When people talk about getting a home loan it might sound pretty straightforward, but the truth is that there is more than one type of loan that you can get. Getting the right one can ensure that you are able to afford your monthly payments, your interest rates are as low as possible, and you can get the most home for your money based on the down payment you have available. Here are five options to talk to your mortgage lender about when you’re ready to get a loan.
The fixed-rate mortgage, which may also be called a “traditional” mortgage, is designed for homeowners with great credit, at least 10 percent to put as a down payment, and who plan to stay in their home for an extended period of time. This loan will have a fixed rate and fixed monthly payments for the life of the loan, and will generally range from 10 to 30 years. It’s a great option if you have excellent credit and interest rates are low.
An ARM, or adjustable-rate mortgage, will have a low introductory rate for a fixed number of years, then the rate will fluctuate based on the market rates at the time. These type of loans are not necessarily bad, but are not the best option in every situation. For homeowners that plan to only be in the house for a short period of time (usually less than 5 years), getting the lower rate up front can keep payments low and allow you to sell before your rates change. It’s also a potential option if you believe that rates will go down in the future—in which case your payments will go down.
Most loan payments are structured with a portion going toward interest and another portion toward the principal balance. Interest-only loans have lower monthly payments because the homeowner is only responsible to pay the interest, with nothing paid toward principal. These are certainly not as common as they were a decade ago, but might still be an option for a short-term loan. Since you’re not paying down the balance of your original loan it’s not a feasible long-term option, and buyers will eventually have to refinance, pay off the balance with a lump sum, or increase their payments to begin paying down principal.
The reverse mortgage is only available for homeowners over 62 who want to turn the equity in their home into income. They have their own risks and obligations, and should be carefully considered and fully understood before any homeowner decides to get one. A mortgage lender can help explain the process and provide you with all the details.
As you pay down the total principal of your loan, your total interest paid over the life of the loan will go down. These mortgages allow you to pay a lump sum or a fee that buys down the amount of interest you will pay on the loan.
To learn about all the options available and figure out which is best for you, talk to a mortgage lender in Utah today.