Almost everyone dreams of owning a home. However, this dream can only be realized when you have enough money for the project. With the increasing number of financial institutions that are more than willing to offer mortgage loans to people, the issue of stable finances is considerably taken care of by the home buyers. Home-building mortgages are simply the future of residential property development. Here are the 3 basic types of mortgage loans for homebuyers.
1. Fixed-Rate Mortgages
Have you ever thought of having a home loan whose interest rate remains the same for the life of the loan? Well, with a fixed-rate mortgage loan package, the home buyer is required to pay only a small portion of the total value of the cost of the house as principal during the first few years and the rest is being paid as interest that does not fluctuate over the loan repayment duration.
Another interesting thing about fixed-rate mortgage is that you get to split the payment into equal monthly payments for the duration. In most cases, the duration for repaying fixed-interest loans is 10, 20 or even 30 years. The more time you are given to repay your loans under the fixed-interest settings, the lowest you will be required to pay every month. This means that a 30-year fixed-interest package will cost you less money every month than a 10-year package for the same house.
2. Adjustable-Rate Mortgages (ARM)
With the adjustable-rate mortgage loans, the interest that your loan will be accumulating over the repayment period can change from year to year depending on other factors. This means that what you paid as interest for the home loan during the first year might be increased during the second and subsequent years of loan repayment. There is a special category of adjustable-rate mortgages that features aspects of both fixed-rate mortgages and adjustable mortgages.
This category is known as the Hybrid ARM. In most cases, you will be required to pay mortgage loan lenders fixed interests over a period of time before starting on ones that change annually for the rest of the repayment duration. For example, if you paid a fixed interest of let’s say 2% over the first three years, then your lender added the interest amount during the fourth year to 3% annually, then the type of mortgage setup you are subscribed to is called Hybrid ARM.
3. Interest-Only Mortgage Loans
The interest-only loans do not require you to pay principal during the first years of your loan. This is a good type of loan setup for families with irregular income. The interest-only type of home mortgage allows you to pay only interests for the first few years of the loan.
In most cases, the structure in this type of loans follows the adjustable-loan methods. During the first five or ten years, you will be required to pay only interests. The rate is then adjusted annually and the homebuyer pays for principal as well as interest over the remaining period of loan repayment.
Hopefully from these three major types of mortgage loans, you will get the home-buying loan package that fits your lifestyle. Remember to do thorough research before getting a loan for your home. Make sure that you understand every detail of the loans prior to signing the agreement papers with the lenders.