To most aspiring homeowners, matters to do with mortgage loans as well as how they work is quite challenging. You might know how to identify mortgage lenders and choose the best based on their packages, which should be beneficial to you- the mortgage loan holder. However, you may fail to know an equally important thing, which is the type of loan you want.
Different mortgage brokers offer different types of loans. While each type will have varying elements, including the cost, your decision on which one to choose should be based on factors beyond the cost attached to each. At the end of the day, the mortgage loan you take should serve to solve your problem in line with your specific needs based on factors beyond the cost.
To know what loan best fits your needs, it’s important to know the different types of mortgage loans available to you. However, you should get more detailed and accurate information by seeking expert mortgage advice.
- Fixed Interest Rate Mortgages
The basic element of fixed interest rate mortgages is that the loan borrower has to pay the same amount of money as interest charge every month. If your initial interest charge, based on your agreement with the lender, is 12%, that rate will remain the same regardless of the period taken to finalize the deal. They also involve long payment periods that range from 15 to 30 years.
Fixed interest mortgages are an ideal choice for those that may not be able to raise increased unexpected costs in future. It enables the borrower to have a more precise budget. However, these types of mortgages usually involve high interest rates- higher than those found in flexible interest rate mortgages.
- Flexible Interest Rate Mortgages
Flexible interest rate mortgages refer to types of mortgage loans associated with potential fluctuation of the interest rate charged. In most cases, the interest rate will remain stable and unchanged for the first few years before fluctuating by either increasing or reducing. The fluctuation of interest charged on this type of loan will depend on a few factors that include changes in the housing and mortgage lending industries or a change in policies affecting one or both industries.
Flexible interest mortgage loans are cheaper during the first few years and enable the borrower to make considerable savings in interest charges. However, it has potential risk of becoming expensive when interest rates fluctuate upwards. The rule of the thumb is that it’s an ideal choice if you have plans to reside in the property being bought for less than 10 years. However, better results will be attained by seeking the help of a professional mortgage advisor.
- Government-Sponsored Mortgages
While most governments do not offer mortgage loans themselves, they play an important part in helping its citizens acquire loans for home-ownership. Typically, the beneficiaries of such government-sponsored mortgage loans are special groups, either financially unstable or otherwise.
In the U.S., for example, there are three government agencies that offer sponsored home ownership loans. These are;
- Federal Housing Association (FHA) Loans- They target low income earners who have difficulties raising the down payment required by various lenders
- S. Department of Agriculture (USDA) Loans- They help low income earners who are interested in owning homes in rural areas. Beneficiaries are not required to make down payment
- Veteran Affairs (VA) Loans- These are targeted on persons in active military duty or retired military people to acquire homes
- Other Types of Mortgage Loans
There are many other less unknown mortgage loans in the market. These include interest-only mortgages. With this type of mortgage, the borrower is not required to pay the principal amount at the start. The first few years will involve paying only the interest charges, with the principal amount being factored into the monthly interest charges after some few years. This is an ideal choice for those who can’t raise enough money initially but can do that in future, or people who wish to sell the acquired property after a few years.
Home-ownership can also be financed by construction loans. This is ideal for persons thinking of constructing their dream homes themselves as opposed to buying those that are already built. To make this an option, you can seek mortgage loan on the side to help pay back the construction loan. Similarly, you can take a mortgage loan to finance the construction. However, opting for the construction loan will lead to payment of large sums as down payment.
While the above are the main ones, there are many other types of loans to finance home ownership. All the different types have varying characteristics that make them different. Your needs will determine the best option to choose. If you have difficulty determining the ideal choice for you, a mortgage broker Southend will guide you through