The 3 Types Of Mortgage Loans

The 3 Types Of Mortgage Loans
Currently on​ the​ market,​ there are many varieties of​ mortgage loans available .​
Sometimes it​ can be difficult to​ tell which mortgage loan is​ suitable and applicable to​ you.
I will discuss the​ 3 main types of​ mortgage loans on​ the​ market .​
Most banks and lenders offer mortgage loans that belong to​ one of​ these categories.
1 .​
Fixed Mortgage Loan
Fixed mortgage loans are the​ most popular and common among the​ three types of​ mortgage loan.
You take out a​ mortgage loan with a​ lender and you​ pay a​ certain repayment amount for a​ fixed period of​ time .​
Most people usually choose 30 year fixed mortgage loans as​ the​ monthly repayment amounts are low and the​ interest rates usually evens out in​ a​ 30 year period.
One disadvantage of​ 30 year fixed mortgage loan is​ you​ have to​ repay more for your mortgage loan in​ total compared to​ someone who takes up a​ 15 or​ 5 year loan.
There are also shorter time periods such as​ 5 year,​ 10 or​ 15 years fixed mortgage loans .​
It allows people who want to​ pay off their house in​ a​ shorter period of​ time .​
Of course,​ you​ have to​ make sure you​ have the​ financial capability to​ repay higher monthly repayments.
There is​ also another sub-category of​ mortgage loan called adjustable rate mortgage loan or​ ARM .​
Usually,​ you​ will start off with a​ lower interest rate compared to​ a​ 30 year fixed mortgage loan .​
So you​ ended up paying less each month for your mortgage repayment.
However take note that ARM is​ highly fluctuating depending on​ interest rates .​
In other words,​ you​ pay less for monthly repayment when interest is​ low and pay more when interest rates is​ high.
2 .​
Convertible Loans
Convertible loans are becoming more popular as​ it​ allows people to​ keep their mortgage loan options open allowing for more flexibility.
If you​ find interest rates are too high,​ you​ can convert to​ a​ fixed rate mortgage loan .​
If interest rates are low,​ you​ can also convert to​ ARM based mortgage loans.
There are too many varieties of​ convertible loans under this category .​
However I​ list one type of​ convertible loans I​ dealt with.
Balloon Loan
A balloon loan is​ a​ fixed rate convertible loan .​
Usually,​ you​ start off by repaying small monthly repayments for a​ period of​ years,​ usually 5 or​ 7 years .​
At the​ end of​ that period,​ you​ will need to​ repay the​ loan in​ one lump sum.
So what’s the​ advantage of​ a​ balloon loan? It is​ mostly used by investors or​ property dealers who are looking to​ sell the​ house in​ a​ short period of​ time .​
They can take advantage of​ low interest rates without locking their money on​ a​ house .​
Since they will have a​ large sum of​ money when they sell the​ house,​ it​ will not be a​ problem to​ return the​ lump sum.
3 .​
Special mortgage loans
These are mortgage loans that are only being offered to​ a​ group of​ people .​
For example the​ FHA mortgage loans are only available for first time home buyers or​ people with bad credit.
Another one is​ the​ veteran affairs mortgage loan .​
They are only offered to​ widows of​ the​ US armed forces.
The best way to​ know whether you​ qualify or​ is​ suitable for a​ mortgage loan is​ to​ speak to​ a​ professional mortgage consultant before you​ decide to​ take up any mortgage offer
The 3 Types Of Mortgage Loans The 3 Types Of Mortgage Loans Reviewed by Henda Yesti on June 27, 2018 Rating: 5

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