Mortgage Loans 101: The Different Types Of Loans You Should Know About
Loans are simple and complicated at the same time. If you understand how they work then good for you, but if it is your first time to take on a particular type of loan, you have to be careful. Many lenders in the past suffered severe losses due to these loans. They either end up defaulting on their loans, or they end up paying significantly high amounts their entire lives. You don’t want them to happen to you because it comes with a lot of stress and headache.
A mortgage loan is one of the most popular types of loan in the United States. More than ninety percent of homeowners use financing for their homes. It is only for that reason that the rate of homeowners increased in the country. Before 1930, only ten percent of Americans own their homes. Most are either renting a house or renting an apartment since there were no home loans back then.
These days, there are hundreds of Texas mortgage loans you can take advantage of so you can have your own home. However, we advise the utmost caution in taking out one. The best thing you can do before making decisions is to ensure that you know the basics or at least the different types of mortgage loans since they can significantly help you make the right decisions.
Adjustable Rate Loans
Adjustable rate mortgage loans, better known as ARMs, offer an adjustable interest rate as well as monthly amortization. This option means your interest rate is varying every time. Thus, it could go higher or lower and so are your payments. You are lucky if the price goes down as you will have lower payments. However, most consider this as risky.
Fixed Rate Loans
Fixed rate loans are for individuals who prefer no change throughout the payment period. Through this type, your interest rate is fixed for the entire term of the loan. It is also the same for your monthly payment. You will pay a reasonable amount from your first payment to your last payment. Thus, you are spared of any worries that it could go up anytime.
A Good read: Mortgages: Fixed Rate vs. Adjustable Rate
Government-insured loans come with many different perks and benefits. Among them are a low down payment, low interest rates, and flexible repayment terms. Here are the two most popular type of government-insured loan.
The Federal Housing Administration guarantees the FHA loan. It often requires a down payment for as low as 3.5 percent. It also has a flat interest rate. But it is difficult to get approved on this government-insured loan.
VA loans are offered by the Department of Veterans Affairs and are exclusive for military personnel and their family members. However, if you qualify, then it is one of the best types of mortgage loan you can have. You can avail of no down payment for some lenders and others; they offer as low as three percent of the total cost only.
Conventional loans are standard loans and are often easy to get as compared to government loans. However, they usually have a high down payment requirement, high-interest rates, and onerous terms too.