Mortgage Loan Types
Buying a home is a big decision-making process, and it doesn’t stop once you’ve found the house of your dreams. Unless you are able to pay for the home in cash, you will also need to decide the type of mortgage that is best for you. Let’s take a look at 3 types of mortgages, fixed rate mortgages, adjustable rate mortgages, and reverse mortgages, and the pros and cons of each of them.
A fixed-rate mortgage is a fairly simple, cut and dry loan in the mortgage world. Basically, you end up paying the premium, plus interest, in one monthly payment that stays the same for the life of the loan. Once you file the mortgage paperwork, you are locked into an interest rate, which means your monthly payments stay the same for the whole loan term. You can usually find a fixed rate loan with a term anywhere from 10-50 years. The shorter the term, the higher your monthly payments are, but the less interest you pay over all. With a longer term, you get lower monthly payments, but you end up paying a lot more interest in the long run. A fixed rate loan can be extremely helpful for planning purposes, and can be a good idea for people who plan on staying in their home for quite a while. One of the downsides of a fixed rate loan is that you could be locked into an interest rate that ends up being higher than the current interest rates as the years pass. In order to take advantage of the lower rates, you will have to pay some costly refinancing fees to adjust your interest rate and payments, but this could end up costing you more than it is really worth.
Now, Adjustable rate mortgages are slightly more complicated. They are loans where the interest rate can change over the life of the loan. Usually, there will be a pre-set amount of time where the interest rate is fixed and fairly low, but after that time period, the interest rate resets each year to the market rates. Some ARM loans have no fixed term and vary from year to year. Trends show that over time, interest rates go up, so in the end, you could be paying a much higher monthly payment than you started with due to these higher rates. These loans can be beneficial to young people who don’t have a lot of money in an entry level job position and who may need lower payments in the beginning of their loan term, OR it could be good for people who don’t plan on staying in the home for a very long period of time. However, A big downside for this type of loan is that over time, you may not be able to afford the monthly payments, if your interest rates rise too high. In the past, these types of loans have lead to a lot of foreclosures. So before signing up, do your research and understand all the terms of the loan.
A Reverse mortgage is available to people who already have a home that they either own outright or that they are still paying on. A reverse mortgage is usually offered to individuals in their 60’s and it allows them to take out a loan on the equity of their home. The equity of your home is the difference between how much you owe on your mortgage, and how much your home is worth. No monthly payments need to be paid while borrowing the money. The loan comes due once the home is sold or the borrower moves out of the home for more than 365 days. The entire amount borrowed, plus fees and interest must be repaid at this time. Reverse mortgages can be costly… a lot of fees are charged and they are taken out of the equity in your home. So, you may not see as much money as you expect. Also, the homeowner is still responsible for paying on real estate taxes, insurance, and even mortgage insurance on the home. So keep these things in mind when choosing the mortgage that is best for you.
Here at Rogue, we offer a variety of fixed rate and adjustable rate mortgages that can fit your needs. If you are interested in getting more information on these topics, please call us at 800-856-7328 or stop by one of our branches. We’d love to help you any way we can.