Loan Types to Consider
As the old saying goes “When in Rome, do as the Romans do.” Thus brushing up on your loan type terminology before sitting down with your loan officer could be a good idea. The goal is not to impress the loan officer, but in my opinion, it is just a good idea to let the loan officer know, you have some knowledge of the types of loans offered in the market place and you understand some of the mortgage terms. Remember knowledge is power.
1) The longer the term, generally, means lower principle and interest payments.
2) Most fixed rate loans are offer in 15, 20 and 30 year terms, but loan officers will work with you. So ask them to suit your needs.
3) Fixed rated loans. Here you can lock in your rate, which in turn, this affords you the comfort of knowing what your P & I (principle and interest) payment will be each month. This will help managing your monthly budget. If you are satisfied with the rate offered by your loan officer lock it in for the long term. Fixed rates are the best when interest rates are low and one might think interest rates are heading higher, which is a general feeling the market is displaying at the time of this article.
4) ARMs - Adjustable-rate mortgage. Normally set at five years, but loan officers can adjust the loan period to suit your need, to say 3 or 7 years for examples.
5) Advantages of an ARM. A) If you think rates may drop in the coming years. B) The first year, sometimes the second, offer a lower interest rate, thus bringing your monthly P&I payment lower. C) You expect an influx of cash to be coming in before the maturity of your loan and you will be able to pay it off in full.
6) ARMs usually have a limited of adjustment over the life of the loan, plus a yearly limit. A good general measurement would be if the ARM could not be adjusted up more than 2% a year and no more than 6% over the life of the ARM.
7) Balloon Mortgage. Normally offered in three to seven year terms. The balloon mortgage gives you a low monthly payment, most times, in which you pay interest only. As like the ARM, the balloon mortgage can be your best fit, if you only need the money short term. One example would be if you expect to sell your home in a few years and the market it in place for this to happen.
8) Government Loans. Loans from the VA (Department of Veteran Affairs) or the FHA (Federal Housing Administration). These loans offer special terms, such as reduced interest rates and lower down payment. Like all loans there are qualifications you will have to meet.
