Know About Payment & Loan Options For Mortgages
Buying a house is both exciting and tiresome. There is meticulous research involved, and once you find the right home, it comes down to determining the right loan plan that does not hit your pockets. Choosing an accurate mortgage is not as complicated as it sounds. Once you have done a thorough homework on your budget and down payment, evaluate your credit, you know where you stand and which finance plan you should choose. It is better to be safe than sorry. Doing airtight research on different kinds of loan types will help you understand the best loan plan suited for your financial situation.
There are myriad of loan options available. Let’s delve into the details and explore our options.
1. Conventional Mortgage
Fixed-rate mortgage or conventional mortgage is the most feasible and recommended option for home buyers. The interest rate is fixed due to which the monthly payment is made easy. The payments are spread over 15 to 30 years. The shorter the period, the lesser is the interest rate. Although the monthly payment will be on the higher side. It is easier to get your desired term and adjust your mortgage payment by refinancing your loan.
The downside is, conventional loans are not backed by the federal government or do they have any mortgage insurance available. You will have no other option but make the monthly payments without fail.
2. Adjustable-Rate Mortgage
As the name suggests, the interest rate is adjustable and it depends on the economic inconstancy. This can be more expensive compared to conventional loans. The interest rate is set to low originally for a definite period of time, but as the interest rate spike up, often occurs every month, the mortgage payment is tailored depending on the market rate. Initially, you might pay a smaller amount but, the payments get surprisingly high moving forward. The loan duration is either one, five or, seven years period. This is an option for new home buyers whose monthly income might go high over a period of time.
3. FHA Loans
Federal Housing Administration, are endorsed by the government. They also offer mortgage insurance to the loans. The most attractive thing about FHA loans is that the loan approval scrutiny is very minimal. You can become a homeowner even with tainted credit or with low incomes and fewer cash savings. All FHA loans require the borrower to pay two mortgage insurance premiums: Upfront mortgage insurance premium and annual mortgage insurance premium. The insurance premium cannot be terminated at any stage. The closing cost of the FHA loans is only up to 3 to 5 per cent.
4. Interest-only Mortgage
Interest-only payments are another choice. This enables a borrower to only repay interest for an established period, usually 5-7 years. As a result, you’ll have a smaller monthly payment. After this time, you’ll then need to pay a lump sum, refinance your home, or begin making payments on the principal amount of your mortgage loan. You may find yourself in a difficult situation once the interest-only payment option runs out, as your mortgage payments will significantly increase.
Understandably, the first time home buyers go through a difficult experience determining which loan options might accommodate their financial status at best. It is always better to assess your current financial status and then do a comprehensive study on all the alternatives available in the market. Once you know where you stand, get your papers and finances sorted and go ahead with buying your dream house.