A Guide To Understanding Types of Mortgages
Are you looking to buy a home, but don't know where to start when it comes to understanding the types of mortgages available? Whether you are a first-time home buyer or experienced in the process, it is important to understand the different types of mortgages that are available. In this article, we will provide you with a guide to understanding the types of mortgages available, so you can make the best decision for you and your family. Keep reading to learn more, and don't forget to use iSelect's quick mortgage calculator to ensure you qualify before submitting an application.
An adjustable-rate mortgage (ARM) is a type of loan in which the interest rate can be adjusted periodically over the life of the loan. ARM loans are generally offered by lenders as an alternative to traditional fixed-rate mortgages and may offer lower initial rates, making them attractive for people who plan to stay in their homes for only a few years or those who expect their incomes to increase significantly within that period. With an ARM, borrowers will have periodic opportunities throughout the life of their loan to adjust either the interest rate or length remaining on their loan; these options will depend on what type of ARM they have chosen. As with all types of mortgages, when choosing an ARM it’s important to consider potential risks as well as rewards. A lower initial interest rate could potentially mean significant savings in your monthly payments; however, if there is an upward fluctuation in market rates during your term you could find yourself facing higher payments than you initially expected.
Fixed-rate mortgages are one of the most common types of mortgages available today. They are a popular choice for borrowers who want to lock in the same interest rate for the duration of the loan. These mortgages are appealing because they provide borrowers with the stability of knowing their monthly payment for the duration of their loan. When you apply for this mortgage, the lender will set an interest rate that will not change for the life of the loan. The interest rate is typically based on the lender’s current mortgage market conditions and the borrower’s qualifications. This allows you to plan for and budget a consistent monthly payment over the life of the loan. These mortgages can come in various terms, ranging from 10-, 15-, 20-, 25-, and 30-year terms.
Balloon Payment Mortgages
A balloon payment mortgage is a type of loan in which borrowers make regular payments over the course of several years, with a large lump-sum payment due at the end. This large final payment is referred to as the balloon payment and it can either be paid off or refinanced by the borrower. Balloon mortgages usually have lower monthly payments than traditional loans, but they also carry more risk since they require borrowers to come up with a large amount of money at one time. The main advantage of this type of loan is that it allows borrowers who might not qualify for a conventional mortgage to access homeownership sooner. The typical term for these types of mortgages ranges from five to seven years. During this period, interest rates are often fixed and no additional principal payments are required until the end when the full balance must be repaid or refinanced through another lender. Borrowers should consider how much their financial situation may change during those five-to-seven-year periods before taking out such a loan so that they will still be able to pay back or refinance the balloon payment when due.
Overall, mortgages are a major financial decision that requires careful consideration and research. This article can help simplify the process by providing detailed information and explanations of the various types of mortgages available to potential homeowners. With careful consideration, understanding, and guidance, potential homeowners can make an informed decision on the right mortgage for their needs.