Ricky Lim works in a finance company specialising in Home mortgage refinance loans. Visit his site to find the best home mortgage loan.
Currently on the market, there are many varieties of mortgage loans available. Sometimes it can be difficult to tell which mortgage loan is suitable and applicable to you.
I will discuss the 3 main types of mortgage loans on the market. Most banks and lenders offer mortgage loans that belong to one of these categories.
1. Fixed Mortgage Loan
Fixed mortgage loans are the most popular and common among the three types of mortgage loan.
You take out a mortgage loan with a lender and you pay a certain repayment amount for a fixed period of time. Most people usually choose 30 year fixed mortgage loans as the monthly repayment amounts are low and the interest rates usually evens out in a 30 year period.
One disadvantage of 30 year fixed mortgage loan is you have to repay more for your mortgage loan in total compared to someone who takes up a 15 or 5 year loan.
There are also shorter time periods such as 5 year, 10 or 15 years fixed mortgage loans. It allows people who want to pay off their house in a shorter period of time. Of course, you have to make sure you have the financial capability to repay higher monthly repayments.
There is also another sub-category of mortgage loan called adjustable rate mortgage loan or ARM. Usually, you will start off with a lower interest rate compared to a 30 year fixed mortgage loan. So you ended up paying less each month for your mortgage repayment.
However take note that ARM is highly fluctuating depending on interest rates. In other words, you pay less for monthly repayment when interest is low and pay more when interest rates is high.
2. Convertible Loans
Convertible loans are becoming more popular as it allows people to keep their mortgage loan options open allowing for more flexibility.
If you find interest rates are too high, you can convert to a fixed rate mortgage loan. If interest rates are low, you can also convert to ARM based mortgage loans.
There are too many varieties of convertible loans under this category. However I list one type of convertible loans I dealt with.
Balloon Loan
A balloon loan is a fixed rate convertible loan. Usually, you start off by repaying small monthly repayments for a period of years, usually 5 or 7 years. At the end of that period, you will need to repay the loan in one lump sum.
So what's the advantage of a balloon loan? It is mostly used by investors or property dealers who are looking to sell the house in a short period of time. They can take advantage of low interest rates without locking their money on a house. Since they will have a large sum of money when they sell the house, it will not be a problem to return the lump sum.
3. Special mortgage loans
These are mortgage loans that are only being offered to a group of people. For example the FHA mortgage loans are only available for first time home buyers or people with bad credit.
Another one is the veteran affairs mortgage loan. They are only offered to widows of the US armed forces.
The best way to know whether you qualify or is suitable for a mortgage loan is to speak to a professional mortgage consultant before you decide to take up any mortgage offer
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