Explore mortgage types and mortgage loan options.
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Finding the right home is only half the battle in the homebuying process--choosing the right mortgage type is also important. The stakes are high, as making a financially savvy choice can save you thousands of dollars over the life of the loan. Since you are likely to be paying your mortgage over a long period of time, it is essential you select one that best suits your needs and budget. Consider the following to better understand which mortgage may be right for you.
30 Year Fixed Rate Mortgage
A 30 Year fixed rate mortgage ensures that your interest rate will not change. This makes it easier to budget as the monthly repayments stay at a fixed rate over 30 years regardless of the housing market. Many homebuyers favor this option for the long-term security it provides.
15 Year Fixed Rate Mortgage
A 15 Year fixed rate mortgage must be paid off in half the time of the 30 Year alternative, but it’s a popular option that can quickly build equity and provide the borrower with a lower interest rate. It can be also be beneficial for those seeking to retire within 30 years as they will not have to make repayments in retirement.
Conventional Loan
A conventional loan is not insured or guaranteed by the government, which means they offer fewer restrictions and allow lenders to build terms specific to their borrowers. Conventional loans request smaller down payments, as little as 3% of the total cost. Furthermore, loan processing can be faster than government-backed loans. Lenders can offer flexible term lengths between 10 and 30 years. Lenders are at a higher risk with a conventional loan and thus may require private mortgage insurance (PMI) if the borrower puts down less than 20% on the property.
FHA Loan
A FHA loan is a mortgage insured by the Federal Housing Administration, backed by the federal government, and is often a viable option for homebuyers who do not qualify for a conventional loan. FHA loan requirements vary depending on individual loan types but generally a lower down payment is required and buyers with lower credit scores can qualify. A FHA loan may also be suitable for self-employed individuals with unpredictable income.
VA Loan
A VA loan is a mortgage guaranteed by the U.S. Department of Veterans Affairs. They are offered exclusively to active duty and veteran service members and certain military spouses. The benefits of a VA loan can be exceptional: lower interest rates, no required down payment, no prepayment penalty, and no monthly mortgage insurance premiums.
ARM
An adjustable rate mortgage (ARM) can offer upfront savings if the loan’s initial interest rate is lower than fixed rate mortgage types. ARMs may come with a fixed period where the interest rate remains the same and then after that period the rate adjusts to the market, changing either monthly or yearly. This can benefit borrowers who move frequently, plan to refinance before the loan adjusts, or expect to earn more income in a few years. Keep in mind that ARMs can become more expensive if interest rates rise.
I CAN Mortgage
An I Can mortgage type is one where borrowers can negotiate the term length by working with a team of mortgage professionals to determine what works well within a set budget. This mortgage can allow borrowers to build home equity faster with options to refinance with a lower interest rate and shorter term. Due to the flexibility of the loan, borrowers can tailor their mortgage to suit their current and future needs.
Reverse Mortgage
This option is suitable for older homeowners as it allows them to convert some of their home equity into cash. Homeowners can better manage their retirement finances by using their accumulated equity. This means the lender makes monthly payments to the borrower, and the borrower does not have to pay this reverse mortgage back until the home is sold, vacated or the homeowner passes away. A reverse mortgage does not require a credit score to qualify.
Are you a first-time home buyer, or looking to refinance? Consider which mortgage type is best suited for your circ*mstances. Request a quote through our website or call our office for more information.
