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Contrasting Types Of Mortgage

There are many types of mortgage, and if you were considering getting one yourself,  it is important that learn as much as possible about them in order to make an educated decision when it’s time to do so.

This article will explain and define the different types of mortgages, in addition to comparing them in terms of advantages and disadvantages.

Here is a list of the most common mortgage loans available to home buyers:

  1. Fixed-rate Mortgage 
  2. Adjustable-rate Mortgage (ARM) 
  3. Federal Housing Administration (FHA) Mortgage
  4. Veterans Affairs (VA) Loan
  5. Balloon Mortgage
  6. Interest-only Mortgage
  7. Reverse Mortgage
  • Fixed-rate Mortgage

The size of monthly payments in fixed-rate mortgage loans stays the same for the entire repayment term. This type of mortgage loans also keeps the same interest rate month after month. This even includes 30-year fixed-rate loans.

  • Adjustable-rate Mortgage

The interest rate in Adjustable-rate differs, or “adjusts”, throughout the repayment term. Typically, the initial interest rate is fixed for a predetermined period of time, after which it switches over to become an adjustable rate that changes periodically.

  • Federal Housing Administration (FHA) Mortgage

Managed by the Department of Housing and Urban Development (HUD), The Federal Housing Administration (FHA) mortgage insurance program provides loans to all types of borrowers. What the government does is ensure lenders against possible losses due to borrower default.

  • Veterans Affairs (VA) Loan

Veterans Affairs loans are offered by The U.S. Department of Veterans Affairs to military service members and their families. This type of mortgage is insured by the federal government against any losses that may result from borrower default.

  • Balloon Mortgage

Balloon mortgages are short-term mortgages that require borrowers to pay regularly for a specific period of time, and them pay off the remaining balance within a somewhat short period of time.

  • Interest-only Mortgage

Using an interest-only mortgage, borrowers are required to pay off the interest that results from the borrowed principal. Because of that, interest payments remain relatively consistent all throughout the mortgage term. Still, the borrower will have to pay the principal of the loan ultimately, as this type of mortgages does not last indefinitely.

  • Reverse Mortgage

This type of mortgages allows homeowners to borrow money against the value of their homes and receive fixed monthly payments (or a line of credit). In this type of mortgage, the loan amount does not exceed the home’s values over the course of the loan. This mortgage does not require repayment of any kind unless the borrower dies, moves permanently or sells said home.
 

Contrasting Types Of Mortgage

 

Advantages

Disadvantages 

Fixed-rate Mortgage

No surprise, interest rate stays the same for the entire repayment term.

Interest rates could fall, and you would have to pay the same high rate.

Adjustable-rate Mortgage

Typically, initial rates in this type of mortgages would be lower than those in fixed-rate mortgages

Full of surprise, rates could fall or rise, and when they rise, so will your loan payments.

FHA Mortgage

This program allows you to make a down payment as low as 3.5% of the purchase price.

You will have to pay for mortgage insurance, thus increasing the size of your monthly payments.

VA Loan

$0 down payment. Borrowers can receive 100% financing for the purchase of a home. 

Loan size might be limited.

Balloon Mortgage


Typically a fixed-rate mortgage with fairly low payments for a fixed period of time.


Can be risky, as the entire loan balance is due after an initial period of time.

Interest-only Mortgage

Borrowers only pay the interest on the loan monthly, for a fixed term.

After an initial period of time, the balance of the loan is due, with possible higher payments.

Reverse Mortgage

Great for seniors, as it allows them to transform their home equity into cash, and they do not have to pay the loan and interest back as long as they live in said home. Subject to false advertising.

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