosing a particular mortgage. Your current and expected financial situations and the points you are willing to pay should be taken into account. Take into consideration the interest term you will want. Will you prefer to be on a set interest rate or gamble on an adjustable rate? Below are a few of the most common types of mortgages available.
Fixed-Rate Mortgages will offer a set interest rate. This will not change throughout the term of your loan. If you are given a locked rate of 7% that creates a payment of $1,150 per month, then in 20 years, you know you will still be paying that same amount per month. Remember that your insurance and property tax payments yearly can still increase and decrease your monthly payment, as they are included in it.
Adjustable-Rate Mortgages (ARM) will have fluctuating interest rates that are based on market changes and economic trends. They normally offer a rate lower than fixed-rate mortgages to start. Your monthly payment may increase or decrease considerably. Long term, it may be frustrating to not know what your payments will always be, but if you are not planning to be in the home for more than a few years, this may work to your advantage.
Balloon Mortgages start out with a lower interest rate than fixed-rate mortgages. This rate will last five to seven years then will require a "balloon" payment. This balloon payment will be the final payment and remaining balance of the loan. The monthly payments are low since the interest rate is amortized low for the length of the loan. If you plan to sell, pay off, or refinance the home before the balloon payment is due, this may be a good option for you.
Government Housing Loans are helpful to lower the cost of the mortgage so that more people can afford to own their own home. There are three options available through government agencies. Lenders must be approved to offer these loans, and they must meet standard requirements to qualify. The FHA, Federal Housing Administration, is part of the U.S. Department of Housing and Urban Development. The RHS, Rural Housing Service, is a branch of the U.S. Department of Agriculture. The third government agency is the VA or Veterans Administration.