There seems to be an endless choice of mortgages and rates available to the home buyer consumer. It is always great to have options so you can specify a mortgage that is perfect for your financial situation. However, it can get tricky deciding between the many options.
I have attempted to put together in one place, information on the top 9 mortgages that are used for home buyers to finance their homes. Although these are common mortgages and terms that you will see from a financial lender, remember that these mortgages are almost always negotiable, especially if you have pulling power with good credit and a large down payment. Never agree to a mortgage or financial commitment, no matter how tempting, if it falls out of your range of financial comfort. Address all options and choose what is right for you.
1. Fixed Rate Mortgage
A fixed rate mortgage, like the name implies, maintains the same interest rate throughout the entire life of the loan. You can get this fixed rate mortgage usually in 10, 15, or 30 year terms. The time can be negotiable with your specific lender to fit your needs. This type of mortgage is good for the home buyer who wishes to know how much the house payment will be every month because it is fixed and if the home buyer is planning on living in the home for 10 years or more.
2. One Year Adjustable Rate Mortgage
Adjustable rate mortgages, or ARMS, have interest rates that change according to financial indexes often dictated by the current market. This means that your payment can increase or decrease according to the change in the index. This can sometimes offer instable payments so the home owner must be prepared for changes of either an increase or decrease in amount.
With the one year ARM, the interest rate changes every year according to the index for the entire life of the loan. This can be good for the home buyer who wants to risk getting the lowest rate possible at the expense of risking a higher rate and higher monthly payments if the index changes accordingly. The rates are usually offered on the lower end due to the risk that the buyer is carrying. If you enter into this type of fluctuating loan due to financial status, you can always re-negotiate terms or refinance later and get a better deal and more stable loan.
3. 10/1 Year ARM
With this mortgage, the interest rate remains the same for 10 years and then starting the 11th year changes every year according to the index the lender chooses to base the interest on. This mortgage is good for those who may move in 10 years and want to enjoy a stable payment plan while they are living in the home.
4. Balloon Mortgage
Balloon mortgages are considered a little higher risk because at the end of the life of the loan, there can be a large payment as the loan is due in full. The life of the loan is negotiable however 3, 5, and 7 year balloons are common. The home owner will pay at a stable interest rate for the life of the loan, then at the end of the term, all the remainder of the loan must be paid in full. The home owner must be prepared for this final, possibly very large payment.
This mortgage is good for those who want to live in the property more than the life of the loan, who want to pay the mortgage of quickly, who like stable monthly payments, or who plan to move before the life of the loan, in which the loan can be assumable and passed to another buyer.
5. 7/1 Year ARM
Like the 10/1 ARM, this mortgage simply has a different life term. The interest rate remains steady for 7 years and then starting the 8th year the interest rate will change according to the index, causing the monthly payment to change every year after. This mortgage is good for the home owner who plans to live in the home for 7 years and likes stable payments. It is also good for the home owner who wants to move within 7 years and has options in case he or she chooses otherwise.
6. 30 Due in 7 Mortgage
This mortgage is like two fixed rate mortgages put together. It is also known as a 7/23 two-step mortgage. The interest rate and monthly payment remains stable for 7 years and then on the 8th year, the interest rate changes according to the current rates. This interest rate and payment will remain the same for the life of the loan. This mortgage is good for those who plan to live in the home for more than 10 years and wants to risk the interest rate going either higher or lower at the 8 year mark.
7. 30 Due in 5
Similar to the 30 due in 7, this mortgage is a two-step mortgage that has an interest rate and monthly payment that remains stable for 5 years and then changes according to the current market rates on the 6th year. This mortgage is good for those who wish to live in the home for longer than 5 years and want to risk having a change in a monthly payment, whether an increase or decrease.
8. 5/5 and 3/3 ARMs
These mortgages have a stable payment for the first listed number, 3, 5, or however negotiated, and then after that period the interest rate changes according to the market every 5 years for the 5/5 ARM and 3 years for the 3/3 ARM. This mortgage has fewer adjustments for the life of the loan and is good for those who which to live in the home for a period of 3-5 years and who are open to changes in the future.
9. 5/1 and 3/1 ARMs
This mortgage is not stable and the interest rate changes every year after the first listed number. So starting the 6th year for the 5/1 ARM and starting the 4th year for the 3/1 ARM. This is good for the home owner who wishes to live in the property for the stable payment length of the loan and who is willing to risk getting the lowest rate possible after a time of stability.
As you can tell, most of these mortgages can fall under three main categories: fixed, adjustable, two-step and balloon. The terms and length of the mortgages are negotiable, so ask your broker, lender or financial advisor for assistance in finding the best loan for your financial situation.
John R Blakefield is a mortgage and real estate specialist. For more information, articles, news, tools and valuable resources on home mortgages or investment loans, refinancing, debt solutions, visit this site: http://www.scourtheweb.com/mortgage/.