Guest Author - Rose Mary
There are several different types of mortgage loans available to borrowers when purchasing a home. It is always important to know what is available in order for a borrower to make the right decision according to their needs. Here is a quick run down of the typical loans that are offered:
-Fixed Rate Mortgage
With the fixed rate mortgage, the interest rate is set at the start of the loan and continues for entire term of the loan. This type of loan offers the same monthly mortgage payment until the loan is paid off. Terms available are 40 years, 30 years, 20 years, 15 years and 10 years. The most common are the 30 and 15 year term. This is probably the most secure loan available for borrowers.
-Adjustable Rate Mortgage
This type of loan offers a low interest rate at the start of the loan which then will changes at a specific time. The interest rate can increase or decrease which will change the monthly mortgage payment. The change in rate is unknown until it happens because it is dependent on the market. Borrowers really need to know the details of this type of loan before committing to it.
A jumbo loan is anything that is above the conforming loan limits. These limits have recently been raised to $417,000 in most areas and $729,750 in high cost areas such as California for single family homes. Due to these limits, many homes fall into this category which is a bonus for borrowers since anything within these amounts will be offered an conventional loan. A true jumbo loan carries higher interest rates and will require perfect credit.
An FHA loan is favorite with first time home buyers because it offers a low down payment, the use of gifts and easier credit approvals. Borrowers must know that they are charged an upfront mortgage insurance premium and an annual mortgage insurance premium that is part of the monthly payment. The FHA loan can also be combined with state housing grants and initiatives.
The VA Loan is offered by the Veteran's Administration to military families. It has a zero down payment option and a low, competitive interest rate. There are several guidelines that must be followed which does require additional paperwork for the borrower, but it a benefit offered just to this group of people.
There are basically two types of refinancing. The rate and term refinance is used when a borrowers wants to reduce the interest of their mortgage and/or the length of the loan. The cash out refinance is when a borrower wants to take equity out of the home to be used for other purposes. Both of these types are a way for homeowners to save money.
In today's world of mortgages, it is so important for borrowers and homeowners to educate themselves about different options for mortgages so that they know what they prefer prior to seeing a lender.