There are plenty of mortgage options out there, so it's important to take the time to find one that works best for you. While it's definitely important to have an idea of the type of loan you want, it's also important to know the types of loans you don't want.
A 30 Year Fixed Mortgage is a popular type of loan where the mortgage payment remains at a fixed rate each month. You pay the same amount every month and at the end of 30 years, the entire loan will be paid off. This type of loan offers the security of fixed payment amounts but may also end up being more expensive than an adjustable-rate loan in the long run. However, the stability of a fixed-rate can make it easier to manage finances and plan ahead.
Like a 30 Year Fixed Mortgage, a 15 Year Fixed Mortgage provides the stability of consistent monthly payments. However, payments are higher with a 15 year mortgage than with a 30 year mortgage. This allows you to quickly build equity, but not everyone can afford the higher monthly payments that come with this type of loan.
A Balloon type mortgage is shorter than a 30 Year Fixed Mortgage. Balloon mortgage terms usually last 3, 5 or 7 years and follow a fix-rate payment schedule. At the end of the term, there is still a remaining balance, and this is usually paid by refinancing. Some Balloon loans offer the option to convert to a long-term fixed mortgage at the end of the first mortgage term. A Balloon mortgage is a good option for someone who wants the stability and security of a fixed rate mortgage but may not be able to afford a long-term mortgage. This option can also be useful for someone looking to sell their home in the near future or investors.
Payment Option mortgage is a flexible loan that may be attractive to people who don't have steady incomes. People with this type of loan have the option to pay varying amounts each month. For instance, if someone earns income on commission, they can pay extra when they make extra money. Usually, monthly options include a low payment option, an interest plus principal option and an interest-only option. Typically, the low payment option remains about the same for a year and then increases according to market trends. This can be a good option for people who want a flexible payment choice, but there are some risks involved. If the value of your home does not appreciate over time, you could end up owing more on your home than it's worth if you only pay the low payment option each month. This would make selling or refinancing your home more difficult.
There are several different Adjustable Rate Mortgage (ARM) options that exist. Some of which include the 7/1 option, 3/3 option and 1/1 option. An ARM has an adjusted interest rate that changes at a specific time. For instance, a 3/3 ARM will have the same initial rate and same payment for the first three years of the mortgage. After that, the rate and payment will change and then will continue on for 3 more years. After those three years, the rate and payment will change again. This type of mortgage can be a good option for people who may not be able to afford the higher initial payments associated with a fixed-rate mortgage. However, since the rate depends on market trends, there is some risk involved with an ARM.
As you can see, when it comes to finding a mortgage, there isn't a one-size-fits-all solution. Instead, you can study your options and find the type of mortgage that fits best with your income and your goals.