What are the Mortgage Options?

If you have not purchased a house before, you are probably unfamiliar with the different types of mortgage. The mortgage options are available to give almost everyone the opportunity to loan the amount they need. It is also important that you know your options so that you can make the right decision. Choosing the right mortgage will definitely affect your payment behavior in the future.

Mortgage is normally categorized into two. One has a fixed interest rate and terms of payment. The other has a flexible rate or terms of payment or both. The flexible type is called the Adjustable Rate Mortgage or the ARM. The borrower chooses his preferred arrangement. He usually bases it on his current financial state.

One advantage of choosing a fixed rate mortgage is that you know exactly how much you will prepare to settle your monthly dues. You do not have to worry of it going up. This means that you will have a fixed monthly budget. That amount will be the same until you finish paying the loan. This mortgage loans usually have 15 or 30 year life.

The Adjustable Rate Mortgage on the other hand is different as the monthly payment can go up or down. This will depend upon the condition of the economy and what has been set in the loan agreement. Although the lender will normally set the terms, it should be in accordance with the short term Treasury bill rates. The ARM is normally offered when the prices of the property are going up and when there are relatively high interest rates.

There are people who would prefer the ARM because at the beginning of the term, the interest rate is low. This is also a good option for those who expect their salaries to significantly increase over the years.

Aside from the two major classifications of mortgage, there are also those that are government insured. These are normally granted to individuals who do not have enough income to avail of the regular loan. Examples of these are the FHA loans and the VA loans. In order for individuals to avail of such loans, they have to qualify first. FHA loans are for those with limited income while VA loans are for those who have served the military in the past.

There is also the balloon mortgage. This is a short term loan. The monthly payment made here is lower than the regular loans. In fact, for most terms, the monthly payment is equivalent to the monthly interest. A balloon payment will be made at the end of the term. Those who do not have plans of staying in the property for a long time usually choose this. They sell the house by the end of the mortgage and use the proceeds to make the balloon payment.

There is also the SAM or the Shared Appreciation Mortgage. This happens when a borrower transacts with a third party to pay for a portion of the down payment. Here, the third party will have right to the property purchased. However, the borrower can buy out his right in the future.

Finally, there is the conventional mortgage. Here, a down payment of 20{ef6a2958fe8e96bc49a2b3c1c7204a1bbdb5dac70ce68e07dc54113a68252ca4} of the borrowed amount will be required. If the borrower cannot make the payment, the lender will require private mortgage insurance.