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

What Type Of Mortgage Loan Is Right For You?

Homebuyers and homeowners need to decide which home Mortgage loan is right for them. Then, the next step in getting a mortgage loan is to submit an application ( Uniform Residential Loan Application ). Although we try to make the loan simple and easy for you, getting a mortgage loan is not an insignificant process.

Below is a short synopsis of some loan types that are currently available.

CONVENTIONAL OR CONFORMING MORTGAGE Loans are the most common types of mortgages. These include a fixed rate mortgage loan which is the most commonly sought of the various loan programs. If your mortgage loan is conforming, you will likely have an easier time finding a lender than if the loan is non-conforming. For conforming mortgage loans, it does not matter whether the mortgage loan is an adjustable rate mortgage or a fixed-rate loan. We find that more borrowers are choosing fixed mortgage rate than other loan products.

Conventional mortgage loans come with several lives. The most common life or term of a
mortgage loan is 30 years. The one major benefit of a 30 year home mortgage loan is that one pays lower monthly payments over its life. 30 year mortgage loans are available for Conventional, Jumbo, FHA and VA Loans. A 15 year mortgage loan is usually the least expensive way to go, but only for those who can afford the larger monthly payments. 15 year mortgage loans are available for Conventional, Jumbo, FHA and VA Loans. Remember that you will pay more interest on a 30 year loan, but your monthly payments are lower. For 15 year mortgage loans your monthly payments are higher, but you pay more principal and less interest. New 40 year mortgage loans are available and are some of the the newest programs used to finance a residential purchase. 40 year mortgage loans are available in both Conventional and Jumbo. If you are a 40 year mortgage borrower, you can expect to pay more interest over the life of the loan.

A Fixed Rate Mortgage Loan is a type of loan where the interest rate remains fixed
over life of the loan. Whereas a Variable Rate Mortgage will fluctuate over the life
of the loan. More specifically the Adjustable-Rate Mortgage loan is a loan that has a
fluctuating interest rate. First time homebuyers may take a risk on a variable rate for qualification purposes, but this should be refinanced to a fixed rate as soon as possible.

A Balloon Mortgage loan is a short-term loan that contains some risk for the borrower. Balloon mortgages can help you get into a mortgage loan, but again should be financed into a more reliable or stable payment product as soon as financially feasible. The Balloon Mortgage should be well thought out with a plan in place when getting this product. For example, you may plan on being in the home for only three years.

Despite the bad rap Sub-Prime Mortgage loans are getting as of late, the market for this kind of mortgage loan is still active, viable and necessary. Subprime loans will be here for the duration, but because they are not government backed, stricter approval requirements will most likely occur.

Refinance Mortgage loans are popular and can help to increase your monthly disposable income. But more importantly, you should refinance only when you are looking to lower the interest rate of your mortgage. The loan process for refinancing your mortgage loan is easier and faster then when you received the first loan to purchase your home. Because closing costs and points are collected each and every time a mortgage loan is closed, it is generally not a good idea to refinance often. Wait, but stay regularly informed on the interest rates and when they are attractive enough, do it and act fast to lock the rate.

A Fixed Rate Second Mortgage loan is perfect for those financial moments such as home improvements, college tuition, or other large expenses. A Second Mortgage loan is a mortgage granted only when there is a first mortgage registered against the property. This Second Mortgage loan is one that is secured by the equity in your home. Typically, you can expect the interest rate on the second mortgage loan to be higher than the interest rate of the first loan.

An Interest Only Mortgage loan is not the right choice for everyone, but it can be very effective choice for some individuals. This is yet another loan that must be thought out carefully. Consider the amount of time that you will be in the home. You take a calculated risk that property values will increase by the time you sell and this is your monies or capital gain for your next home purchase. If plans change and you end up staying in the home longer, consider a strategy that includes a new mortgage. Again pay attention to the rates.

A Reverse mortgage loan is designed for people that are 62 years of age or older and already have a mortgage. The reverse mortgage loan is based mostly on the equity in the home. This loan type provides you a monthly income, but you are reducing your equity ownership. This is a very attractive loan product and should be seriously considered by all who qualify. It can make the twilight years more manageable.

The easiest way to qualify for a Poor Credit Mortgage loan or Bad Credit Mortgage loan is to fill out a two minute loan application. By far the easiest way to qualify for any home mortgage loan is by establishing a good credit history. Another loan vehicle available is a Bad Credit Re-Mortgage loan product and basically it’s for refinancing your current loan.

Another factor when considering applying for a mortgage loan is the rate lock-in. We discuss this at length in our mortgage loan primer. Remember that getting the right mortgage loan is getting the keys to your new home. It can sometimes be difficult to determine which mortgage loan is applicable to you. How do you know which mortgage loan is right for you? In short, when considering what mortgage loan is right for you, your personal financial situation needs to be considered in full detail. Complete that first step, fill out an application, and you are on your way!

Advantages of Using a Local Mortgage Loan Professional

Mortgage loan specialists with a solid grounding in the local market can tailor a mortgage package to the client’s best advantage. A comprehensive mortgage loan service should cater for a range of mortgage solutions yet still utilize the latest products to give the customer a mortgage environment that is competitively sound and pocket-friendly.

Early consultation with a professional mortgage loan manager makes a significant improvement to a home seeker’s resources. Having a detailed understanding of how recent market developments might influence sale and purchase can dramatically influence the buying price of a property. And no one is a better qualified mortgage loan adviser than a local loan expert with a reliable network of contacts.

Learning about the client’s personal history and goals is a priority for a mortgage loan professional. Not all mortgage packages are suitable for every applicant and knowing where a client’s financial strengths lie facilitates securing a more attractive loan.

Getting the Most out of the Money Available

Property lending products are designed on criteria carrying a variety of conditions and requirements. Every client could not possible fit into the criteria demanded by all mortgage loan applications. A professional mortgage loan specialist will apply expert negotiation skills to secure the best mortgage offer based on the client’s personal and financial capabilities.

A mortgage ‘offer in principle’ allows the customer to house-hunt in confidence, armed with a reliable set of financial boundaries. Knowing ‘where the ceiling is’ can make the difference between buying a dream house or settling for second best in a house that does not quite fill the bill, perhaps because the client was searching in too high or too low a price bracket and closed in haste.

Disappointment is hard to put up with when seeking a new family home. A good mortgage can mean getting a better house on the capital available but mortgage loan applications can be complicated, especially when relying upon standard offers from large financial institutions with a tendency to apply a ‘one size fits all’ policy, complete with unfavorable rates of interest and uncomfortable restrictions.

Asking the Right Questions

Financial blindness makes successful property search impossible. And without the services of a mortgage loan professional with local knowledge, such handicaps are inevitable. Asking the right questions at the right time can make a significant difference to a client’s borrowing power, such as:

  • Must the mortgage be structured on one income or can a second income be included in the application? For example, often an applicant will discard a partner’s pension believing the contribution to be too small to make a difference: a mortgage loan specialist will advise on the best application methods.
  • Is there a qualification for a VA loan; an FHA loan or a USDA loan?
  • Who is to pay the closing costs? Should these costs be considered when making an offer to the seller?
  • How will personal tax issues be affected by the size of the mortgage?
  • Will previous credit difficulties preclude securing a mortgage offer?

It is widely recognized that moving to a new home is one of the most stressful experiences, coming a close third to bereavement and divorce and often two of these life changing situation must be tackled at the same time, which is why it is vital to have the best possible advice and representation from a mortgage loan specialist with a broad understanding of the area.

Local knowledge can be the best possible tool to ensure a house move goes smoothly and economically. Having a wealth of local contacts helps to ease a client’s transition from one home to another and provides invaluable information on issues that relate to settling in a new and perhaps unfamiliar environment.

Troubleshooting

Mortgage applications should run on a relatively smooth timeline but as everyone knows, things do not always go to plan. This is where an expert mortgage loan manager can pre-handle potential problems and step in to deal with small procedural difficulties before they develop into major disasters.

Closing should always be attended by a properly licensed professional with the correct credentials to ensure documentation is in order, appropriate registration is carried out and financial transfers are conducted securely to the satisfaction of all parties.

Investment issues

Property purchased for inclusion in an investment portfolio is no less significant and in fact requires an equally high level of efficiency on transfer of ownership, not least due to the probability of buying and selling within a shorter time frame. Property market fluctuation might prompt an urgent sale and a mortgage loan facility that is inflexible can cause havoc on a short ‘turnaround’. Engaging the services of a mortgage loan specialist prior to purchase can smooth the path to a healthy investment program with maximum returns.