- Fixed Rate Mortgage
A 30-year mortgage with a fixed interest rate. If you choose this loan, you agree to pay the debt back through monthly payments spread over 360 months or 30 years. The interest rates remain the same throughout the pay back period. The advantage of fixed rate
mortgages is that they present predictable housing costs for the life of the loan.
- 30-Year Fixed Rate Mortgages
- 15-year Fixed Rate Mortgages
- Biweekly Mortgages
- Convertible Mortgages
- Adjustable Rate
Developed during a time of high interest rates which kept many people out of the housing market, the ARM
offers lower initial rates by sharing the future risk of higher rates between borrower and lender. The
interest rate is often less than that found with a fixed rate loan, but you run the risk of the rate increasing
if the cost of borrowing money goes up. Because payments and interest rates can increase, homebuyers considering this type of mortgage need to have the income to keep up with all possible rate and/or payment changes.
- Reverse Annuity Mortgage (RAM)
Also known as "Reverse Mortgage" and "Senior Mortgage", this mortgage is popular among
many older Americans, especially retirees living on fixed incomes, the equity in their paid-for or almost-paid-for
home represents a large but liquid asset. The RAM is designed to help supplement those homeowners' income.
The lender who will issue a RAM appraises the property and makes the loan based on a percentage of its current value. The homeowner retains ownership, and the property secures the loan. The lender then pays an annuity to the borrower, usually on a monthly basis, up to an amount equal to the equity they have in the home.
The advantage of this loan is that of receiving a monthly tax-free income. This income may be available for life or until the house is sold. The schedule of payments depends on the value of the home and the ages of the owners. There are risks involved with
this type of loan. If the homeowner wants to move and buy a new house, there may not be enough equity in the home to sell it for more than what is owed on the RAM. Or the lender may consider only the current market value of the home rather than any future appreciation when deciding on the monthly payments to the homeowner.
- FHA/VA Mortgages
The Federal Housing Administration (FHA) and the Veterans Administration (VA) offer a wide range of mortgage choices. These include 30 and 15 year fixed- rate mortgages, as well as ARMs. Insured by these government agencies, the loans feature low or no down payment terms and are often assumable by future purchasers. VA loans are restricted to individuals qualified by military service
or other entitlements, but FHA - insured loans are open to all qualified home purchasers. A disadvantage
is the home requirements that must be met are much stricter for this type of loan. And since FHA mortgages
are insured by the Federal Government, they require the payment of an insurance similar to PMI to be paid
which can increase the cost of the monthly payment significantly.
- Interest Only Loan
With this loan, you only make payments on the interest charges each month on the loan. After a set time,
such as five years, you are then required to pay back the principal in full, often by selling or refinancing.
The purpose of this loan is it allows you to qualify for larger mortgages by setting up smaller monthly
payments. The disadvantage is you never pay down the mortgage you owe. And when the loan comes due, you
could be in some serious trouble if you do not have the money to repay the loan. So, why would people
want such a mortgage? They are hoping that the home they are buying will appreciate enough to create a
profit on the home.
- 2nd Mortgage Loan
A Second Mortgage Loan is simply another mortgage on your home – a loan secured against the property.
The term “second” indicates that the loan does not have priority over the 1st mortgage in
case you default. Instead, your first mortgage has priority and would be paid before any funds go toward
the second mortgage. The biggest disadvantage with having a 2nd mortgage is that you are risking your
home and reducing your invested equity in your home. This is a serious risk. If you can’t pay the
loan back, you take a serious risk in losing your home in foreclosure.
Second mortgages have slightly higher rates than first mortgage rates. This is because in the event of a default, the second mortgage won’t be paid until the first one is paid back. However, the rate is usually lower than alternative sources
such as credit cards.
Second mortgages may also have hefty fees. There will usually be a lot of paperwork and fees to go along with it. A 2nd mortgage may not be feasible simply because of the fees.