When it comes to mortgages, there are many different types to choose from, and understanding how each one works is essential when deciding which mortgage is right for you.
Common Types of Mortgages
Let’s look at some common types of mortgages that you may want to consider. Home loans are available from any lender, but sorting through the current deals available is an arduous and detailed task, in which case it’s highly recommended to consult and make use of a mortgage broker, who specialise in working with lenders and submitting your application.
Fixed-rate Mortgage
A fixed-rate mortgage offers a set interest rate and payment amount for the entire term of the loan, typically 15 or 30 years. This type of loan is generally seen as a safe option since you will always know your monthly payments, making it easier to plan financially.
Adjustable-rate Mortgage
An adjustable-rate mortgage (ARM) starts with a lower interest rate than fixed-rate mortgages, but the rate may change over time. ARM rates can be fixed for a certain number of years before adjusting to the current market conditions, which makes them appealing if you plan on selling your home or refinancing before the rate changes.
FHA Loan
A Federal Housing Administration (FHA) loan is a popular option for some borrowers due to its low down payment and flexible credit requirements. An FHA loan may also involve lower closing costs than other types of mortgages, making it an attractive choice for first-time homebuyers.
VA Loan
A VA loan is available to eligible active-duty military members, veterans, and their spouses with no down payment or private mortgage insurance (PMI). These loans also have more lenient credit requirements, making them an excellent option for those who may not otherwise qualify for a traditional mortgage loan.
USDA Loan
A United States Department of Agriculture (USDA) loan is available to home-buyers in some rural regions with a no down payment option and lenient credit requirements. It’s important to note that these loans are subject to income eligibility requirements and geographic restrictions.
Merits And Demerits Of Mortgages
No matter what type of mortgage you choose, it’s essential to consider the merits and demerits of mortgages before taking on any loan.
The merits include the following:
- Predictable monthly payments
- Opportunity to build equity in your home over time
- Tax deductions for some interest paid
- Easy to repay the loan
The demerits include:
- You have to pay the debt within a given period
- Mortgage loans are secured, so if you fail to repay the debt, you might end up losing your home
- Mortgage comes up with various extra fees and interest rates
- Interest rates may increase or decrease every month
- If you fail to pay back the mortgages, your home will be repossessed
Although, these disadvantages appear scary. But you can’t neglect plenty of advantages that come with mortgage loans. If you want to own a home without having to consider saving a big lump some money, mortgages can be a great help.
Conclusion
By understanding the different types of mortgages available, you can decide which one is best for your needs. It’s important to discuss all of your options with a qualified mortgage lender before making any decisions. They can help you find the right loan and ensure you understand how each type works so you can feel confident in your choice.