When it comes to offering loans to potential homeowners, mortgage companies have a variety of options. Interest rates and terms vary according to the type of loan and each has its own unique set of requirements for approval. Consumers should research all the various types to have a clear idea of which loan is the best for them.
A fixed rate loan offers terms with a consistent interest rate for the life of the loan. The borrower pays equal monthly payments for the entire term with interest payments front-loaded. This means that over the first few years, a smaller portion of the monthly payment is applied toward the principal. Homeowners have an easy time budgeting for this type of loan but if interest rates fall, they are stuck with the higher rate.
An adjustable rate loan is more difficult to plan for but frequently offers a lower interest rate up front. This rate fluctuates throughout the life of the loan based on an index determined by how much the lender is paying to borrow funds on credit markets. When the interest rate increases for the lender, that increase affects the consumer's rate. Borrowers have some protection with a cap on how much the total can change.
Many consumers who are buying their first home opt to apply for a Federal Housing Administration loan. These mortgages offer an easier path to approval. Borrowers receive low down payments and lower closing costs. FHA loan amounts are typically limited.
VA loans are guaranteed for veterans, surviving spouses, and active duty personnel. Borrowers can receive competitive rates and low down payments. Like an FHA loan, loan sizes are limited.
Additional options include balloon mortgages, reverse mortgages, and interest only loans. Experts working for mortgage companies can offer more information about loans and the various criteria and terms. Consumers can speak to these professionals about their options and decide what type of mortgage best suits their individual needs.
A fixed rate loan offers terms with a consistent interest rate for the life of the loan. The borrower pays equal monthly payments for the entire term with interest payments front-loaded. This means that over the first few years, a smaller portion of the monthly payment is applied toward the principal. Homeowners have an easy time budgeting for this type of loan but if interest rates fall, they are stuck with the higher rate.
An adjustable rate loan is more difficult to plan for but frequently offers a lower interest rate up front. This rate fluctuates throughout the life of the loan based on an index determined by how much the lender is paying to borrow funds on credit markets. When the interest rate increases for the lender, that increase affects the consumer's rate. Borrowers have some protection with a cap on how much the total can change.
Many consumers who are buying their first home opt to apply for a Federal Housing Administration loan. These mortgages offer an easier path to approval. Borrowers receive low down payments and lower closing costs. FHA loan amounts are typically limited.
VA loans are guaranteed for veterans, surviving spouses, and active duty personnel. Borrowers can receive competitive rates and low down payments. Like an FHA loan, loan sizes are limited.
Additional options include balloon mortgages, reverse mortgages, and interest only loans. Experts working for mortgage companies can offer more information about loans and the various criteria and terms. Consumers can speak to these professionals about their options and decide what type of mortgage best suits their individual needs.
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