Types Of Mortgage Loans
What are the different types of mortgage loans? Mortgage loans are loans that are secured to buy real property. When the loan isn’t paid, the real property that was being talked about will become foreclosed, and are usually turned over to the party who lent the cash to buy it. But do you know that there are three main types of mortgage loans? It is always a good thing to know them so that when the time comes that you are about to get one, you know which one will be most beneficial to you.
The first of the three types of mortgage loans is the fixed interest mortgage loan. These are types of mortgage loans where the rate of the interest remains the same the entire time the loan is unpaid. The payments for these types of mortgage loans are split into monthly payments of equal amounts. They are split equally for the entire duration of the mortgage loan. In financial institutions terms, the payment is amortized. The payments for the interest in these types of mortgage loans are front loaded. The problem here is that for the first part of the loan, only a small amount of your payment will go to the principal. This is how financial institutions make money out of it. The duration of the fixed interest mortgage loans can differ depending on the person getting it. Just keep in mind that new studies show that long terms of this type can offer advantages too to the consumer. The main advantage of the fixed interest mortgage that is of a long duration is that it is easy on the pocket.
Next, we have the adjustable rate mortgage. These are the types of mortgage loans where the interest rates change annually, hence the name. These days, there are even adjustable rate mortgage that also have some features of the fixed interest mortgage loans. This is called hybrid mortgage. When the term of the fixed interest mortgage expires, the remaining balance is amortized wherein the interest rates will change annually. This is how the hybrid adjustable rate mortgage works.
Lastly, we have the interest only types of mortgage loans. These are the types of mortgage loans that are taken advantage by the people who have the hardest time paying off their mortgage. This is because the interest mortgage loans are characterized by just paying of the interest rates, for the first few years. Here, you can opt to pay the principal of the loan when you can. But if you cannot, then you are only obliged to pay for the interest. Therefore, it is easy on the pocket. These types of mortgage loans are best for people who have small income at the time of the loan. After time will pass, these people will get the incomes increased. Therefore, they will be able to pay their mortgage easier.
Always keep in mind that no matter which type you are planning to get, it is important that you know all the ropes first. No one wants to get buried under debts. Therefore make sure that you are ready and will be able to pay before you get one.
